“Management of Non-Performing Assets (NPAs) and Recovery Strategies

of Old Private Sector Banks in Tamilnadu”.

QUESTIONNAIRE

Dear respondents,

I am V. Sekar, Director (Finance), Hindustan Insecticides Limited, (formerly Dy. General

Manager, Lakshmi Vilas Bank Ltd, Karur, Tamilnadu), pursuing my Doctorate in Alagappa University,

Karaikudi under the supervision of Dr.V.BALALCHANDRAN. For the research work, I have selected the

topic “Management of Non-Performing Assets and Recovery Strategies of Old Private Sector Banks in

Tamilnadu. So, I kindly request you to provide and extend your support for filling the questionnaire.

The information will be kept confidential and the same would be used only for academic purpose. This

will be purely used for the research purposes only.

Thanking you.

V. Sekar,

Research Scholar,

Alagappa Institute of Management,

Alagappa University,

Karaikudi.

PART-A

□ Personal profile:

i. Designation: ________________________________________________________

ii. Name of the Institution: _______________________________________________

iii. Positon: ____________________________________________________________

Top Middle

Management □ Management □ Junior Management □

iv. Experience

1. Less than 10 years

2. 10-20 years

3. 20-30 years

4. Above 30 years

v. Gender: □ Male □ Female

Age (No years) □ below 25 □ 25-35 □ 35-45 □ above 45

Contd……,

Part-B

Questionnaire

I. The following are stated to be the main reasons for NPA. Assign Rank 1 to the most

important reason, Rank 2 to the next important reason and so on.

A. Higher rate of interest �

B. Wilful default �

C. Diversion of funds �

D. Deficiency in the credit appraisal standards �

E. Lack of supervision and follow-up �

F. Lack of legal support �

G. Political interference �

II. The following are some of the general opinion on NPAs. Please indicate your opinion by placing a (√√√√)

mark at appropriate column in the five point response scale.

A B C D E

A. Agree

B. Disagree

C. Strongly agree

D. Strongly Disagree

E. No opinion

1. There is a feeling that banks � � � � �

are not able to bring down the

rate of interest to borrowers,

on account of NPAs.

2. There is no system in the bank � � � � �

to fix the rate of interest to the

borrowers on the basis of repaying

capacity.

3. Overall cost to the borrower � � � � �

in terms of interest rate,

processing charges, legal

charges, supervision and

follow-up charges are very

high and it results in NPAs.

4. The rate of interest charged to � � � � �

the borrowers are much in

excess of the declared

Base Rate/BPLR for most

of the borrowers.

5. Present Capital adequacy � � � � �

norms can reduce/minimize

the risk of NPAs for banks.

6. Banks raise subordinate debts � � � � �

at high cost to supplement the

tier II Capital and Capital

Adequacy.

7. It is generally felt that banks � � � � �

do not pay adequate attention

to borrower customers as they

do in the case of deposit

customers.

8. There is no system of exchange � � � � �

of information among banks

about their experience with

borrowing customers.

9. There is a general feeling that � � � � �

banks do not have an effective

market intelligence system to

know more about the borrowers

and act accordingly.

10. Availability of staff to manage � � � � �

loan portfolio is generally

inadequate.

11. Because of growing NPAs, � � � � �

there is a tendency among

banks to switch over to

investments in Government

securities.

12. Of late, there is a general � � � � �

aversion to lending among

banks because of NPAs.

13. Only banks and other stake � � � � �

holders other than defaulting

borrowers get affected

because of NPAs.

14. Representative bodies like � � � � �

FICCI, Chambers of

Commerce and Industry,

Confederation of Indian

Industry, Federation of India

Exporters Association, etc. do

not support banking industry

in recovering the banks’ dues

from their members.

15. Banks do nothing about NPA and � � � � �

wait for on Economic recovery

to rescue Borrowers.

16. Banks try to postpone the problem � � � � �

such as rescheduling of debt, new

loans to delinquent borrowers, and

spend months and years in discussion

with Borrowers on loan restructuring.

17. Banks Develop multiple disposition � � � � �

strategies and take fast, decisive

action to move NPA’s off their

Balance Sheets.

18. Banks work out and restructuring, � � � � �

discounted pay-offs on negotiated

settlement, bulk sales.

19. Bank do securitization, auctions, � � � � �

transferring NPA’s domestic ARC’s.

20. Political leadership is lacking to effect � � � � �

reforms on a country’s economy,

legal structure and banking system.

21. Regulatory leadership is lacking to � � � � �

effect Management of financial and

banking sector reforms, action to

strengthen loan review and Capital

market developments and

Development of Secondary markets.

22. Government should enable Banks � � � � �

to raise more capital from

more sources.

23. Bank should reduce capital cost and � � � � �

increase financial system liquidity

and stability.

24. Main contributory factors for NPA in pre-liberalization era:

a) Down sizing in Agricultural Sector � � � � �

advance

b) Industrial licensing. � � � � �

c) Sector-wise reservation. � � � � �

d) Controlled interest Rate. � � � � �

e) Tariff protection. � � � � �

f) Role of Development Financial Institutions� � � � �

25. NPA stated to be declined due to the following reasons.

a) De-licensing of industries. � � � � �

b) Commencement of Reforms in the � � � � �

Economy in 1991.

c) Issuance of RBI guidelines on Income � � � � �

Recognition and Assets classification

(IRAC) in April 1992.

d) Banking Sector generally adopted a � � � � �

provide and hold strategy.

e) Setting up of Corporate Debt Restructuring� � � � �

(CDR) Scheme under the aegis of RBI.

f) Narasimhan Committee Report on � � � � �

Banking Sector reforms.

g) Verma Committee Report on Restructuring � � � � �

of Weak Public Sector Banks.

h) Introduction of Securitization and � � � � �

Reconstruction of Financial Assets and

Enforcement of Securities Interest Act 2002

(SARFAESI Act).

III. The following are some of the approaches for NPA Reduction. Assign Rank 1 to the most

important reason, Rank 2 to the next important reason and so on.

a) Restricting Slippage of Existing � � � � �

Standard Assets.

b) Recovery by way of Compromise � � � � �

Settlement of Accounts.

c) Recovery by Legal Action i.e. filing � � � � �

of suit in DRT etc.

d) Recovery by Enforcement of � � � � �

SARFAESI Act 2002 by takeover of

Assets and Transfer of Management.

e) Recovery by transfer of Assets to � � � � �

Asset Recovery Companies and

Securitization Companies.

f) Reduction of NPA by adjustment of � � � � �

ECGC claims.

g) Upgradation of NPA’s identified � � � � �

based on actual Recovery.

h) Write-off NPA. � � � � �

IV Following are some of the tools for resolution of NPAs. Assign rank 1 to the most important

reason, rank 2 to the next important reason and so on.

a) Close monitoring and follow up. � � � � �

b) Early Alert System. � � � � �

c) Focus on Special Category � � � � �

(Potential NPA) Accounts.

d) Restructuring of dues. � � � � �

e) One time settlements. � � � � �

f) Compromise settlement in � � � � �

Suit/filed/BIFR Accounts.

g) Acquiring real estate assets in � � � � �

Satisfaction of Bank dues in

NPA Accounts.

h) Compromise settlements through � � � � �

Lok Adalats.

i) Reference to Corporate Debt � � � � �

Restructuring Scheme.

j) Sales of Assets under SARFAESI � � � � �

Act. 2002.

k) Transfer of Loan Accounts to Assets � � � � �

Reconstruction companies.

l) Sale of NPAs to Banks/Financial � � � � �

Institutions and NBFCs.

m) Change of Management or induction � � � � �

of strategic investors.

n) Legal Action. � � � � �

o) Up-gradation of loan accounts � � � � �

classified as NPA.

p) Write-off. � � � � �

V. These are some challenges faced by the Banks to resolve NPAs. Rank 1 to the most important

reason, rank 2 to the next important reasons and so on.

a) External factors such as Economic � � � � �

recession, downturn in Industry,

natural Calamities etc.

b) Cumbersome Legal System. � � � � �

c) Delays in settlement proposals and � � � � �

implementation of rehabilitation

package in respect of BIFR case.

d) Non Co-operative attitude of � � � � �

Borrowers.

e) Borrowers take advantage of � � � � �

loopholes in the legal system.

f) Lack of adequate follow-up in � � � � �

recovery of dues.

g) Absence/inadequate market on re-sale � � � � �

value of assets charged.

h) Advances not backed by enforceable � � � � �

security.

i) Genuine Business failure. � � � � �

VI. The following are the general opinion on One Time Settlement (OTS) process. Please indicate

the statements by placing a √√√√ mark at appropriate column.

A. Agree

B. Disagree

C. Strongly Agree

D. Strongly Disagree

E. No Opinion

One time Settlement (OTS) Negotiated Settlement(NS) process.

A B C D E

a) Should be based on the merits � � � � �

of the case.

b) Not to be considered for willful � � � � �

defaulter and where there is suspicion

of fraud and/or an attempt to cheat

the Bank.

c) To be explored where restructuring is � � � � �

not likely to succeed and / or previous

efforts fro restructuring have failed.

d) Where risks relating to promoters, � � � � �

management and industry are perceived

to be relatively higher, it would be

better to exit.

e) In all the doubtful and loss cases, � � � � �

OTS/NS of dues should preferably be

explored rather than restructuring.

f) OTS / NS shall also be considered in � � � � �

situations where security and

documentation formalities are

not perfect.

g) All the dues including loan dues � � � � �

should be taken into account while

working out OTS/NS proposal.

h) A large portion of settlement amount � � � � �

could normally be arranged from

external sources (including sales of

surplus assets) and the company should

not rely too much on its cash flows

or internal generations.

i) In case of multiple lenders, if the � � � � �

company is prepared to make payment

to the Bank without approval of other

lenders, the same should be accepted.

j) A condition could be stipulated that � � � � �

in case company offers betters terms

(on present value basis) to any other

secured creditor, the Bank should be

brought on par with them.

k) Possibility of swapping the settlement � � � � �

amount with properties, shares of good

companies etc. may be explored, after

carrying out valuation/due diligence.

l) Right of Recompense may generally � � � � �

be considered in case part of funds

are being arranged by sale of assets

charged to the Bank.

m) Equitable sacrifices by all stakeholders � � � � �

be insisted upon the OTS/NS proposals

through a common forum

like BIFR, CDR, etc.

n) Valuation of assets charged to the � � � � �

Bank by an independent reputed Govt.

approved valuer should generally be

insisted in all OTS/ NS cases.

VII. In all NPA cases, exceptions/deviations can be considered in OTS/NS if any of the following

situations prevail. Please indicate the statements by placing a √√√√ mark at appropriate column.

A. Agree

B. Disagree

C. Strongly Agree

D. Strongly Disagree

E. No Opinion

A B C D E

(a) Cases pending in the DRT/Courts/ � � � � �

BIFR/AAIFR for more than 2 years.

(b) Unit lying closed for more than 2 years. � � � � �

(c) Security has not been created/perfected. � � � � �

(d) Project remaining unimplemented � � � � �

and/or project has been abandoned.

(e) Continuously incurred gross losses for � � � � �

last three years or since the year in

which first default to the Bank

(in payment of interest) occurred.

(f) Companies which have not achieved � � � � �

cash break even during the last 3 years.

(g) Realizable value of mortgaged assets � � � � �

(as per valuation) being lower than the

loan outstanding.

VIII. These are the general guidelines for taking action under SARFAESI Act. 2012. Please indicate

the statements by placing a √√√√ mark at appropriate column.

A. Agree

B. Disagree

C. Strongly Agree

D. Strongly Disagree

E. No Opinion

A B C D E

a) Type of security, generally assets secured � � � � �

by exclusive charge should be preferred

for faster resolution.

b) Ready availability of the prospective buyer. � � � � �

c) Detailed analysis on saleability aspect � � � � �

of the security.

d) Nature and gravity of attendant problems � � � � �

viz. whether unit is in operation, labour

problems, statutory dues, other

litigations, etc.

e) Chances and time frame for realization � � � � �

of the security and estimate of which

and ward expenses in the interim.

f) Number of co-lenders involved and � � � � �

likelihood of obtaining their

consents, etc.

g) Availability of custodial services in � � � � �

case of working units.

h) Action under the Act be approved � � � � �

by the delegated authority.

IX. The following are not covered by the SARFAESI Act. Please indicate True or False.

True False

a) Pledge of movable and lien on any � �

goods or security.

b) Aircraft/Vessel. � �

c) Hire Purchase/Lease etc. � �

d) Any security interest not exceeding Rs.1 lakh. � �

e) Agricultural land. � �

f) Appointment of an “Authorized Officer” � �

who shall not be person who is or

has been adjudicated insolvent, or has

suspended payment or has compounded

with his creditors, or who is, or has

been, convicted by a criminal court of

an offence involving moral turpitude.

g) Appropriation of sale proceeds and � �

filling/pursuing suit with DRT against

the guarantors for recovery of balance

dues.

X. Transfer of Assets to ARCs be considered on the following basis. Please indicate the

statements by placing a √√√√ mark at appropriate column.

A. Agree

B. Disagree

C. Strongly Agree

D. Strongly Disagree

E. No Opinion

A B C D E

(a) Banks are empowered to transfer � � � � �

NPAs alongwith underlying securities

to Asset Reconstruction Companies

(ARCs). This route will make possible

recovery from hard core Non

Performing Assets

(b) Without recourse basis. � � � � �

(c) At best possible price after critical � � � � �

evaluation of alternate recovery

prospects.

(d) Subject to adherence of the � � � � �

RBI guidelines.

(e) Proposals shall be put to delegated � � � � �

authority for approval.

XII. Sale of Non-performing Assets to Banks/Fl/NBFCs shall be considered on the following

basis. Please indicate the statements by placing a √√√√ mark at appropriate column.

A. Agree

B. Disagree

C. Strongly Agree

D. Strongly Disagree

E. No Opinion

A B C D E

a) NPA to remain for atleast two years in � � � � �

the books of selling bank.

b) Sell of homogeneous pool on a portfolio � � � � �

basis (each NPA of the pool to remain

as NPA for atleast 2 years in the books

of the selling bank.

c) May be sold on cash basis and the � � � � �

asset can be taken out of the books

of the selling bank only on receipt of

entire sale consideration.

d) Boards of Banks to lay down policy and � � � � �

guidelines for sale of NPAs to

ARCs/Banks/Fls/NBFCs.

e) Valuation procedure (based on the � � � � �

estimated cash follows arising out of

repayments and recovery prospects.

f) Banks to delegate Delegation of powers � � � � �

for sale of the assets.

g) Separate Accounting Policy to be made � � � � �

for sale of NPAs.

h) In case of sale of NPA to an NBFC, � � � � �

proper due diligence of the concerned

NBFC to be carried out.

XIII. Corporate Debt Restructuring (CDR).

Please indicate the statements by placing a √√√√ mark at appropriate column.

A. Agree

B. Disagree

C. Strongly Agree

D. Strongly Disagree

E. No Opinion

A B C D E

a) CDR framework to ensure speedy and � � � � �

transparent mechanism for restructuring

of the corporate debts of viable entities

facing problems, outside the purview of

BIFR, DRT and other legal proceedings.

b) Covers only multiple banking � � � � �

accounts/syndication/consortium accounts

with outstanding exposure of Rs.10 Crore

and above by banks and institutions.

c) If 75% of creditors by value and � � � � �

60% of creditors (by number) agree to

a restructuring package of an existing

debt, it will be binding on remaining

creditors.

d) Reference to CDR System could be triggered by-

i) Any or more of the secured � � � � �

creditors who have minimum

20% share in either working

capital or TL, or.

ii) By the concerned corporate, � � � � �

if supported by a bank or Fls

having stake as in (a) above.

XIV. These are the general guidelines to be following under CDR mechanism. Please indicate the

statements by placing a √√√√ mark at appropriate column.

A. Agree

B. Disagree

C. Strongly Agree

D. Strongly Disagree

E. No Opinion

A B C D E

(i) Agree to the legally binding � � � � �

“stand-still” arrangement.

(ii) Asset classification status � � � � �

may be restored (when the

reference to the CDR was made)

if the package is implemented

within 4 months from the

date of approval. The additional

provision made towards deterioration

in the asset classification during

pendencey of case with CDR

may be reversed.

(iii) To implement the restructuring � � � � �

package approved under CDR

system within 4 months from the

date of approval to avail regulatory

concession in asset classification.

(iv) Additional finance, if any, is � � � � �

to be provided by all creditors

of a “standard or sub-standard

account” irrespective of whether

they are working capital or term

loan on pro-rata basis.

For any reason any creditor

(outside the minimum 75% by value

and 60% by number) does not wish to

commit additional financing, such

creditor to (a) arrange for its

share of additional finance to be

provided by a new or existing creditor

agree to the deferment of first year’s

interest due to it after the CDR package

becomes effective.

(v) The exit option will also be available � � � � �

to all lenders within the minimum 75%

by value and 60% by number provided

the purchaser agrees to abide by restructuring

package approved by CDR. OTS may be

considered wherever necessary as a part of

the restructuring package.

(vi) In respect of the accounts that � � � � �

have been classified as “doubtful”

by the creditors and if minimum

75% by value and 60% by number

satisfy themselves of the viability

of the account and consent for

such restructuring subject to

the following:

(vii) It will not be binding on the � � � � �

creditors to take up additional

financing worked out under the

debt restructuring package and

the decision to lend or not to lend

will depend on each creditor.

viii) All other norms under CDR � � � � �

mechanism applicable to standard

and sub-standard category will also be

applicable to the doubtful class.

ix) The prudential norms, accounting � � � � �

issues and disclosure norms as per the

guidelines issued by regulatory

authority are applicable to all accounts

under CDR Mechanism.

XVI. The impact of NPA reflects on the following. Please assign ranks. Assign Rank 1 to the

most important reason, Rank 2 to the next important reason and so on.

A. Erosion of profit � � � � �

B. Increasing spread � � � � �

C. Increasing intermediation cost � � � � �

D. Increasing provisions � � � � �

E. Declining reserves and surpluses � � � � �

F. Increasing market borrowings � � � � �

XVII. SUGGESTIONS

Please indicate the statements by placing a √√√√ mark at appropriate column.

A. Agree

B. Disagree

C. Strongly Agree

D. Strongly Disagree

E. No Opinion

A B C D E

The problems of NPA can be � � � � �

contained to a great extent by

maintaining a continuous

rapport/relationship with

borrower customers.

2. Borrowers have to be made � � � � �

more accountable/

responsible to contain the NPA

problem.

3. Involvement of Auditors, � � � � �

Accountants, Regulators,

Representative bodies, etc.

would help to recover the

banks dues in an effective

manner.

4. Corporate Governance in � � � �

Corporate bodies can help to

improve the conduct of

accounts with banks and

bring down the level of NPAs.

5. Please indicate according to your opinion, what will be the percentage

of borrowers under each of the following classification.

Percentage

a. Good performers and are willing to repay

b. Good performers but not are willing to repay

c. Bad performers and still are willing to repay

d. Bad performers and have rethinking to repay

Part - C

Please offer your suggestions form your practical experience to

contain the problem of NPAs taking into consideration the

present constraints.

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

“Management of Non-Performing Assets (NPAs) and Recovery Strategies of Old Private Sector

Banks in Tamilnadu”.

QUESTIONNAIRE FOR BANK BORROWERS

Dear respondents,

I am V. Sekar, Director(Finance), Hindustan Insecticides Limited, (formerly Dy. General

Manager, Lakshmi Vilas Bank Ltd, Karur, Tamilnadu), pursuing my Doctorate in Alagappa University,

Karaikudi under the supervision of Dr. V. BALA CHANDRAN. For the research work, I have selected

the topic “Management of Non-Performing Assets and Recovery Strategies of Old Private Sector

Banks in Tamilnadu”. So, I request you to kindly provide and extend your support for filling the

questionnaire. The information will be kept confidential and the same would be used only for academic

and research purpose.

Thanking you.

V. Sekar, Research Scholar,

Alagappa Institute of Management, Alagappa University,

Karaikudi.

QUESTIONNAIRE

I

PART-A

□ Personal profile:

• Name of Borrower: ___________________________________________________

• Loan amount: _______________________________________________________

• Position: ___________________________________________________________

• Name of Bank: ______________________________________________________

PART-B

II The following are stated to be main reasons for industries becoming sick & loss making and subsequently become NPA from the Borrowers point of view. Please indicate your

opinion by placing a (√√√√) mark at appropriate column in the five point response scale.

A B C D E

F. Agree G. Disagree H. Strongly agree I. Strongly Disagree J. No opinion

H. Higher rate of interest & other cost � � � � �

I. Inadequate loan facilities � � � � �

J. Excess loan facilities � � � � �

K. Obsolete technology � � � � �

L. Lack of modernization & upgradation � � � � �

M. Lack of market for the product � � � � �

N. Defective product � � � � �

O. No timely support from the Bank � � � � �

P. Siphoning of funds � � � � �

Q. Monsoon failure � � � � �

R. Recession in economy � � � � �

S. Limited reach of Banks � � � � �

T. Rigid approach of Bank � � � � �

U. Lack of supporting business development � � � � � services

III. The following are some of the general opinion on NPAs. Please indicate your opinion by

placing a (√√√√) mark at appropriate column in the five point response scale.

A B C D E

A. Agree B. Disagree C. Strongly agree D. Strongly Disagree E. No opinion

1. There is a general feeling that � � � � � banks do not have an effective market intelligence system to know more about the borrowers and act accordingly.

2. It is generally felt that banks � � � � � do not pay adequate attention to borrower customers as they do in the case of deposit customers.

3. The rate of interest charged to � � � � � the borrowers are much in excess of the declared Base Rate/BPLR for most of the borrowers.

4. There is no system in the bank � � � � � to fix the rate of interest to the borrowers on the basis of repaying capacity.

5. There is a feeling that banks � � � � � are not able to bring down the rate of interest to borrowers, on account of NPAs.

6. Bank try to postpone the problem � � � � � such as rescheduling of debt, new

loans to delinquent borrowers, and

spend months and years in discussion

with Borrowers on loan restructuring

7. Of late, there is a general � � � � � aversion to lending among banks because of NPAs.

8. Banks do nothing about NPA and � � � � � wait for on Economic recovery to rescue Borrowers.

9. Political leadership is lacking to effect � � � � � reforms on a country’s economy, legal structure and banking system.

IV. The following are some of the challenges faced by Borrowers due to which the Borrowal

account becomes NPA. Assign Rank 1 to the most important reason, Rank 2 to the next important reason and so on.

1. Major break down in plant & machinery � � � � �

2. Labour strike � � � � �

3. Frequent changes in Management � � � � �

4. Sudden death/illness of partner/director � � � � �

5. Disputes among partners/directors � � � � �

6. Repeated reconstitution of the firm/Board � � � � �

7. Non enhancement of credit limits by banks � � � � � in time

8. Recession in industry � � � � �

9. Exchange fluctuation � � � � �

10. Devaluation of Rupee � � � � �

Borrowers feel that NPA arises due to the following reasons. Please indicate your opinion by

placing a (√√√√) mark in appropriate column.

A B C D E

A. Agree B. Disagree C. Strongly agree D. Strongly Disagree E. No opinion

1. Poor quality of advance � � � � �

2. Political interference in the lending process � � � � �

3. Neglect of proper Credit Appraisal � � � � �

4. Need based credit facilities � � � � �

5. Non follow up � � � � �

6. End use supervision of funds � � � � �

7. Direct lending � � � � �

8. Loan mela � � � � �

9. Credit to various segments under political � � � � � Influence.

10. Expectancy of waiver of small loans of � � � � � Agriculture loan.

11. Change in Economic policy � � � � �

12. Change in Industrial & Agricultural policy � � � � �

13. Credit policy � � � � �

14. Exchange rate policy � � � � �

15. Labour policy � � � � �

16. Business failure � � � � �

17. Market failure � � � � �

18. Diversion/siphoning of funds � � � � �

19. Time over run � � � � �

20. Cost over run � � � � �

21. Inefficient management � � � � �

22. Poor utilisation of credit � � � � �

23. High Intermediation costs � � � � �

24. Low level of technology � � � � �

25. Lack of education of borrowers � � � � �

26. Poor legal system � � � � �

27. Corruption in the high offices � � � � �

28. Borrowers inability to tie-up funds in time � � � � �

29. Inadequate promoters contribution � � � � �

30. Financial indiscipline in utilization of funds � � � � �

31. Poor capital market � � � � �

32. Inordinate delay in realization of debts � � � � �

33. Quality of product � � � � �