Credit Management/Delinquency Management
The success of a bank crucially depends how it manages its Asset Portfolio as it is the major source of income to the Bank. Managing credit risk plays an important role and its effectiveness lies in an efficient recovery and exit strategy. Timely follow up is the key to keep the quality of assets intact and enables the banks to recover the interest/installments in time. To have better control on the assets created out of borrowings, banks need to watch the functioning of the units by paying frequent visits and this is to be done to all the units irrespective whether the account is performing or non-performing one. Thus, Banks should focus attention on:
Awareness Calling – When the first payment is due, a call is initiated to make him aware of the date of payment of installments/dues. This can be done either by the branch or by call centre.
Reminder Call – When the demand is not paid, a reminder call may be made with a request to make payment of the dues and note the response or commitment. Repeat calls are made if the borrower fails to honor his promises.
Demand Notice – In case where there is n response to the calls, a written communication is issued to the borrower informing him the status of the account and advising him to pay the dues. Banks can also make use of technology and notice may be sent through SMS or E-mail.
Field Visits – It involves paying visits to borrower’s office or residence either by bank staff or its agents to appraise the position of the dues and need for repayment. Continuous persuasion definitely yields positive results. These visits also enable the banks to assess the functioning of the activity and quality of the assets. If they found that the financial position of the borrower is deteriorated, bank may strike a compromise deal to recover the dues.
Disposal of Assets – In the event of failure of the borrower to repay the dues despite the said initiatives, the bank need to proceed to take possession of the assets including collateral duly invoking SARFEASI or through approaching Court / DRT. Repossession and sale of assets can be done by issuing Recall Notice, Prepossession intimation, Letter of peaceful surrender of the asset, Record of inventory and notarization, Pre-sale notice to borrower and Auction of the asset.
Outsourcing of Banking Services – Of late, banks have been availing the third party services for recovery of dues. RBI has issued code of conduct to ensure that the customers are not harassed, their privacy is protected and the banks code of commitment to customers is not violated. Outsourcing agencies should be appointed only after proper due diligence with approved Board policy. Banks should publish the names of outsourcing agencies and the details are to be kept on Bank’s website for the benefit of the customers and general public. The agents appointed by the outsourcing agency are to be provided with authorization letters / identify cards. All agents should undergo a mandatory 100 hours training conducted by the Indian Institute of Banking and Finance (IIBF) and get themselves certified before sending them into field. Customers are to be contacted ordinarily at the place of his choice, whether office or residence at appropriate time. In appropriate occasions such as bereavement in the family or such other calamitous occasions are to be avoided for making calls or visits. Professional and formal language is to be used in all interactions with customers. Each bank should have a mechanism whereby the borrowers’ grievances with regard to the recovery process can be addressed. The details of the mechanism should also be furnished to the borrower while advising the details of the recovery agency. The Fair Practices Code for Lenders and the Code of Commitment to Customers must be adhered to strictly.