Page 221 - DCOM208_BANKING_THEORY_AND_PRACTICE

Banking Theory and Practice

Notes compromise can be worked out. Freedom to sue discretion for compromises and encouragement
to it would go a long way in containing NPAs and nipping in the bud the potential court cases.
It is because of these reasons that the RBI has recently come out with a one-time measure—
Settlement Advisory Committees (SACs)—to promote compromise settlement in small sector.
However, unless there is an appreciation of the fact that compromise settlement is an effective
and accepted non-legal remedy for recovery in chronic NPA accounts, the scheme is not likely to
make much headway. The success of the schemes, as such, depends on the banker’s perception
about compromise settlements. There is a need to impart necessary knowledge with a view to
sharpening negotiating skills and reorienting attitudes of the employees.

The above internal arrangements will have to be supported externally by a proper legal
framework where under quick action against a defaulting borrower could be taken. Though
there are problems in affecting recoveries and write offs, it is of utmost importance that necessary
changes are brought about in the related legislations for making recovery process more smooth
and less time consuming.
DRATs, as stated earlier, have so far failed to achieve their stipulated objective of expeditious
disposal of cases because of several factors. Apart from setting up more DRTs and Debt Recovery
Appellate Tribunals (DRATs) and equipping them with proper and adequate infrastructure and
manpower support, there is a need to empower DRTs with a view to preventing the defaulters
from stripping away the assets/securities during the pendency of cases. Suitable amendments in
the Act/Rules should be made at the earliest.

For expeditious disposal of cases, DRTs should categorize borrowers on the basis of SWOT
analysis into chronic wilful defaulters with securities/assets, non-wilful defaulters with
securities/assets and defaulter without securities and prioritize them for action purpose.
In a landmark judgement pronounced on May 18, 2006, the Supreme Court of India observed
that despite writing off, the debt is still recoverable by the bank. It is not true either in fact or in
law that bad debts, which are written off cannot be recovered. The case relates to the Development
and Credit Bank Ltd. (DCBL) deciding to write off from the financial records, debts that had
turned into NPA over the years amounting to ` 120 crore. DCBL’s Board of Directors and the
principal shareholders of the Bank in France approved this decision and the RBI approved this
decision in March, 2003. However, the decision was challenged by one of the shareholders and
hence the Supreme Court verdict.

Self Assessment

Fill in the blanks:

14. The loan review mechanism is to be adopted as a tool to bring about improvements in
...................................
15. ................................... among banks would be of immense help to avoid possible NPAs.

16. ................................... acts as a trigger for a hierarchy of predetermined actions

13.7 Steps taken by the Government and the RBI on NPAs

From the regulator’s perspective, there are four steps to the management of NPAs, viz; assessment,
provisioning, recovery and prevention of fresh NPAs. The recent initiatives in management of
NPAs are related in greater measure to the third and fourth aspects, viz; recovery and prevention
aspects although norms relating to the first and second aspects have been progressively tightened
to bring them at par with international best practices. Major steps taken in recent years by the
Government/RBI to contain NPAs are:

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