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Friday, May 31, 2013

Central Bank of India begins profiling defaulters

Central Bank of India has kicked-off an exercise to profile its defaulting borrowers. This move is aimed at assessing whether the defaulters are amiable to repay their overdue debt or should be proceeded against under the recovery law.

In short, the public sector bank is attempting to separate the wheat from the chaff in order to recover the loans that have turned sour.

Profiling of defaulters assumes urgency as the bank’s bad loans increased by 16 per cent year-on-year to Rs 8,456 crore as at March-end 2013.

The field staff have been asked to complete the profiling exercise by June-end so that appropriate action, for either reviving the borrower’s enterprise or initiating recovery proceedings, can be taken, said a top official.

The bank wants granular information, among others, pertaining to the viability of the defaulting borrower’s business and the value of the collateral in hand.

In the current financial year, the bank is seeking to bring down its bad loans pile from Rs 8,456 crore as at March-end 2013 to about Rs 8,000 crore (after taking into account fresh slippages during the course of the year).

Genuine cases

In case a defaulting borrower is facing genuine difficulty in keeping his enterprise afloat, either due to electricity crunch or short-supply of raw materials or lack of demand for finished goods, the bank is willing to extend fresh loan to help effect a turnaround in its fortunes.

However, fresh loan will be offered by the bank only if the borrower is able to stump up margin either on his own or gets a private equity/ strategic investor to do so.

In case a defaulting borrower wants to reach an amicable settlement with the bank and close the loan account, the bank will offer a one-time settlement. Depending on the realisable value of the security pledged with it, the sacrifice/write-off to be made by the bank on the loan outstanding is arrived at. The sacrifice/write-off will be kept at the minimum.

The bank has increased the frequency for organising loan recovery camps from once a month to twice a month at the zonal and regional office levels, said the bank official.

Wilful defaulters

If a borrower has wilfully defaulted on his loan and has no intention to pay back then the bank will turn up the heat. It will proceed against the borrower simultaneously under the SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Act) and the Debt Recovery Tribunal.

Keeping up pressure on two fronts — SARFAESI Act and DRT — could possibly get the defaulter to the negotiating table.

Written-off accounts

Central Bank of India has appointed a general manager solely to effect recoveries from written-off accounts. The outstanding in written-off accounts amounts to Rs 2,400 crore.

Banks’ write-off bad debt when it is considered non-collectable and they have set aside capital to cover the loan loss. When they make recoveries in such cases, it finds a positive reflection on the bank’s bottomline.

Source: thehindubusinessline


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