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Asset Classification- 4
Bad Debt Recovery
The term recovery refers to the collection of over dues and
is recovered on installment basis depending on the nature of the business. The
policies for the recovery and collection do not allow following any method that
hurts the dignity and respect of the customer. The fair practices are followed
to collect the dues or repossession of the security and promote customer’s
confidence and the long-lasting relationship with the Bank/ NBFC. The
repossession of the security aims to recover the dues in case of any defaults
instead of any financial distress for the customer. The repossession only
happens after many attempts and discussions with the customer to resolve the
default situations. It’s an exception that the customer’s financed asset is
repossessed by the bank. This only happens if the customer violates any of the
terms and conditions of the loan agreement.
Authorized representatives of the lenders follow the
following set of rules for the collection process:
- Only the authorized people from the organization can follow up and
has to provide the identity at first. The authority letter has to be shown
by the Bank/ NBFC’s representative in the security’s repossession or the
collection of dues.
- The Bank/ NBFC respect the privacy of the borrower. While contacting
the borrower on phone or in-person for the recovery of the balance due,
the bank does not intrude the privacy of the borrower.
- The Bank/ NBFC ensure that communication either verbal or
written will be in a simple business language and the interaction is done
with civic manners.
- The timings are specified to
07.00 to 19.00 hours to contact the borrower unless the special
circumstances require the lender to contact the customer at a different
time.
- Borrower’s request to call at a different time is honored. If he
customer wishes he can be contacted at a different place of his choice
other than his/ her residence or the business place.
- The efforts made for recoveries are always documented along with the gist of interactions with the borrower.
- The assistance is given to resolve the disputes in a mutually acceptable
and orderly manner.
- Any inappropriate or other calamitous occasions are avoided for
making calls / the collection of dues.
The other processes followed by Banks and NBFC for collection
of dues is as under:-
Reminder notice/Dunning Letters
REASONING
During the initial days, the bank’s representatives follow up
through telephonic reminder calls or by visiting the customer’s residence or
business premises. The financial institution has given written notices to the
borrower informing them about the due EMI and requesting the borrower to clear
the dues. Without giving any written notice, the Bank/ NBFC do not
initiate any legal or any other recovery measure including the repossession of
the security. If the borrower is intentionally avoiding calls from the bank/ NBFC,
then the bank is free to move ahead with the repossession in case of secured
loans and legal proceeding of recoveries in case of Unsecured loans.
Repossession of the
mortgaged property
In case of secured loans, repossession of property is
done to recover the dues of the lender and not to hurt the borrower’s dignity
in any form. The recovery process involves the repossession, valuation of the
asset and realization of the outstanding amount by way of sale of the asset.
The repossession is done only after the final notice is sent to the borrower
and the process is done by keeping all legal formalities in mind. The Bank/
NBFC will ensure the safety and the security of the property possessed by the
Bank/ NBFC.
Valuation and
Sale of Property
Valuation of the property is done by all legal means and in a transparent manner. In case of a secured loan like Loan Against Property,
Home Loan
or mortgage, the value approved by the valuer of the company is conveyed to the
borrower before proceeding further for the sale. Even if the sale is being done
by the borrower then the sale bid should be higher to cover the due balance
amount of the loan. The Bank/ NBFC holds the right to recover any due amount
even after the sale of the property. Any excess amount is returned to the borrower
after clearing all the expenses.
Borrower’s opportunity to take
back the security
As discussed above that the repossession of the secured asset
is done only for the purpose to recover the due amount from the borrower and
not with a deprived intension. As per the agreement, the Bank/ NBFC will
willingly handover the possession to the borrower before finalizing any sale
transaction of the property. With the genuine reason of inability to repay the
installments within the scheduled time frame, the lender may consider to
handover the property within 7 days after receiving the installments. This is
only done if the lender is convinced with the arrangements and the borrower
ensure to repay the remaining amount in equal installments in the future.
Preventive Measures the Borrower
can request to avoid Collections and Recoveries
Intentionally no one delays payment or the EMI’s for few
months on a regular basis. There are circumstances of losing a job, high fees
for further education or any other emergency that eat up all your savings. But,
whatever the reasons may be, you can always opt for any of the following
options:
Payment Holiday
The borrower can always ask the Bank/ NBFC to provide him for
a EMI holiday for a few months. The inability to make regular payments can be due
to a job change or a temporary loss of business or employment. Though the
penalties are charged for the delayed payments but the lender does consider the
genuine reasons for the delays.
Reduction in EMI
If you are struggling with the EMI burden and want a
considerable reduction in monthly outflow, the borrower instead of defaulting on a loan can anytime request the lender to increase the loan tenor. This will
definitely reduce the EMI burden but you might end up paying a higher amount of
interest. Once your financial health stabilizes you can again increase the EMI
and end your loan on an early date.
Restructure of Loan
A relaxation in terms and conditions can always be requested
if the borrower is unable to maintain them. This can help the borrower to avail
reduced charges, lower interest rates, increased loan tenor, etc. this will not
only relax the borrower but also he will be able to maintain the regularity in
the repayments.
One Time Settlement of
loan
This option arises when the borrower is unable to pay the
loan to an extent where the interest charges are higher than the principal
amount. The Bank/ NBFC declare the loan as a nonperforming asset (NPA) and the
borrower as bankrupt. When the borrower is not in a condition to pay the loan
amount, he is allowed to settle the loan account by paying a one-time payment.
The only disadvantage of this option is that – it is reflected in your credit
report affecting your credit score and doubting your credibility in the future.
An opportunity is given to all the borrowers if they are facing any problem in repaying the EMI’s on time. They can approach the Bank/ NBFC and ask to restructure the loan to enable the smooth repayment process. The lending involves a lot of risks and if not handle with care can turn out to be an activity of loss for the Bank/ NBFC. Before lending, they have to be more cautious. Just a single missed an opportunity and it can bring huge losses for the Bank/ NBFC. The RBI guideline states that the Bank/ NBFC has to give a reasonable amount of time to pay the due amount. In case of any demise like death, serious ill-health or accident the Bank/ NBFC give a justified holiday to the customers and his family.
The Bank/ NBFC should always have a clear picture of your
financial health. They should be aware when you can resume your payments of
your loan. Do not avoid the follow-up messages or calls from the Bank/ NBFC and
instead take it as a priority. Pulling your hands from unnecessary expenses can
add a sum of amount to your savings and help to repay your debts on time. It’s
not only a moral obligation but also a legal responsibility to pay off your
loan dues completely and that too on time as agreed between the lender and the
borrower. Few easy ways can sort the situation temporarily but still, it is
important to ensure that you pay all your dues and your creditworthiness is
not harmed in any way.
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