The greatest crisis that the banks and financial institutions face now is the
recovery of debts and the unabated increase in Nonperforming Assets which affect
the performance of the banks and financial institutions and the economy of the
In spite of the government enacting legislation for the recovery debts
equipping the banks and financial institutions with more stringent powers, there
is no appreciable reduction in the quantum of NPAs. The economy is showing a
tendency towards recession and the precarious liquidity problems being faced by
the banks and financial institutions, unless drastic remedial steps are taken,
the probability of a Lehman Bros like calamity occurring cannot be ruled out.
What ails the current approach to recovery of debts? If a pragmatic and
practical retrospective analysis of the recovery process so far undertaken by
the banks and financial institutions, if viewed dispassionately and diligently,
would reveal the focus was and is on the symptoms and not on the deep routed
disease. The process presently adopted would never yield any appreciable
Any recovery proceedings undertaken should take into account the overall impact
it creates on the economy of the nation and the affliction imposed on the
industry and the connected people and not merely on the recovery of debt.
pertinent questions are:
(1) Will the recovery of debt as being pursued now
really ease the liquidity problem faced by the bank and financial institution?
(2) Will it not adversely affect the overall development of the economy and GDP
of the nation?
The questions raised are answered as under:
The latest data released by Insolvency and Bankruptcy Board of India as reported
in the print media states that “fewer cases were admitted for insolvency action
in Q1 out of which only 14% realised by Creditors and 55% ended in liquidation”.
Besides, “what is also worrisome is that in 20 cases during April and June
quarter where a resolution could be achieved, financial creditors managed to
realise only 14% of their claims, which in other words means that they had to
sacrifice 86% of the loan claims that had been admitted”. The result shows that
neither the lenders nor the borrowers gained anything out of approaching NCLT
and both of them were left on the lurch and that too after protracted legal
The obvious question is, Is it worthwhile to take recourse to
legal remedies to recover the loans?
Why this unending dilemma persists in the banking field? The focus of banks and
financial institutions is only on the recovery of debt forgetting the fact that
restructuring / rehabilitation is also one of the positive means of recovery.
But it takes more time, patience and perseverance and also required knowledge,
capacity and capability to efficiently implement an effective credit monitoring
system and procedures and most importantly a knowledgeable workforce who can
implement the process of recovery of debt diligently. Above all it also needs
induction of more funds to successfully run the business. The fear of the
uncertainty regarding its success and the consequences of failure of such
remedial actions always linger in the minds of the decision-making executives
and implementing employees. The human tendency is to take the path least
resistance and the banks and financial institutions prefer to take the path of
recovery through the legal means so that they can avoid or evade their efforts
and responsibilities involved in restructuring / rehabilitation schemes.
Yet another form of recovery is to go for One Time Settlement (OTS). But the
truth is that it mostly is a one-way traffic and the borrower does not have any
say in the matter of settlement and in most of the cases the offer by the bank
is not an affordable choice for the borrower, the main reason being the value of
The Nonperforming Assets (NPA) can be classified in to three categories via.
(2) Acquire NPA status and
(3) NPA status forced on it.
The scope of
this article does not include a study on these aspects. But it plays an
important role in finding solutions to the management of Nonperforming Assets (NPA).
Any NPA resolution undertaken should ensure the equitable sharing of its
benefits between the lender and the borrower to create a win-win situation so
that the value of assets is not eroded any further. On the contrary it should
be the foundation for creating wealth on the assets to optimise its value in the
days to come.
The optimal recovery of debt can be achieved through the concept of Recovery
with a human touch.
The basic principles of Recovery with a human touch are
(i) Understanding is the first step to acceptance, and only with
acceptance can there be recovery.
(ii) “Generally, the NPA is more likely to be resolved in terms of
recovery if the company is in operation.” (RBI)
(iii) Recovery should be based on ‘bonding’ and not ‘binding’ between
the lender and the borrower.
(iv) It is the process of recovery without jeopardizing the interests
of the lender and the borrower with affordable sacrifices from both the sides
depending upon the circumstances that led to the creation of NPA.
(v) The basic rule is to fix the problems and find solutions and
not fix responsibility and accountability and punish.
(vi) it takes considerable time to build and it takes no time to
destroy. Hence, recovery process should facilitate construction and not
(vii) The interests of the lender and the borrower are complimentary to
each other and not contradictory and should serve mutual benefits and also
(viii) Revival and rehabilitation take precedence over recovery. (Supreme
Court of India)
(ix) Constitutional rights of the citizens particularly under Article
14 and Article 21 are to be protected. Apart from Constitutional rights, the
principles of natural justice also are to be upheld since the Tribunals are
governed by principle of natural justice as enshrined under section 17 (7) of
SARFAESI Act read along with section 22 of RDB Act.
(Availing a debt from the banks and financial institutions becomes a debt trap
for the borrower and the classical example is the suicide of CAFÉ Coffee Day
chief V. G. Siddhartha).
(x) Judicial implicit bias and prejudices should be removed.
(xi) Adherence to Banking Codes and Standards as announced by Banking
Codes and Standards Board of India and adopted by banks and bank’s commitment to
MSE sector in the case of accounts coming under MSE category
(xii) Compliance of RBI guidelines and provisions of the various
Recovery Acts and also the provisions of MSME Development Act, 2006.
(xiii) Expediency should not be a policy to declare the borrower as wilful
(xiv) Arbitrary and unilateral assignment of debt to Asset Reconstruction
/ Securitisation Company without the consent of the borrower cannot be pursued
by the banks and financial institutions.
Every practical and implementable aspects of the principles of Recovery with a
Human Touch has a bearing to the outcome of the recovery process affecting both
the lender and the borrower and also the economy of the nation and if understood
and carried out with their correct perspectives and purposefully, it will
definitely lead to better realisation of recovery of debt without harming the
interests of the lender and the borrower creating mutual respect and
appreciation from both sides creating a congenial environment to augment
The feeling of alienation and animosity being felt between the lender and the
borrower which has been developed on account of lack of understanding of the
importance of the close inter-connectedness between the lender and the borrower,
should be removed for the veritable realization of the objectives of Recovery
with a Human Touch.
It is imperative and inevitable need that the executives
and employees of lenders are to be sensitized to understand the problems and
predicaments faced by the borrowers who mostly are honest and trustworthy but
have become defaulters due to circumstances beyond their control and who are
also ready to settle the matters amicably but find no way to raise required
funds at affordable cost and repayment time to fulfill their commitments. The
lenders should reorient their approach to the challenge of tackling and taming
the menace of NPA with true grit for which the following qualities are to be
# Rebuilding trust and understanding by reinventing and refocusing on the
customer relationship, paying particular attention to their genuine problems and
predicaments with clarity on the remedial actions being undertaken, transparency
of pricing and educating the borrower on good governance and to help the
borrower to implement any of the recovery methods to settle amicably the
recovery of debt.
# Focusing on customer loyalty by finding solutions to the problems of the
customer, responding promptly to their complaints and offer them with an
exemplary customer service which will make recovery more effective. A loyal
customer will not ditch the bank / financial institution.
# Enhance the customer experience – by investing in branches, delivering
personal attention across channels and combining customer insights with
technology to improve offerings and practicing transparency in their dealings
and fulfilling their commitments to the borrowers coming under priority sector.
Legal proceedings to recover the loan should be the last resort when all other
means fail including multiple rehabilitation / restructuring.
Ultimately what is required is quality leadership in banks and financial
institutions to implement a robust recovery plan of action with compassion and
empathy for the Recovery of Debts with a Human Touch.
Leadership is pivotal to produce the results and it is turning a vision into a
mission to achieve success by planning to do the right things and doing the
things right. The quality of leadership is the ability to recognize a problem
before it becomes an emergency and lies in guiding others to success by ensuring
that everyone is performing at their best, doing the work they are pledged to do
and doing it well.
Experience is not what happens to a man. It is what a man
does with what happens to him.
"Besides, The ultimate measure of a man is not
where he stands in moments of comfort and convenience, but where he stands in
times of challenge and controversy.
It takes another thorough and intense study to understand the importance and the
impact of introducing Recovery with a Human Touch and also the effect of
non-implementation of the concept and how it affects the human lives and
national interest. That is another chapter.
Written by: T. R. Radhakrishnan, The author invites comments from
readers. He can be contacted through his mobile 9229248048 or E-mail; [email protected]