MUMBAI, Aug 11: The State Bank of India has unveiled before the Parliamentary standing committee on finance a comprehensive NPA management policy which involves proactive initiatives to prevent the generation of fresh non-performing assets (NPAs). The aim of the policy is to contain net NPAs to less than 5 per cent of the bank's total loan assets in conformity with the international standard. The policy basically concerns itself with the management of NPAs in the banks' domestic offices.
The main focus of the NPA management will be possible upgradation of the loan by rehabilitation of the borrowers' business. The policy lays down a broad approach, including critical parameters to be taken into account, for recovery of loans through compromise settlements. A rehabilitation option will be examined in cases where there is prima facie scope for restoring viability of the business.
In case the borrower units are falling within the purview of the BIFR, the bank will consider the schemes framed by BIFR in linewith the above approach and the guidelines issued by the RBI from time to time. This approach, as opposed to calling up the loans, will generally be adopted provided the bank is satisfied that the loan has become an NPA due to factors other than the lack of integrity on the part of promoters and that there is a prima facie case for considering such an approach.
On guidelines for compromise settlements, the bank has said that it is not possible to lay down precise guidelines which can be followed uniformly in all compromise offers as each offer is unique in the context of circumstances necessitating its consideration as recovery option. However, the policy said that an initial deposit of at least 5 per cent of the outstandings will be taken from the borrower as evidence of the borrower's intention to pursue the compromise settlement with the bank. It will be the endeavour of the bank to get the entire compromise amount paid up in a lumpsum.
In cases where the amount is agreed to be recovered ininstalments, normally at least 40 per cent of the amount (inclusive of 5 per cent initial payment) would be payble upfront with the balance in instalments spread over a maximum period of 12 months. Interest at an agreed rate will be charged on the instalments due. The policy proposes a loan review mechanism to be triggered on detection of early warning signals to ensure an effective and expeditious response for corrections. For the purpose, the policy stipulates time-norms for analysis of problem loans and initiation of corrective action.
Apart from identification of NPAs, which is arrived at by following income recognition and asset classification norms prescribed by the RBI, the bank has opted for proactive management of the problem loan. The accounts exhibiting early warning signals of potentials credit risks will include transaction-related signals like persistent irregularity in accounts, defaults in repayment obligations, development of LC liabilities, invocation of guarantees, operating losses andactivity-related physical signals like rejection of products, some of the machines lying idle, number of shifts decreasing. The warning indicators generally emanate from the unit's financial problems, operation problems, market-related problems and problems arising out of regulatory changes.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.