GURGAON GRAMIN BANK
HEAD OFFICE: GURGAON
(RECOVERY POLICY)

 
DEBT RECOVERY TRIBUNALS
With the objective of aiding the Banks in speedy recovery of the amount locked up in high value Non-Performing Assets under suit filed accounts of Rs. 10.00 lakhs and above an Ordinance called “The Recovery of Debts due to Banks and Financial Institutions Ordinance 1993” has been promulgated by the President of India on 24.06.1993.

Subsequently, relative bill also has been passed by the Parliament paving way for establishment of Debts Recovery Tribunals. It has been decided to establish such Tribunals in major cities spread over the country. Accordingly such Debt Recovery Tribunals (DRTs) have already been established/started functioning and 5 Debt Recovery Appellate Tribunals (DRATs) have been established.

1. SALIENT FEATURES

1) As per Sec. 31 of the Act immediately after establishment of Tribunal, suits and proceedings/records of Rs. 10 lacs and above pending before the various Courts will be transferred to the Tribunal. The Tribunal will issue notice to the Banks for making arrangement to represent their cases. Even though filing of applications by the Banks for transferring the cases to Tribunal does not arise, the Advocates who are handling the cases can however, pursue with the Courts to see that records are sent to the Tribunal soon on establishment of these Tribunals.

2) New cases involving claim amount of Rs. 10.00 lakhs and above shall be filed only before the Tribunal having territorial jurisdiction by way of an application in the prescribed format. The said application shall be filed by the Branch Manager or by his agent or by an Advocate before the Registrar of the Tribunal. Application shall be accompanied by loan documents/or other evidence, statement showing details of the debts and fees as prescribed by the rules. It shall be presented in four sets, in a paper book alongwith empty file size envelopes bearing full address of each respondent separately.

3) As per the definition of ‘Debt’ given in Sec. 2(2) of the Act, it includes liability payable under decree or order of any Civil Court. Hence, an application for recovery of dues under decree can also be filed before the Tribunal. Execution petitions pending before the Civil Courts shall also stand transferred to Tribunal after appointed date. However, provisions of Sec.31 of the Act shall not apply to any appeal pending before any Court.

4) Regarding handling of the cases, it is clear from the Act that the cases can be handled either by the applicant in person (Bank Officers/Law Officers) or through his agent or an Advocate.

5) The provisions of Limitation Act shall apply to an application made to a Tribunal. As such, an application under Sec, 19 of the Act shall have to be made to a Tribunal within three years from the date of cause of action as prescribed in the Limitation Act.

6) The Tribunal may pass an interim order (by way of injunction or stay) against the defendant restraining him from transferring, alienating or otherwise dealing with, or disposing of any property and asset belonging to him without the prior permission of the Tribunal.

7) The Tribunal may, after giving the applicant and the defendant an opportunity of being heard, pass such orders on the application as it thinks fit to meet the ends of justice. Tribunal, as such, need not insist for production of witnesses.

8) The application made to the Tribunal shall be disposed of finally within six months from the date of the receipt of application. An appeal to an Appellate Tribunal may be preferred within a period of forty-five days from the date on which a copy of the order made by the Tribunal is received by the party to Appeal. The appeal filed before the Appellate Tribunal shall be disposed of finally within six months from the date of receipt of appeal. An appeal preferred by any person from whom the amount of debt is due to a Bank or a Financial Institution will not be entertained by the Appellate Tribunal unless such person deposits with the Appellate Tribunal 75% of the amount of debt due from him as determined by the Tribunal.

9) The Presiding Officer will issue a certificate under his signature on the basis of the order of the Tribunal to the Recovery Officer for recovery of the amount of the debt specified in the certificate. Such Recovery Certificate given by the Tribunal is equal to the decree given by the Civil Court. The Recovery Officer has the right to seize and sell the securities including mortgaged property. He has also got powers for arrest, detention of respondent/judgement debtor and to issue garnishee orders.

10) The Tribunal and the Appellate Tribunal are not bound by the procedure laid down by the CPC but are guided by the Principle of natural justice and the provisions of Act and rules.


THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST (SARFAESI) ACT 2002.

Salient features of the SARFAESI Act are as follows:
1. The Act is deemed to have come into force as on 21.06.2002 and made applicable to RRBs w.e.f 17.05.2007.

2. The Act is in addition to DRT Act 1993, Companies Act 1956, The Security Contract (Regulation) Act 1956 and the Securities and Exchange Board of India Act 1992.

3. The Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

4. The Act under Section 34 specifically bars Civil Court’s jurisdiction to entertain any matter including granting injunction in all matters, which a DRT/DRAT enjoys under Recovery of Debts Due to Banks & Financial Institutions Act as also under this Act.

5. Banks can float an Asset Reconstruction Company singly or as a joint venture with other Players or can become a sponsor by holding not less than 10% 0f the paid up equity capital of a Reconstruction/ Securitization Company.

6. Section 13 of the Act gives powers to Securitization and Asset Reconstruction Company and also to Banks and financial Institution for enforcement of Security Interest in favour of secured creditor without the intervention of Courts/Tribunals.

(7) The Act exempts the following from the purview of operation of the provisions for the following reasons:

a. A lien on any goods, money or security. Exercise of Banker’s lien is regulated by Sec 171 of the contract Act and intervention of a Court or a tribunal is uncalled for.

b. A Pledge of movables is governed by the exercise of right of sale under Sec-176 of the Contract Act without intervention of the Court or Tribunal.

c. The security created in any aircraft. The same is the position in respect of a vessel as defined under Sec3 (55) of the Merchant Shipping Act, 1958.

d. A conditional sale, hire purchase or lease (lease of movables) is also outside the purview of the Act, since, in such cases no other security interest is ever created.

e. The rights of an unpaid vendor under Sec-47 of the sale of goods Act, 1930, are exercisable by the unpaid vendor without intervention of the Court or the Tribunal.

f. The security interest securing repayment of any financial asset not exceeding Rs. 1.00 lakh is outside the purview of the Act.

Therefore, the outstanding shadow balance must be more than Rs.1.00 lakh immediately prior to the date of issue of notice.

g. The Security interest created in an Agricultural land is also not covered under the Act. Branches shall ascertain as to whether particular land is classified as agriculture or non-agriculture, in the revenue/ municipal records as on the date of issue of notice and take suitable decision. Hence, irrespective of the purpose / classification of loan, if security taken remains agricultural property, the Act is not applicable.

h. The amount due is less than twenty percent of the original principal and interest thereon immediately prior to the date of issue of notice.

i. To invoke the provisions of the Act, documents or decree as the case may be, should be within the period of limitation prescribed under the Limitation Act, 1963.

j. The Act has not been made applicable to properties not liable for attachment under Sec-60 (1) of the Code of Civil Procedure, 1908 since the properties mentioned there under are connected with right to the life of the owner/holder of such properties. However, if they are offered as security, the Act is applicable.


(8) (a). As per the Act “borrower” means any person who has been granted financial assistance by any Bank or financial Institution or who has given any guarantee or created any mortgage or pledge as security and hence the word “Borrower” only is used everywhere in the Act and the Rules. The Act is meant for securities and the persons who have created a charge on those securities only. Hence for the sake of clarity, we use the word ”Owner” in relation to the property /security meant for possession and sale under this Act in this circular and formats.

(8) (b) Apart from the powers to sell the assets, Banks/ Financial Institutions, Assets Reconstruction Company can initiate anyone or all of the following steps:

i) Take possession of secured assets, including right to transfer by way of lease, assignment or sale (Sec-13.4.a).

ii) Take over Management of the business of the borrower (Sec 13.4.b).

III) Appoint a Manager to manage the secured assets so taken over (Sec 13.4.c).

Iv) Demand by notice in writing from any person who has acquired any of the secured assets from owner and from whom any money is due or may become due to the owner to pay the secured creditors as is sufficient to satisfy the debts (Sec 13.4.d) .

v) Proceed against owner before an appropriate forum for balance money if the realization by sale is not adequate (Sec 13.10) (within limitation period).

vi) Proceed against the Guarantor/borrower as the case may be, without prejudice to above (Sec-13.11).

vii) Request the jurisdictional Chief Metropolitan Magistrate/ District Magistrate’s help for taking possession/custody of any secured assets (Sec-14).

All payments received after taking above steps will get a valid discharge.

(9). Persons who can exercise the rights of the secured creditors under the Act: Authorised Officer:

General Manager of our bank will be Authorised Officer. The Officers/Managers in Scale I, II & III cannot act as Authorised Officer.

(10). Requirements before issue of Notice:

a) Default: As per Sec 2 (j) of the Act ‘Default’ means non – payment of any principal debt or interest thereon or any other amount payable by a borrower to any secured creditor consequent upon which the account of such borrower is classified as Non-Performing Asset in the Books of account of the secured creditor.

b) Non- performing Asset: An account is classified as NPA as per RBI directives issued from time to time. In short an account can be treated as NPA on any day when it fulfils the default period of 90 days. Our loan agreements provide for recalling of full dues in case of defaults (a conscious decision has to be taken before recalling full dues).

c) Non Suit Filed NPA Accounts: The Act made a provision to Banks to issue a notice to a secured borrower/guarantor/owner of the property (As per Format-B to both borrower and guarantor for non suit filed accounts) whose loan account has been classified as Non Performing Assets (as sub standard, doubtful or loss asset) in accordance with the directions or guidelines relating to asset classification issued by Reserve Bank of India. It is also a Recall Notice to all concerned.

The borrower/guarantor/owner will be given 60 days time (from the date of notice) to pay the dues mentioned in the notice. If they fail, securities described in the notice will be taken over, enforced and dues will be recovered. It shall be ensured that all particulars such as total dues (shadow account balance), interest, full description of the property as per the mortgage documents with details namely Door Number/Flat Number/Block Number/Extent/Name of Road & Locality with correct boundaries etc., are furnished correctly in the notice.

d) Suit Filed Account: The provisions of Act can be enforced in suit filed accounts and decreed debt accounts also, unless they are exempted from the purview of operation of the Act as mentioned at point No. 7. While initiating action in respect of suit filed/ decreed debt accounts, it shall be ensured that no interim orders are in force against the Bank in the proceedings before Court/ DRT. Wherever such orders are operative, it will be entirely appropriate to first get such interim orders vacated in order to proceed under the Securitization Act.
If E.P/RC is pending, then also it is permissible to proceed Securitisation Act.
Wherever DRT cases are not filed, notices should be issued first and if necessary, cases may be filed before DRT to save limitation (if borrower refuses to execute AOD) and both the steps may be continued simultaneously. However, a narration shall be made in the DRT application about the upto date steps taken under SARFAESI Act and that OA is filed before DRT in order to save limitation.
e) (Internal) Procedure for obtaining permission for issuing of Notice:
Authority to permit issue of Notice Amount of Claim
General Manager Proposals with shadow balance i.e., Book Balance +Interest Receivable upto Rs.0.50 Crore
Chairman/Board Proposals with shadow balance i.e., Book Balance +Interest Receivable of above Rs.0.50 Crore
(11) Serving of Notice:The serving of demand notice shall be made by delivering or transmitting at the place where the borrower/guarantor/owner or his agent, empowered to accept the notice or documents on their behalf, actually and voluntarily resides or carries on business or personally works for gains, by registered post with acknowledgement due, addressed to them or their agent empowered to accept the service or by speed post or by courier or by any other means of transmission of documents like fax message or electronic mail service.

Where Authorised Officer has reasons to believe that they are avoiding the service of the notice or that for any other reason, the service cannot be made as aforesaid, the service shall be effected by affixing a copy of the demand notice on the outer door or some other conspicuous part of the house or building in which they ordinarily reside or carry on business or personally work for gain and also by publishing the contents of the demand notice in two leading news papers, out of which one in vernacular language(the translated version in local language only) having sufficient circulation in that locality.

(12). Borrower’s Right of Objections:

Borrower/s and or guarantor/s have been given an opportunity to raise objections in writing in response to the Demand Notice issued by the Bank. The objections raised by them should be studied and Bank’s stand in respect of the objections raised should be communicated to them within 7 days.

(13). Enforcement of securities:

If there is no response from the borrower and/or guarantor, after expiry of 60 days from the date of issuing of notice, the bank can take action under Sec.13 (4) at any time and enforce the securities. Though there is no time limit specified, action must be taken within reasonable time and within the period of limitation prescribed under Limitation Act. The loan documents shall be kept in force by obtaining acknowledgement of debt from the borrower and guarantors.

(14). Sanction of Rephasement/OTS/Upgradation after issue of notice:

In response to the Notice issued, if the parties approach the Branch with proposal for rephasement or OTS or upgradation, the same may be considered as per the extant guidelines. In respect of rephased loans, if the account subsequently becomes NPA due to default in payment there is no need to send a fresh demand notice of 60 days duration. Similarly, if parties fail to honour the OTS terms of payment, a fresh demand notice of 60 days need not be sent to them. However, Branches/Administrative Offices should take care at the time of communicating upgradation/rephasement /OTS to include a condition in their sanction letter.

(15). Possession of Movable Property:

If the amount mentioned in the demand notice is not paid within the time specified therein and even after disposal of their objections, the Authorised Officer shall initiate steps to realise the amount by adopting anyone or more of the measures available under the provisions of Act.

Keep informed of the action of the Bank to the local police. Take their help wherever stiff resistance from the borrowers is anticipated. If the help of local Police is solicited a letter with all details addressed to the Higher Police Authorities shall be sent.

a. Where the possession of movable property is to be taken over, the Authorised Officer shall take the same in the presence of two witnesses after a Panchnama drawn and signed by the witnesses. (Format-K)

b. After taking possession, the Authorised Officer shall make an inventory of the movable property (Format-L). Deliver a copy of such inventory and Panchnama to the owner/ or to any person entitled to receive on behalf of owner of the property/ies.

c. The possession notice shall be published as soon as possible but in any case not later than seven days from the date of taking possession in two leading newspapers.

16. Preferring of Appeal in DRT by the Owner/Borrower/Guarantor:-

The aggrieved Owner may prefer a first appeal before DRT having jurisdiction in the matter, within 45 days from the date of taking possession /take over management /issuing sale notice without depositing any amount. No appeal / writ petition is maintainable at the stage of Notice as held by the Supreme Court in Mardia Chemicals case.

If borrower / guarantor approaches DRT, Branches should plead for deposit of at least 25% of the claim amount to show their bonafides and/ or direction to parties for submission of One Time Settlement proposal.

Any person aggrieved by the orders passed by DRT may file second appeal within 30 days to DRAT. The appeal before the DRAT is available to the aggrieved secured creditor also. DRT/District Judge, DRAT/High Court of Jammu & Kashmir can award compensation and cost to the borrower if the assets are ordered to be returned by the Banks.

The Act has been amended from 11.11.2004 to the effect that if the owner files a second appeal to DRAT against the order of DRT in his petition to DRT, then DRAT can direct him to deposit 50% of the amount demanded in the Notice as a pre condition. DRAT has discretion to reduce it to 25%.

(17)(a) Sale of movable secured assets: -

Valuation of movable secured assets: After taking possession of assets and in any case before sale, the Authorised Officer should obtain the estimated value of the moveable secured assets from the Approved valuer who is registered as a valuer under section 34 AB of the Wealth Tax Act –1957and having proof of registration and thereafter fix the reserve price of the assets in consultation with the approved valuer in respect of the property to be sold to realise the dues.

The Authorised Officer may sell the seized movable secured assets in one or more lots to secure maximum sale price for the assets to be so sold-

The Authorised Officer shall serve to the Owner a notice of 30 days for sale (Format-N). This may be issued immediately after taking possession if there are no prohibitive orders from DRT/ High Court, but actual sale can be held after 45 days of taking possession.

(17) (B) Issue of certificate of sale for movable assets: (i) Where movable assets are sold, sale price of each lot shall be paid as per the terms of the public notice or on the terms as may be settled between the parties, as the case may be, and in the event of default of payment, the movable secured assets shall be liable to be offered for sale again.

(ii) On payment of sale price, the Authorised Officer shall issue a certificate of sale in the prescribed form (Format-P) specifying the movable assets sold, price paid and the name of the purchaser and thereafter the sale shall become absolute. The certificate of sale so issued shall be prima facie evidence of title of the purchaser.

(18) Procedure for Recovery of shortfall of secured debt: -

If the balance amount of debt due is Rs.10.00 lakhs and above, an application for recovery of balance amount shall be presented to the Debts Recovery Tribunal in due format. If the balance amount debt due is less than Rs.10.00 lakhs, then a regular Civil Suit shall be filed before the appropriate Civil Court.

NOTE: This is a gist of the Act. For details and for reference of formats mentioned herein above the Handbook on SARFAESE Act which has been made available to branches and circular No.25/REC/2008/01 dated 04.02.08 containing amendments to the SARFAESI Act- 2002 can be referred.

BROAD GUIDELINES FOR RESTRUCTURING / RESCHEDULING / REPHASEMENT OF ADVANCES

Guideline for Branches to provided relief in deserving cases throughRestructing/Rescheduling/ Rephasement of loans has been issued. The detailed procedure to be adopted by the Branches for providing relief to deserving cases is eleborated as under.

Experience has shown that there are circumstances, which are beyond the conntrol of Bank borrowers, for him to carry out the economic activity ( financed by the bank) or to repay the scheduled periodic instalments once the interruption in repayment occur, this irregulaity continues& makes the loan highly irregular in due course of time. Timely identifying the problems & taking prompt remedial steps can prevent loan accounts becoming overdue. Bank under such circumstances do consider their problems sympathetically & can give relief in postponing the dues, not charging penal interest and not treating the borrower as defaulter.

GENUINE CASES :

Instances, which are beyond the control of the borrowers can be enumerated as follows:
1. Occurrence of Drought.
2. Occurrence of floods.
3. Fire/theft of the property of the borrower.
4. Death/disease of cattle financed by borrower.
5. Mishappening in the family of the borrower.
6. Shortage of raw material, marketing problems, delay in power connection or internal or external or unforeseen circumstances which can not be controlled/ checked.

Any other natural calamity: Point to be noted in the above is that there should not be a deliberate attempt on the part of the borrower to default. Willful defaulters are rather dealt severally, instead of extending any relief.

There are also instances, where Bank itself could not take adequate care, at the time of release of loan appropriate manner. These are:
1.Loan not released in time.
2.Under financing.
3.Fixing shorter repayment periods than suggested by NABARD, thus causing undue hardships/ burden on the borrower etc.

IMPORTANT

Causes Mentioned Above Are Illustrative And Not Exhaustive. There May Be Other Genuine Reasons, which Bank officials must satisfy themselves before granting relief to the borrowers.

Relief/ Rehabiliation Measures:

Calamities like drought, floods, cyclone, riots and other genuine problematic circumstances damage the economic persuits of borrowers. RBI/NABARD in consultation of CALCOB ( Committee on Agriculture lending by commercial banks lending ) had suggested relief / rehabilitation measures to be taken up in the following manner.

1. Post poning the dues. 2. Fresh financial assistance.

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Both the issues are interconnected and therefore needs elaboration. After the Bank is satisfied that borrower has suffered due to circumstances beyond his control, Bank must first find out whether the borrower still possess the assets( financed ) and income generation is possible in the time to come. If it is so, simply postponing or rephasing the dues will be enough, i.e. fresh time can be given for the lapsed overdue instalments and postponing the future instalmens.

In case borrower is not able to carry out the old activity, but his intentions are clear and honest regarding repayment, Bank is to consider granting him fresh financial assistance for revitalising the old activity or start a new activity, periodical income of which must be enough to pay the instalments of new loan and also adequate surplus is also available to liquidate the old loan, as per rephased time schedule.

Merely rephasing/ rescheduling alone, without linking to future income generation is not the correct approach. Rescheduled repayments are to be ensured invariably with the future income surplus of the old/ new or any other activity which the party may be doing. Concept behind granting fresh finance is not only to give the borrower fresh lease of economic life, but also enable him to repay the old loan out of the surplus generated from the new financed activity.
Therefore for taking up relief measures, both aspects are to be viewed simultaneously.
Restructuring/Rescheduling of Advances :

a).Loans and advances extended by the Bank may become irregular due to genuine difficulties viz. delay in implementation of the project, delay in commencement of commercial production, bottlenecks IN PRODUCTION AND/OR DISTRIBUTION, NATURAL CALAMITIES, AND OTHER FACTORS WHICH ARE BEYOND THE CONTROL OF THE BORROWERS. In such genuine cases, the borrowers may be assisted to overcome the difficulties by restructuring the credit facilities or rescheduling/rephasing terms of repayment with or without interest concession.

b).Restructuring of credit facilities normally involve conversion of short-term loans into term loans, conversion of working capital finance into terms loans, waiver/funding of overdue interest etc. Rescheduling/rephasing normally involve increase in moratorium period, increase in repayment period, postponement of instalments, revision of amount of instalments etc.

c).Restructuring/rescheduling/rephasing in all cases should be based on viability, rehabilitation potential and cash flows of the borrower. Branches shall not resort to restructuring/rescheduling/rephasing for the purpose of avoiding slippage to NPA.

Asset classification of restructured /rescheduled / rephased advances: RBI has stipulated different norms for asset classification of restructured / rescheduled / rephased Industrial , agricultural and other loans and advances. Branches shall strictly adhere to these norms, furnished below, for asset classification of restructured / rescheduled loans and advances.

Asset cllassification of Restructured / Rescheduled Industrial advances :

Industrial advances may be restructured / rescheduled under scheme for Rehabilitation of sick SSI units, debt restructuring scheme of Small and Medium Enterprises (SME ). The Asset classification norms applicable to all types of restructured / rescheduled credit facilities, including working capital limits, extended to industrial units are furnished below :

Restructured / Rescheduled under Scheme for Rehabilitation of sick SSI units:

Standard and Sub standard credit facilities ( including working capital limits ) of viable industrial units may be restructured / rescheduled under scheme for Rehabilitation of sick industrial units. In context of restructuring of the accounts, the following stages at which the restructuring/ rescheduling/ renegotiation of the terms of loan could take place can be identified.
a) Before commencement of commercial production:
b) After commencement of commercial production but before the asset is classified as sub – standard;
c) After commencement of commercial production and the asset has been classified as sub-standard.

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Rescheduling / restructuring is done

Asset Classification where Rescheduling of instalments of principle alone is involved

Asset Classification where Rescheduling of interest is also involved

I) Before commencement of commercial production

Account will continue as Standard Asset provided the loan / credit facility is fully secured.

Account will continue as Standard Asset subjet to the condition that provision is made for the amount of sacrifice, if any, in the element of interest, measured in present value terms.

ii) After commencement of commercial production but before the asset has become sun-standard

Account will continue as Standard Asset provided the loan / credit facility is fully secured.

Account will continue as Standardf Asset subjet to the condition that provision is made for the amount of sacrifice, if any, in the element of interest, measured in present value terms.

iii) After commencement of commercial production and after the asset has become sub-standard

Account will continue as sub- standad asset for the specific period* of one year provided the loan is fully secured and satisfactory performance of the account is demonstrated during the period.

Account will continue as sub-standard asset for the specific period* of one year subject to the condition that provision is made for the amount of sacrifice, if any, in the element of interest , measured in present value of terms and satisfactory performance of the acount is demonstrated during the period.

*Specific period of one year means a period of one year after the date when first payment of interest or principal, whichever is earlier, falls due.

General Guidelines :

1. Asset Classification of sub- standard asset after specific period: The sub-standard asset, which has been subjected to restructuring/rescheduling, would be eligible to be upgraded to standard asset after the specified period, subject to satisfactory performance during the period. If satisfactory performance is not evidenced during the period, the asset classification of the restructured sub-standard asset would be governed as per the applicable prudential norms with reference to the pre-restructuring payment schedule.

2. Restructuring of credit facilities extended to traders :
As trading involves only buying and selling of commodities and the problems associated with manufacturing units such as bottleneck in commercial production, time and cost escalatuion etc. are not applicable to them, the above guidelines should not be applied to restructuring/rescheduling of credit facilities extended to traders.

3. Relevant date for asset classification after restructuring : Branches shall not restructure/reschedule borrwal accounts with retrospective effect. The Asset Classification status as on the date of approval of the restructured package by the competent authority would be relevant to decide the Asset Classification status of the account after restructuring/rescheduling/renegotiation.

4. Repeated Restructuring :
Branches shall not restructure/reschedule accounts repeatedly unless there are very strong and valid reasons that warrant such repeated restructuring/rescheduling. In case of restrructuring asset, which is standard asset on restructuring, is subjected to restructuring on subsequent occasion, it shall be classified as sub-standard asset. If the restructured asset is sub-standard/doubtful and is subjected to restructuring, asset classification would be reckoned from the date when it became NPA on the previous occasion.

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5. Request for Restructuring : Normally restructuring cannot take place unless alteration/changes in the original loan agreement are made with the formal consent/application of the borrower. However, the process of restructuring can be initiated by the branch in deserving cases subject to customer agreeing to the terms and conditions.

6. Security : While assessing the extent of security cover available to the restructured/rescheduled credit facilities, collateral security would also be reckoned, provided such collateral is a tangible security properly charged to the Bank and is not in intangible form like guarantee etc. of the promoter/others.

7. Funded interest :
Income recognition in respect of the NPAs, regardless of whether these are or are not subjected to restructuring/rescheduling, should be done strictly on cash basis, only on realisation and not if the amount of overdue interest has been funded. If, however, the amount of funded interest is recognised as income, a provision for an equal amount should also be made simultaneiously. In other words, any funding of interest in respect of NPAs, if recognised as income, should be fully provided for.

8. Reversal of Provision :
Provision made for NPA shall be reversed when the account becomes a standard asset. However, the provision made towards interest sacrifice, can be reversed only on satisfactory completion of all repayment obligations and the outstanding in the account is fully repaid. Branches shall not re-compute the extent of sacrifice each year and make adjustments in the provisions made towards interest sacrifice.

A. Restructured/Rescheduled Agricultural Advances :

Scheme for relief to farmers affected by Natural Calamities :
i) Where natural calamiteis impair the repaying capacity of agricultural borrowers, banks may extend, on their own, following relief measures.
a) Conversion of short-term production loan due in the year of occurrence of natural calamity into a term loan or reschedulement of the repayment period suitably.
b) Reschedule/postpone instalments of existing term loans keeping in view the repaying capacity and nature of natural calamity.
ii) Where relief in the form of conversion/reschedulement of loans is extended to farmers, term loan as well as fresh short term loan may be treated as current dues and need not be classified as NPA. The Asset Classification of these loans would thereaftrer be governed by revised terms & conditions.

B. Restructured/Rescheduled Advances other than Industrial and Agricultural Advances:

1. Branches may consider accounts, other than Industrial and Agricultural Advances, viz housing loans, personal loans, loans to traders/business enterprises/professionals etc. for restructuring/rescheduling/rephasing provided such accounts qualify the basic test of viability, rehabilitation potential and cash flows of the borrower.

2. However, these accounts would not qualify for the special Asset Classification status available to restructured/rescheduled/rephased industrial or agricultural advances, but would continue to age and migrate to the next Asset Classification status in the normal course. In other words, the Asset Classification of these accounts shall be based on the original terms of repayment.

3. If concession in rate of interest is permitted as per the rephased terms, Branches shall compute and recommend provision for the amount of sacrifice in interest, measured in present value terms.

4. These restructured/rescheduled accounts would be eligible to be upgraded to Standard category after a period of one year after the date when first payment of interest or of principal, whichever is earlier, falls due under the revised terms, subject to satisfactory performance during the period. The amount of provision made for NPA, net of the amount provided for the sacrifice in interest in present value terms as aforesaid, could be reversed after the one year period.

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Ex: i) A demand loan, which was Sub-Standard as on 31st March (Date of NPA-15th March) is rescheduled/rephased during April. EMIs are due from 1st May as per the rephased terms. The account will be continued to be Sub-Standard upto 14th March next year and will slip to Doubtful-1 on 15th March next year. Account can be upgraded as Standard Asset on 1st May next year, provided all instalments and interest as per rephased terms are paid by the borrower.

ii) A housing loan which will become NPA on 31st March (overdue from 1st January) is rescheduled/rephased on 15th March, i.e. before the account has slipped to NPA. EMIs are due from 1st May as per rephased terms. The account shall be classified as Sub-Standard from 31st march to 30th March next year and Doubtful – 1 from 30th March next year. It may be upgraded to Standard in May next year subject to payment of all EMIs as per rephased terms.

C. Restrctured/rescheduled advances of borrowers affected by natural calamities: The advances of borrowers affected by natural calamities, including industries and trade, besides agriculture, may be restrctured/rescheduled.The Asset Classification of the restructured/rescheduled accounts as on the date of natural calamity will continue if the restructuring is completed within a period of three months from the date of natural calamity. The guidelines applicable to Sub-Standard accounts will apply, mutatis mutandis, to Doubtful accounts also.

D. Upgradition of Restructured accounts under Sub-Standard or Doubtful Category: Guidelines for upgradition of restructured accounts are furnished in general guidelines and also at para –A, B & C in detail. Accounts shall be regularised by genuine credits for upgrading the account from NPA to standard Asset. Regularisation of accounts by rephasement of instalments, conversion of loan & transfer of funds from sister concern, other than on genuine trade/ business related transaction,etc shall not allow the account to be upgraded.If arrears of interest and principal are paid by the borrower in the case of loan accounts classified as NPAs, the account should no longer be streated as non-performing and may be classified as ‘standard’. In other words, an account which became NPA due to non-payment of interest and or instalments of principal, upon payment of arrears of interest and or instralments of principal in full, stands upgraded as standard Asset on the day of clearing the arrears in full.