Review of related literature
The present research deals with the identification of challenges faced by private banks in
Mumbai and recognise the contribution of recovery laws. The research also deals with evaluation
of regulatory guidelines in bank loan recovery process. Hence, considering the same, study of
literature has been undertaken by the researcher.
P.N.Joshi (2003), in his article of “Non-Performing Assets - Causes, Extent and Remedies”
has observed that conceptual irregularities in the guidelines issued by the Central Bank as the
NPA position in Indian Banking is exaggerated, although called non-performing assets (NPAs)
the ratio of non-performing credit is related to credit and not to assets.
Dr. N. M. Bachhawat (2001) in “Management of Non-Performing Assets in Commercial
Bank” has stated that the prudential norm of 90 days for classifying the A/C as NPA is very
much strict looking to the Indian conditions where whole of economy is still based on
Agriculture and field is based on Monsoon and which is uncertain and erratic, instead of this
Bank’s should recruit technical/ field officers for vigorous follow up and supervision of such
accounts. RBI should reassess to bring fresh policy for recruitment of field staff for follow-up
and supervision to control NPAs.
K.H.Vora (2007) in his study entitled “Management of Non-Performing Assets And Asset
Reconstruction Company” observed the impact of NPAs.The effect of NPA on the bank is such
that there is loss of interest income and the current profit is reduced, as banks have to make
provision for NPA. Further, Capital adequacy ratio is also affected as it is directly related to
thequality of assets.It also affects the liquidity position of bank as also recycling of fundsdue to
asset liability mismatch
H.V.Upadhyay (1994) in “Recovery through SEIZURE: Some Aspects”Want to say that the
legal actions involve takes high cost and long time. Even aftersettlement of the case, thedecree
has to be filed and executed periodically asper the term which is an unpleasant and difficult task.
This process also slowsdown the speed of follow up and results in lethargic attitude by banker.
Theadvocates also do not cooperate as much in execution of decree as theycooperate in filing of
suits,
A. Govil (2000), in his article “Need for Revival of Loss Making Branches”suggested asunder
:
a) Recovery management is useful when we are associated with lending for government
sponsored schemes,branches will have to insist on the government agencies to help in
theenforcement of recovery. In each meeting, we will have to reinforce ourpoint and invite their
involvement in recovery.
b) ABC analysis of the overdue by categorizing the quantum of overdue whereby more attention
can be paid on such chronic accounts. Segregation ofoverdue where the quantum of expected
recovery is high and the branch iswilling.
c) The recovery drive should be planned well in advance.
Dr.J.B.Kulkarni (2003), in “Management of Non-Performing Assets” observed that the non-
legal Recovery Measures include-
1. Reminders Visits and Personal contacts
2. Rehabilitation of sick units / replacement
3. Loan compromise and Recovery Camps
N.V. Darshan (2001), in “The Secret of Recovery” stated that the ‘Elusive’recovery thus forms
the core topic of this paper included :
i)Eliciting relevant / required information
ii) Maintain close rapport with the borrowers
iii) Databaseand ensuring end utilization
Dr.K.C.Chakraborty (2005) in “Management of NPAs Trends and Challenges” has written
that the banks have to face several challenges inmanaging NPAs. Besides ensuring better
scrutiny of the credit proposals beforesanction, banks need to watch closely and monitor the
assets from the selectionof borrowers.
K.Kannan (2001) “Creation of Performing Assets from NPA to PA” has highlighted the
expertise required and the mismatch of assets & liabilities, restrained banks from steaming
ahead.
Dr. Kumar M.K., Reddy C.M. and Muktha K.C. (2004) in their article “Causes of NPAs and
Remedial Measures” observed that the Bank’s bottom line improvement largely depends on
reduction in NPA and preventing NPAs would also help to improve the profitability of Banks.
Dr. P. Mohan Reddy and D. L. Narayana Reddy (2004), write in his paper that “Non-
Performing Assets in Regional Rural Banks: A Study of RayalaseemaGrameena Bank”
tries to analyze the status and trend of non-performing assets in ReyalseemaGrameen Bank
(RGB) through multidimensional classification of NPAs.
Sastry S.R. (1996) in “Recovery Management” writes that the Recoveries are an essential /
integral part of operations of all financial institutions, without which these get into liquidity
problems, as recycling of funds is adversely affected.
Sharma R. (2002) in “Non -Performing Assets” stated that the burden being immense, the
reduction of NPAs of the Banking sector should be treated as a national priority to make the
Banking system stronger, more resilient and geared to meet the challenges of globalization.The
thrust of the policies of theGovernment, RBI and the Banks should be on how best to tackle
existingNPAs, recovery of arrears, minimizing incidence of fresh NPAs, improving asset quality
and preventing deterioration of assets
Rajiv Ranjan and Sarat Chandra Dhal (2003) in “Non – Performing Loans and Term of
Credit of Public Sector Banks in India: Empirical Assessment, Reserve Bank of India” has
attempted an empirical analysis of the non-performing loans of public sector banks in India and
investigated theresponse of NPLs to terms of credit, bank size and macroeconomic condition.
The empirical analysis suggested that term of credit variable have significant effect on the bank’s
non-performing loans in the presence of bank size and macroeconomic shocks
Dr. M. Kiran Kumar, C.Munisekhar Reddy &K.C.Muktha(2004)in“Causes of NPAs and
Remedial Measures” observed that the recovery can be accelerated at a much faster pace
through effective Supervision, Follow up and Supervision of advances by bank officials
Adv. (Dr.) Santosh A. Shah (2003), in his study titled “Non-Performing Assets-Legal
Remedies” while doing Critical Analysis of the recovery of Debts Due to Banks and Financial
Institution Act, 1993 states that after having seen the implementation of the Act up till now, it is
generalexperience that the object of the Act of expeditious adjudication is fulfilledto a large
extent mainly due to the fact that the Tribunals under the Act havebeen accepting evidence by
way of Affidavits and avoiding Examination inChief and Cross Examination of the witnesses
except under very specialcircumstances.
Prof. C.Sivarami Reddy & Smt. Kalavathi (2004) in their study entitled“Non-Performing
Assets in Banks –causes and remedies” concluded as Replacement of the Loan as ‘it is
necessary to fix repayment schedule for term loan according to theincome generating capacity of
the unit. If repayment schedule is not fixedproperly or a unit is not fixed properly or a unit is not
able to generate expectedprofit, possibility may be explored in consultation with the borrowers
forrephasement of loan installment. Rephasement of the loan instalment should bedone only
when it is expected to get payment after the rephasement.
M.C. Naidu and & A. Prasad (2004) in their study entitled “Remedial Measures for
Managing Non –Performing Assets in RRBs” stated that the bank should also enter into
compromises through negotiations withthe borrower to carry forward a clear picture of the latest
position. It is aredundant to carry the non-recoverable loans on the bankbooks indefinitely.With
proper justifications and convincing arguments, compromises could beentered into and
implemented immediately.
Dr.B.Krishna Reddy, Dr.A.V.Ramana, and K.Nandeeswaraiah (2004) intheir study entitled
“Management of Non-Performing Assets in Banking Sector: Some Insights”
It is the mechanism for settling outstanding dues through compromise.Negotiation in this regard
is to be handled skillfully on the basis of relativestrengths of the borrower and the banker. Banks
should make all endeavours tostrike a Zero-loss deal on a deal with minimum sacrifice waiver.
Such compromise must be related to
· Waiver of penal interest
· Reduction in interest rate
· Write off the full or a part of the amount of interest debited to theaccount of the borrower.
Prof.B.Mohan& K. Rajesh (2004), in their study entitled “Management of Non-Performing
Assets in Institutional Agencies” stated that in the compromisesettlement the points need to
remembered are :
1) Maximum recovery with minimum cost.
2) Distinction needs to be made between willful defaulters anddefaulters on account of
conditions beyond their scope.
3) Where security is available, proper weightage needs to be given tolocation, marketability
conditions, possession thereof.
V.K. Gupta (1994) in their study entitled “Fast Track for Recovery ofBank Over dues” stated
that the slow pace of recovery of bad and doubtful debtshas been adversely affecting the viability
of various banks and financial64institutions. The prevailing system of recovery of bank dues
through themachinery of civil courts is not only time consuming but also non-productiveand
expensive.
S. D. Nayar (1994), written in his article “Recovery of Bank Dues” has given the norms of
decree that the decree in the hands of the creditor must be a decree the decree must have become
final and that the execution of the decree has served the debtor with insolvency notice and that
the creditor must have served the debtor with on insolvency notice.
Rajendra Singh (2005) in his article “Empowering Banks for Recovery of Non-performing
Assets (NPAs)”stated that the SARFAESI Act 2002-Needof the hour is essentially about
enforcement of the lender rights and improvingrecovery of NPAs. The financial sector is under
severe stress due to its inabilityto enforce security interest and other rights, mainly due to slow
legal system
Dr. N. B. Shete (2002),“Non- Performing Advances of Commercial Banks: An Overview”
with regard to priority sector NPAs, found that the majorfactors like natural calamities,
inadequate income generation, high transactioncosts, inappropriate financial policies, poor
working of the RFI, follow-up ofprudential norms and provisioning of NPA.
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R.M. Kulkarni (2006), in his thesis entitled “A critical Study of Non-Performing Assets of
Public Sector Banks with Special Reference to Single District” concluded “Non -Performing
assets are affecting viability andsolvency of public sector as well private sector banks. Not only
Banks in Indiaare facing this problem but also all over the world the situation is common.
T. Parmar (1994), in his article “Recovery: Finding of a Study of Two Districts in Gujarat”
states that the guidelines given by the RBI have notadequately been followed by the banks. The
study revealed that banks have notprovided staff according to the business of the branch, and the
job-role, functionand responsibilities of the staff have not been clearly defined.
V. Narayanan (2000) NPA Reduction the New “Mantra” of Slippage Management’. He says
that any one short measure like “recovery camps” can atbest be of supplementary nature. In a
credit proposal is processed properly,sanctioned, disbursed in time and in adequate amount and
monitored right fromthe beginning then the chances of this asset becoming NPA is relatively
lessthan another which has been processed in haste, appraised mechanically,delayed in sanction
and disbursed in adequate quantum.
Y.V. Reddy (2009), in his article “Reforming India’s Financial Sector- Changing
Dimensions and Emerging Issues” has described the background forfinancial sector reforms as
under:“India embarked on a strategy of economic reforms in the wake of abalance of payments
crisis in 1991; a central plank of these was reforms in thefinancial sector and, with banks being
the mainstay of financial intermediation,the banking sector. At the same time, reforms were also
undertaken in varioussegments of financial markets to enable the banking sector to proceed with.
Dr.Suhas S. Sahasrabudhe (2003), in his article “Review of Important Aspects of NPAs of
Banks in India in The Post Reform Period” has mentioned the termsof reference of the
committee as under:
i) Examination of the existing structure of the financial system and itsvarious components and to
make recommendations, to improve theefficiency and effectiveness of the system.
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ii) Recommending measures for infusing greater competitive vitality intothe system so as to
enable the bank and financial institutions to respondmore effectively to the emerging credit
needs of the economy.ctor to perform itsintermediation role in an efficient manner.
K.H.Vora (2007) in his study entitled “Management of Non-Performing Assetsand Asset
Reconstruction Company” observed the impact of NPAs that the effect of NPA on the bank is
that there is loss of interest income and the current profit is reduced, as banks have to make
provision for NPA
H.V.Upadhyay (1994) in “Recovery through SEIZURE: Some Aspects” has stated that the
legal actions involve high cost and long time. Even after settlement of the case, the decree has to
be filed and executed periodically as per the term which is an unpleasant and difficult task. This
process also slows down the speed of follow up and results in lethargic attitude by banker.
