The rise in NPA is because there is some stress in bigger accounts, which we did not see earlier. It is nice that banks have made recovery process robust and are taking legal action.
Net NPAs as a percentage of loans may not be a good yardstick to judge a bank’s health as it can always make hefty provisions to bring it down.
Management of NPA is need of the hour. To be effective, Banks need to keep in mind the following tips.
Tips for Best NPA Management
1] It is compulsory to form Recovery Team at each branch consisting of staff members conversant with the borrowers and their villages.
2] Each Branch should have area wise/village wise list of NPA borrowers, so that follow-up becomes easier as lot of time can be saved in visiting places time and again. This will help in contacting maximum borrowers in a single visit.
3] Staff meetings should be held on monthly basis regularly and prevailing NPA level of the branch should be discussed. The reduction in NPA achievements and [progress should be reviewed in such meetings. Individual contribution of employees in reducing the NPA should be taken note of and appreciated.
4] Defaulting borrower’s names under various sponsored programmes should be conveyed to sponsoring agencies for mustering their help for recovery.
5] For early repayment of overdues, local pressures may be brought on borrowers. To pressurize the defaulters, influential personalities in the borrowers’ village should be contacted.
6] A close rapport with government officials should be maintained and their assistance sought for recovery.
7] A recovery climate should be crated by arranging village meets at frequent intervals.
8] Care should be taken to update the records of borrowers as soon as inspections are undertaken.
9] Regular inspections are necessary in suit filed accounts as there is every chance that the borrower may dispose of the assets with the sole intention to defeat the execution of decree and attachment of assets.
10] A close rapport and follow up should be maintained with the branch advocate in respect of quick disposal of suits. Execution of decrees should be hastened through branch advocates.
11] A close and constant rapport needs to be maintained with the guarantors and their assistance should be sought for early regularization of the account.
12] In the cases, where accounts are overdue, sticky and security being weak rendering recovery impossible in the normal course through attachment, reasonable compromise with bare minimum sacrifice should be considered giving top priority.
13] When there are no chances of recovery, write-off of sticky and bad debts it should be undertaken on priority basis after availing DICGC claims.
14] It is to be remembered that recovery process is an ongoing concept and constant persuasion only can bring fruitful results.
Conclusion
The performance of a bank is inextricably linked with its asset quality. Managing the loan portfolio to minimise bad loans is, therefore, fundamentally important for a financial institution in today’s extremely competitive and market driven business environment.
(The views expressed by the author in the article are his/her own.)
