Analysis of Debt Recovery Management

INTRODUCTION

1.1 Introduction

Banking sectors is one of the important sectors of any country. Development of this sector directly helps in the development of a country’s economy. It deals with money i.e. accepts deposits and advances loans. As it is a commercial organisation, its main aim is to earn profit. It earns profits by charging a certain percentage of interest on the loans provided to the borrowers. But many a times, banks face the problem of getting back the money which they had lent to their borrowers. This is a huge problem which Indian banks, particularly the public sector banks, are facing. The reasons behind this may vary for different financial institutions as it depends upon the nature of loans.

There was an increase in the Non-Performing Assets (NPAs) over a period of time as found in the records of various banks. Therefore, the researcher took up the task of studying the recovery management of a bank because it was seen that banks were never so serious in their efforts to ensure timely recovery and consequent reduction of NPAs as they are today. The researcher wanted to understand what took so long for banks to realize this and what measures the banks are taking to minimize their NPAs. It is important to remember that recovery management, be of fresh loans or old loans, is central to non-performance asset management.

Performance in terms of profitability is a benchmark for any business enterprise including the banking industry. However, increasing NPAs have a direct impact on banks profitability as legally banks are not allowed to book income on such accounts and at the same time banks are forced to make provision on such assets as per the Reserve Bank of India (RBI) guidelines. Further, Reserve Bank of India (RBI) successfully creates excess liquidity in the system through various rate cuts and banks fail to utilize this benefit to its advantage due to the fear of burgeoning non-performing assets.

Recovery Management is the acknowledgement that failures will occur regardless of how well the system is designed. The intent is to anticipate and minimize the impact of these failures through the implementation of predefined, pretested, documented recovery plans and procedures.

After referring various papers and journals, the researcher felt that recovery is a key to the stability of the banking sector. There should be no hesitation in stating that Indian banks have done a remarkable job in containment of Non-Performing Assets (NPA) considering the overall difficult environment.

Recovery management plays a very significant role in improving the recovery performance in respect of assets classified as performing assets. Performing assets are those assets which can be recovered in future. NPAs are those assets which cease to generate income of a bank. It can be due to borrower’s default or delay in interest or principal repayment.

Banks at present experience considerable difficulties in recovering loans and enforcement of securities charged with them. Debt collection costs money. It has been seen that the debt collection agencies do not deal with the customers in a courteous manner which has soured the relationship between the bank and the customers.

This research project gives an idea about the Debt recovery management. Debt Recovery is inseparable from Recovery Agents and Agencies so keeping in mind their vital role this projects highlights their duties and functions as well. The researcher has studied recovery management practices and appraise whether the measures were efficient in bringing down NPA of Vijaya Bank. Specifically, the researcher has investigated the role of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), Debt Recovery Tribunals and Lok Adalats in NPA recovery management.

1.2 Importance of the study

Recovery means to get our own thing back which we have given it to others. In banks, recovery means to get back the amount which they have given to the customers in the form of loans and advances. The main business of bank is through loans and advances. They accept deposits from the public and lend it to the needed customers in the form of loans and advances for which they (banks) charge interest from them.

Banks deserve to be paid for their products and services. Sometimes, a borrower may fail to repay his loan installment, which consists of certain percentage of interest and principal amount, to the bank. If the banks don’t get the installment in time, it will adversely affect the day to day banking business, which will ultimately lead to heavy losses.

The collection professionals in Recovery Management Systems will work to see that loans are recovered. A team of members are specially appointed mainly to see the recovery cases. They may adopt necessary measures to recover the amount that has been provided as loans and advances. Banks can recover their debts without losing any customer.

Every branch, be it rural, semi-urban, urban or metro tries to implement its objectives successfully to achieve its goal. They should utilize the opportunities available within their jurisdiction to achieve their business targets. This requires a carefully drawn planning and intelligence.

Thus, it is important to study the debt recovery management aspect of the bank to understand its collection process and to facilitate the bank for smooth functioning of its debt recovery management.

This research will be helpful to the professionals from the banking industry, the policymakers, the students of banking studies and people conducting research. Also banks can make use of the available study for analyzing debt recovery policies.

1.3 Scope of the study

This project report consists of a complete study of loan recovery management with respect to Vijaya Bank. The project is based on the data provided by Mysore Regional Office of Vijaya Bank. The scope of this study includes:

• An introduction to banking system in India

• An introduction to Vijaya bank

• Analysis of recovery methodology

• Research and findings of analysis

• Necessary suggestions for the changes to be bought in recovery policies of Vijaya Bank.

1.4 Statement of the Problem

The recovery management plays a very significant role in improving the recovery performance in respect of assets classified as performing assets. Performing assets are those assets which can be recovered in the future. Non- Performing Assets are those assets wherein the borrower