contents · contents item no. description page no. ... assets (npa) by proper application of...

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KERALA FINANCIAL CORPORATION HEAD OFFICE, THIRUVANANTHAPURAM

LOAN MONITORING GUIDANCE NOTE 2013-14

CONTENTSItem No.

DESCRIPTION Page No.

1 Objective 4

2 Loan Monitoring 4-5

3 Orientation and approach 6

4 Alternative Information Sources 6 –7

5 Monitoring Standard Accounts 7 –8

6 Monitoring of Stressed Accounts 9

7 Monitoring of Sub-standard Accounts 9-10

8 Monitoring of D1 & D2 cases 11

9 Monitoring of D3 cases 11

10 Restructuring of NPAs 11-12

11 Rehabilitation 12

12 Delegation 13

13 Upgradation of NPAs 13

14 Fresh Assistance in NPA Cases 13 - 14

15 Initiation of Coercive Recovery Action 14 -17

16 Review/Monitoring of Section 29 / RR / Court Cases 18 – 19

17 Valuation Policy of Assets Taken over U/S 29 – For sale 19 – 20

18 Insurance of Assets 20

19 Sale of Assets 20

20 General Guidelines 20

21 Annexure 1 - Field Officers Report (Standard cases) 21

22 Annexure 2 – Guidelines for considering relief/concession to stressed accounts

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23 Annexure 3 -Possible reasons for Accounts turning into NPA 26-27


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24 Annexure 4 – Failure cause analysis of fresh NPAs 28-29

25 Annexure 5 – Trigger points 30-31

26 Annexure 6 – Field Officers Report (Except D3 cases) 32

27 Annexure 7 – Memorandum of D3 cases 33-34

28 Annexure 8 – Asset Classification and Income Recognition Norms 34-37

29 Annexure 9 – Procedure for sale of properties taken over under section 29 38-43

30 Annexure 10 – Procedure for enforcing the right under SARFAESI Act, 2002 44-45

31 Annexure 11 – Guidelines regarding takeover of units under Section 29 of SFC Act

46 – 54

32 Annexure 12 – Draft letter for fixing Reserve Price 55

33 Annexure 13 – Draft letter for Notice of sale 56-57


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LOAN MONITORING GUIDANCE NOTE (LMGN) 2013-14

1. OBJECTIVE

The basic objective of the Loan Monitoring Guidance Note (LMGN) is to lay down uniform objective and effective procedures and measures for regular inspection of the assisted units and to maintain close contact with promoters / co-obligants enabling the Corporation to prevent assets becoming NPA and to initiate quick and result oriented recovery steps to recover the dues under the credit port-folio and out of Non-Performing Assets (NPA) by proper application of appropriate recovery tools.

The other allied objective are to:

a. Ensure timely implementation of project as per schedule given in the appraisal note.b. Observe deviations from the approved scheme and to take corrective measures in time.c. Check misutilization / siphoning of funds during and after implementation.d. Track the firm's progress in meeting its objectives.e. Communicate with borrowers / co-obligants and develop trust.f. Understand the source of problems and to help the firm succeed and minimize defaults and losses.g. Protect security from other outside liabilities like statutory dues and other taxes.h. Ensure that all the stressed Assets and NPAs are duly attended to and an appropriate recovery tool is applied expeditiously.I. Bring about uniformity in approach while dealing with defaulting borrowers.j. Initiate time-bound action for recovery.k. Ensure timely repayment of the loan.

2. LOAN MONITORING

Once the loan is sanctioned and agreement executed the monitoring process begins. The purpose of loan monitoring is to identify, as soon as possible, any changes in the borrower's/firm's financial condition or performance that impact, or may impact, the borrower's/ firm's capacity to repay the outstanding loan(s) to the Corporation as agreed.

The monitoring process is based on the weaknesses identified during the credit initiation and analysis phase. The Field Officer should actively monitor the borrower's strengths and, particularly, the weaknesses identified during the appraising process on a regular basis. The greater the weaknesses identified, the more frequent the monitoring. And, if new or worsening weaknesses are identified, the monitoring should be more frequent.


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Typically, the loan agreement requires the borrower to submit financial and other information on a regular basis. Generally, the higher the credit risk, the more often information is required by the Corporation. In addition to this regular flow of information, the Field Officer contacts the borrower by phone, in person or today by e-mail to track how the firm is performing. The loan file should contain evidence of monitoring by the field officer: site visits, phone calls, interim financial reporting, and annual financial statements. In order to document the conversation, any important suggestions / directions should be sent through e-mail and replies also received through e-mail. A print out of these e-mail exchanges, party-wise should be taken on a quarterly basis and filed separately.

Of course, the best indicator of performance is principal and interest payments in accordance with the loan agreement, although on-time payments are NOT a guarantee that there are no credit problems.

The key to effective monitoring is regular, close customer contact and receipt of financial statements to ensure that the Corporation has current knowledge of borrower's activities. Based on direct customer information, the analytical framework developed during the credit initiation and analysis phase should be used to track borrower performance. The Corporation should pay particularly close attention to preserving the two sources of loan repayment – cash flow and security realization.

The primary monitoring tool, the loan agreement, should stipulate the requirements for information that the borrower must provide: types of information and frequency of submission. The loan agreement should also contain covenants that the borrower must serve during the life of the loan. Such covenants may include requirements to observe certain ratios, such as leverage and liquidity, at all times. They may also include certain prohibitions, such as loans to company owners or officers, owner salaries or purchase of equipment without the written consent of the Corporation.

Once deterioration or negative changes are identified, the Field Officer must determine whether or not the changes are material enough to affect repayment capacity and, therefore effect a change in the risk rating. A truly material change may even represent a loan default, a violation of the loan agreement which would give the Corporation an opportunity to restructure the credit.

A change in the risk rating sets in motion a series of other actions, including an increase in the loan loss reserve, as stipulated by the loan policy of the Corporation. Other actions may include the demand for additional collateral, an increase in the interest rate, even demand for immediate loan repayment, “recalling the loan”.

Depending on the severity of the changes identified and the subsequent change in the risk rating, an action plan for the realization of the outstanding loan to be planned, approved and executed.


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3. ORIENTATION AND APPROACH

a. The LMGN emphasizes that all the Branch Offices would have the monitoring orientation right from the stage of sanction / disbursement of assistance.

b. Efforts should be made to ensure timely documentation and disbursements which would help create a healthy relationship with the borrower.

c. It would be important to stipulate only practical and meaningful terms and conditions at the time of sanction of assistance so that timely compliance therewith can be made by the borrower firm / company.

d. Success of the borrower in implementing the assisted project / activity, without time and cost over-run as far as possible, would be of paramount importance for hassle-free recovery in most of the cases. Verification of end-use of funds would indicate whether the project is being implemented in the right earnest. Besides, verification of documents and progress reports, site visits would also play a crucial role in ensuring close monitoring at the project implementation / completion phases.

e. Creation of primary security under the project would not have any meaning unless the assets are created out of the Corporation’s assistance disbursed to the borrower. This would call for periodical site visits and verification of assets installed at the unit.

f. Proper and timely communication of dues payable by the borrower would also help in ensuring a smooth recovery channel.

g. In case of continued default, the dues would get compounded quickly and after sometime, it would become difficult for the borrower to honour them. Remedial measures would, therefore, be initiated right from the first instance of delayed payments/ defaults.

h. The guidelines for KYC/AML would be strictly followed before considering any application from the borrowers.

i. Above all, in order to develop and maintain customer friendly approach by all officers, guidelines issued in Circular No.43 dated 04.03.2013 to be followed in letter and spirit.

4. ALTERNATIVE INFORMATION SOURCES

When a company submits financial information infrequently, or when the reliability of the information is in doubt, Corporation can turn to alternative sources of information.


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For example....

a. VAT tax remittances as a measure of turn-overb. Monthly listing of accounts receivable to measure turn-over and cash generated form sales.c. Monthly electricity bills.d. Rent rolls and copies of leases to monitor the performance of commercial real estate.e. Records to identify delinquent payments of taxes or payable to trade creditors, PF dues, sale-tax dues and other statutory dues.

5. MONITORING STANDARD ACCOUNTS

Standard accounts are those which are prompt in repayment of principal and interest and where the interest and / or instalment of principal do not remain overdue for more than 90 days.

Proper follow up and continuous monitoring of standard account is the first step to prevent the account from becoming NPA. Regular repayment of principal / interest does not necessarily mean that the functioning of the unit is without any problems. So close follow up and regular inspection of the unit is vital in identifying potential problems of the unit so that timely measures can be taken to prevent slippage of account to NPA.

Guidelines for follow-up.

I. Periodical visit, preferably monthly but atleast quarterly to the assisted unit should be carried out to assess the working performance of the unit and report submitted in the enclosed format - Annexure – 1. Discussions with the promoters/management/employees /employers' associations and other related agencies like bankers to the unit / raw-material suppliers / customers/clients etc are also necessary to understand the potential weaknesses, if any, of the unit. This would help in taking appropriate remedial measures in advance.

II. Financial analysis to be done on a half yearly basis on:

(a) Internal Credit Rating report to be prepared every six month. Original credit rating prepared at the time of appraisal need not be changed.


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1. (b) Following ratios shall also to be computed.

Liquid ratios Leverage ratios Profitability ratios

Ratio Current ratio

Liquid ratio

DER DSCR ACR NPAT ROI

Red Herrings

<1:1 <0.5:1 <1.5:1 <1.5:1 <1.5:1 -ve or (declining)

-ve or (declining)

If the ratios fall under the Red Herrings as shown above, detailed noting with reasons for the same to be given in the inspection report.

III. To verify whether the unit has obtained all statutory licences from the local bodies. If there is any problem, ascertain the reason and take up with the Department concerned for solving the issue.

IV. To verify repayment of instalments to banks, payment of dues to KSEB, Sales-tax Department and other statutory bodies. To check whether there is any sales-tax / Income-tax/provident fund issues pending and try to sort out the issue.

V. Enquiry to be made with respect to the market trend for the section / type of business / industry. To ascertain whether any change in the Government Policy after disbursement has affected the business (like Bar Licensing Policy) and whether the borrower has taken sufficient steps to overcome the problem and to render necessary support to them to solve the problem.

VI. Physical verification of assets financed by the Corporation to be made during every visit and ensure that the assets are maintained in good condition and insured properly. Any dilution in security (primary and collateral) or any outside liability over the same may be brought to the notice of the CM/BM by the Field Officer during every visit.

VII. Any serious development to be reported to senior authority with suggestion for remedial action on reschedulement / rehabilitation / recall / change in business orientation etc.

VIII. The Field Officer is primarily responsible for keeping the account under standard category and reporting slippage of the account to S2 category to the Monitoring Authority to take immediate remedial steps. The monitoring authority will be as follows:

For loans upto Rs.250 lakhs - BM/CM For loans between Rs.251 lakhs – Rs.500 lakhs - ZM For loans between Rs.501 lakhs and above - DGM


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6. MONITORING OF STRESSED ACCOUNTS

Accounts where principal and / or interest has been in default for more than 30 days is termed as stressed assets. As a measure of preventive NPA management in respect of deserving stressed assets, we may have to proactively consider restructuring of dues in order to maintain the asset quality. The relief/concessions in respect of stressed accounts facing temporary problems could, include funding/waiver of interest/penal interest etc. For units facing long term or structural deficiencies, relief/concessions in the form of need based reduction in rate of interest, reschedulement of outstanding loan instalments and/or additional assistance besides aforestated waivers, if necessary, could be considered. Continuous monitoring and intervention is necessary on our part, once asset comes under stressed category.

Details of accounts which are likely to slip to NPA category within 1, 2 and 3 months are available in the System. The guidelines for considering relief/concessions to stressed accounts is given in Annexure -2.

7. MONITORING OF SUB STANDARD ACCOUNT

(a) Identification

The primary guiding factor for recognising a non-performing asset will be the Asset classification norms prescribed by RBI/SIDBI.

As per the norms, among other conditions, if interest and / or principal instalments remain unpaid in a loan account for a period of 90 days or more on the relevant date, the loan account concerned will be classified as NPA. CMs/BMs/ZMs must ensure that the above analysis is done in every case and copy of the report forwarded to the respective officers as per the multi-tier monitoring structure at item 7(d).

(b). Failure Cause Analysis and Knowledge Sharing

As part of the Corporation’s policy regarding prevention of fresh slippages into NPAs, analysis of failure of accounts would be carried out by the FO and reports submitted to BM/CM within a month of an account turning into a NPA, and the finding thereof would be used towards mitigating the risk of slippages of new accounts into NPAs.

An indicative list of reasons which could cause failure of cases is given as Annexure- 3. Format for reporting Failure Cause Analysis is given in Annexure – 4.


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c. Trigger points

A system of triggers would be adopted for post-NPA management with a view to automatically triggering off the desired action. Trigger Points would be updated from time to time. A list of Trigger Points, along with desirable actions, which would constitute an indicative Trigger System is given at Annexure - 5.

d. Multi-tier monitoring system

While the primary responsibility to monitor the individual NPA accounts would continue to rest with BO concerned, for the overall monitoring purpose multi tier monitoring structure would be followed for collective review of all assets.

For loans upto Rs.250 lakhs - BM/CM For loans between Rs.251 lakhs – Rs.500 lakhs - ZM For loans from Rs. 501 lakhs and above - DGM

e. Field Officers Report

In order to ensure inspection of units by the Filed Officers more useful and to collect more information for effective monitoring, a format is enclosed as Annexure – 6 for submission of reports by Field Officer. The exercise is to be carried out for every unit atleast once in a quarter.

f. Report on slippage from standard to NPA category

Reasons for slippage from standard to NPA category & action taken for upgradation of all cases from 01.04.2013 (cumulative) to be furnished to ZM in the following format who in turn will forward the same with his remarks to DGM(R)/GM(R), H.O before 10th of succeeding month (starting from May 2013).

Sl.No.

Name of the unit & name of Chief Promoter, Phone No.

Arrears Prl. O/S Amt. Required for upgradation

Remarks of BO with reasons for slippage if any.

Action taken by BO & action

suggested

Recommendation of ZM Prl. Int. Tot.


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8. MONITORING OF D1 & D2 CASES.

In order to ensure better monitoring of D1 & D2 cases monthly report in the following format should reach the GM/DGM (Recovery) by 10th of the succeeding month.

Branch: Week ending:

Name & Address of the party(Mob.No.)

Amount disbursed

Amount due Amt. Required for upgradation

to standard category.

Balance outstanding

Security Available

Action taken/ proposed to

regularize repayment

Prl. Int. Tot.

1 2 3 4 5 6 7

9. MONITORING OF D3 CASES:

Also format for Memorandum of all D3 accounts to be maintained is enclosed as Annexure - 7. The exercise is to be carried out every month and filed Borrower-wise serially. 10. RESTRUCTURING OF NPAs

a. The general framework of the restructuring policy of the Corporation would be aligned in line with the policy guidelines issued by RBI/SIDBI from time to time.

b. From the point of view of portfolio retention and continuing to earn even from irregular accounts, restructuring of impaired accounts would be pursued as one of the primary tools of NPA management. In order to have a focused attention on the restructuring of nascent NPAs, FOs should visit such units within a month of the account turning into NPA so as to initiate timely action.

c. Having regard to the safety of collateral properties mortgaged, all immovable properties mortgaged as collateral security should also be inspected by the FOs

d. Further, repeat visits should invariably be made to those assets within one month of an account becoming NPA.

e. Notwithstanding the above, visits may also be carried out by the Officers preferably when an account shows any signs of default or slips to the stressed asset category.

f. Restructuring would include one or more forms of relief/concessions such as


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reschedulement of principal instalments, funding of interest, reduction in interest rate and granting need based additional finance would be targeted at the following segments:

(i) NPAs which are not classified as sick SSI units, where grant of relief / concessions may help the units to tide over their temporary problems.

(ii) Potentially viable sick SSI units, where grant of rehabilitation package may be helpful to turnaround such units.

g. Co-ordination with other lenders to the borrower in finalizing a workable restructuring package would be important so that the unit’s long term viability is assured and the projections are realistically drawn.

h. Since timely restructuring would help in preventing further deterioration of the account, a decision on the restructuring proposal would be taken within one month of receipt of such proposal along with complete information.

i. Monitoring of restructuring package would be done on regular basis to check whether the desired impact of restructuring is being achieved. If not, alternative course of action would be contemplated.

11. REHABILITATION

In deserving cases rehabilitation of sick units can be done after conducting detailed inspection and study by team consisting of General/Legal/Technical Officers. Based on the recommendation of the team suitable package of assistance can be extended to the units. Close follow-up and monitoring of these units to be carried out by F.Os. during their periodic visits. Separate Register is to be maintained.

As per RBI guidelines an SSI unit should be considered 'Sick' if : any of the borrowal accounts of the unit remains substandard for more than six

months.or

there is erosion in the net worth due to accumulated cash losses to the extent of 50 per cent of its net worth during the previous accounting year;

andthe unit has been in commercial production for at least two years.


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12. DELEGATION

All decisions on rehabilitation, revival, reschedulement/restructuring packages will be exercised by the next higher authority so as to form an unbiased opinion. Balance outstanding as on date will be the criteria for deciding the authority for approval. In all BIFR cases and for loans above Rs.500 lakhs the sanctioning authority shall be the C&MD Level Committee. Prior approval of C&MD is required for considering reduction of interest and funding of interest.

13. UPGRADATION OF NPAs

a. Waiver of penal interest : Occasions may arise when an account can be regularised or brought to standard assets with waiver of penal interest. There can also be genuine reasons like remittance made by borrower could not be accounted in time due to intervening holiday or fault in the computer system or any other unforeseen circumstances beyond the control of borrowers, such as accidents, calamities, etc. which, may result in delay in payment of dues to the Corporation by the borrowers. In such eventualities, waiver of penal interest can be considered for all loans in standard & NPA category. Delegation for this is as follows: ZLC - Upto Rs.50,000/- GMLC - Upto Rs.2,00,000/- CMDLC - Above Rs.2,00,000/-

b. Corporation would follow the guidelines on prudential norms and asset classification issued by the RBI/SIDBI from time to time. Upgradation of NPAs would also be governed by the said guidelines in force. The major guidelines in this regard are given at Annexure - 8.

c. NPAs not subjected to restructuring will be upgraded immediately on clearance of defaults, if the account does not otherwise show any inherent deficiencies.

d. The restructured NPA accounts would be upgraded after satisfactory debt servicing performance for the specified period in terms of the extant RBI/SIDBI guidelines. Field Officers should take maximum efforts in reducing NPA level.

14. FRESH ASSISTANCE IN NPA CASES

a. Sanction of fresh loans/limits would be considered in NPA cases, if it is found absolutely desirable for better prospects of the borrower unit/company and in the process would also ensure clearance of the outstanding dues to the Corporation.


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b. In case of restructured NPA accounts, if the post-restructuring performance is satisfactory, as envisaged in the package, any request for fresh finance/limits could be considered on merits, even before upgradation of the asset to performing category.

c. Sanction of fresh assistance under (a) and (b) above shall be done only with the permission of Chairman & Managing Director.

15. INITIATION OF EFFECTIVE RECOVERY ACTION

Effective recovery action should be used only as the last resort, but normally before the accounts slips to Doubtful Asset category. Different types of recovery methods available are Section 29 of SFCs Act, Revenue Recovery, DRT, SURFAESI and Section 31 of SFCs Act. Details of the recovery methods are as follows:

a. Procedure for take over under section 29.

i. Section 29 proceedings can be taken against the industrial concern/ primary assets or collateral assets mortgaged by the principal debtor alone.

ii. Where any industrial concern makes any default in repayment of any loan or advance or any instalment thereof (or in meeting its obligations in relation to any guarantee given by the Corporation)or otherwise fails to comply with the terms and conditions of its agreement notice in writing may be issued to the borrower to discharge in full the liabilities within thirty days from the date of the notice failing which the Corporation shall be entitled to exercise the rights under Section 29.

iii. The notice shall give the details of the amount payable and the assets intended to be taken over in the event of non-payment of the amount.

iv. Notice under section 29 shall be issued under registered post with A/D to all the parties, viz., the borrower, the co-obligants, guarantors etc. and the acknowledgment cards kept in the file. Except in cases where notice is returned with endorsement "refused" or "unclaimed" recovery action can be proceeded only after serving the notice by hand delivery to the parties concerned or in their absence, to the male member of the family, or by affixing the notice in the last known address of the concerned in the presence of two independent witnesses and keep the report in the file.

v. The notice under section 29 will be issued by the CM concerned and with intimation to Zonal Manager and General Manager.


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vi. If on receipt of the notice, the borrower makes any representation or raises any objection, such representation or objection shall be considered and if such representation or objection is not acceptable or tenable it shall be communicated to the borrower.

vii. In case the borrower fails to discharge the liability in full within the period specified in the notice the assets can be taken over after obtaining the orders of Chairman & Managing Director.

viii. The take over shall be done by the Chief Manager/Branch Manager of the concerned Branch Office. Guidelines regarding take over under section 29 is given in Annexure 11.

ix. The assets shall be taken over in the presence of two witnesses. A mahazar to be drawn and signed by the officer taking over the assets and witnesses. An inventory of the assets taken over shall be prepared. A copy of the mahazar and inventory shall be given to the borrower or to any person entitled to receive on behalf of the borrower.

x. After take over, a written notice may be issued to the borrower with request to settle the loan account immediately and also informing that the assets will be sold if he fails to do so within 30 days.

xi. If there is no response from the promoter/co-obligant against the above notice BO may take steps for disposal of the assets taken over.

xii. Detailed procedure for sale of assets taken over under section 29 of SFCs Act is given as Annexure - 9.

b. Procedure for Revenue Recovery Action:

i. RR proceedings can be initiated against all the security properties as well as borrowers, co-obligants and guarantors personally. For assets other than primary it is preferable to take action under RR.

ii. A registered notice giving 15 days time will be issued to the promoters and co-obligants asking them to remit the arrears failing which RR action will be initiated.

iii. If there is no response to our demand notice RR proforma will be sent to H.O for approval by the Chairman & Managing Director.

iv. Once the RR proposal is approved by the Chairman & Managing Director, RRR


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will be sent to District Collector concerned by the CM/BM.

v. B.O. Should follow-up with the District Collectorate to get the RRC issued and ensure that the assets are attached and sold by the Dy.Tahsildar at the earliest.

vi. Also, RR action should be initiated against the borrowers, co-obligants, guarantors, directors immediately after the unit is taken over by the Corporation under Section 29. The RR may be initiated for the whole amount due to the Corporation.

vii. If Section 29 is not advisable to be taken against any mortgaged asset, RR to be taken immediately after obtaining orders from Chairman & Managing Director.

c. Procedure before Debt Recovery Tribunal

(i) The Central Act Recovery of Debts due to Banks and Financial Institutions Act 1993 is enacted by the Parliament to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. The Act is applicable to KFC as it comes under the definition of financial institutions. The provisions of this Act shall not apply if the debt is less than Ten lakhs Rupees. A Debt Recovery Tribunal (DRT) shall exercise jurisdiction, powers and authority to entertain and decide application from the banks and financial institutions for recovery of debts due to such banks and financial institutions. An Appellate Tribunal shall exercise the jurisdiction, powers and authority to entertain appeals against any order made by Tribunal.

ii. We can make application to recover the amount due, before DRT, within whose jurisdiction the defendants resides or carries on business or cause of action arose, under Section 19 of the Act. The Tribunal and Appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure, but shall be guided by the principles of natural justice.

iii. The Recovery Officer shall on receipt of the copy of the Certificate under Section 19 proceed to recover the amount of debt specified in the certificate by one or more of the following modes.

a) by attachment and sale of the movable or immovable property of the defendant/Borrower;

b) by arrest and detention of the defendant in prison;

c) by appointing a receiver for the management of the movable or immovable properties of the defendant.


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iv. Suit Fee under DRT Rules:

Application fee for recovery of debts due under Section 19 of this Act.

a) where amount of debt due is Rs.10.00 lakhs - Rs.12,000/-

b) where amount of debt due is above Rs.10.00 lakhs - Rs.12,000/-plus Rs.1000/- for every one lakh in excess of Rs.10.00 lakhs, subject to a maximum of Rs.1,50,000/-.

d. Procedure for enforcing the right under SARFAESI Act 2002.

Details are given in Annexure - 10.

e. Procedure for initiating Section 31 of SFCs Act, 1951

(i) In the light of the verdict of Hon’ble Supreme Court in Narasimhaiah case, 2008 (5) SCC 176 the Corporation can have recourse under Section 29 of SFCs Act against the industrial concern and other assets mortgaged by the Borrower. It means that Section 29 proceedings cannot be initiated against the collateral assets mortgaged by the Co-obligants /Surety. At the same time Section 31 of the Act provides alternative remedy for realizing the debt against the Borrower as well as the Surety.

(ii) An application shall be submitted before the District Judge within the local limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of the business for one or more of the following reliefs.

a) for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation as security for the loan or advance or

b) for enforcing the liability of any Surety or

c)for transferring the management of the industrial concern to the Financial Organisation or

d) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equivalent from the premises of the industrial concern without the permission of the Board where such removal is apprehended.


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16. REVIEW / MONITORING OF SECTION 29 / RR / COURT CASES

a. Section 29 cases

CM/BM shall conduct monthly review and submit report to ZM/DGM. ZM shall conduct quarterly review of all cases under Section 29 and submit report to DGM/GM. DGM shall review all such cases which are in the custody of the Corporation for more than one year and report submitted to GM. Format for review of Section 29 is as follows:

Branch: Month:Name of

unit & Contact

No.

Date of take-over

No. of times advertised

Asset value Balance outstandingRemarksLand Bldg. Mach. Tot. Prl. Int. Total

b. RR cases

The Field Officers in each Office are fully responsible for monitoring all RR cases and overall recovery achievement in their respective areas. They are accountable for Revenue Recovery as well as for their usual responsibilities in their assigned areas. CMs/BMs will ensure that Field Officers will also concentrate on RR in co-ordination with the Deputy Tahsildars. They will liaise with the revenue staff at the Collectorate, KFC, Taluk and Village level and they will conduct regular inspections as well as reviews of RR with the deputy Tahsildars regarding RRCs., Solvency Certificates, attachments, sale and other pending recovery works. Field Officers will be held equally responsible for the performance of the Deputy Tahsildars in their respective areas.

All reviews for revenue recovery will include both the Field Officer and the Dy.Tahsilar. Although the statutory powers can only be exercised by the Dy.Tahsildars, this joint system of working will ensure better co-ordination and performance.

CM/BM shall conduct monthly review. CM/BM should attend RR review meetings convened by the District Collectors and send reports to GM/DGM on progress of RR collection. ZM shall conduct quarterly review of all RR cases and report submitted to DGM/GM. Format for the review is as follows.


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Asset cases Branch: Month:

Name of unit & Contact

No.

Date of RRC

No. of times sale posted

Asset value Balance outstanding Remarks

Land Bldg. Mach. Tot. Prl. Int. Total

No asset cases Branch: Month:

Name of unit & Contact No. Date of RRC

Balance outstanding Action taken / proposed for recovery (RR, court, criminal

case, etc.)Prl. Int. Total

c. Court cases

BMs/ZMs shall review all Court/ cases and wherever the balance outstanding is above Rs.100 lakhs they shall be reviewed by AGM(L)/DGM. These reviews will be conducted once in a quarter and report submitted to GM in the following format.

Sl.No.

Suit No.& Court

Loan No., Name of the unit

& Contact

No.

B/0 (in lakhs)

Name of the Adv

for Corpn.

Details of injunction / stay

Gist of case

Action taken

Present stage

Remarks

17. VALUATION POLICY OF ASSETS TAKEN OVER U/S 29 – FOR SALE

I. The valuation in such cases has to be done by an Approved Valuer (registered under Section 34 AB of Wealth Tax Act 1957.

II. The valuation should be the 'Immediate Realizable' value in next 2 months of the asset on 'as is where is ' basis and taking into account liabilities attached to the asset.

III. Branch can also carry out its own valuation, in case, it is felt that the external valuer has not properly assessed value or for other justifiable reasons. On such valuation if the difference is more than 10% from the valuation by external valuer, detailed reason for the difference to be given by Branch. The explanation of the external valuer will also be obtained in such cases.

IV. The Branch Level Committee shall fix the reserve price and put up to Zonal Manager who will get it pre-audited and place it before the GM Level Committee for approval. Draft letter for communication reserve price to the promoter is given at Annexure – 12. The sale can be confirmed by the Branch Head to the highest bidder if the offer is above the reserve price.


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V. The cost of valuation will be considered as 'other expenses' for the purpose of fixing liability of the borrower and the same will be paid by the Corporation.

Detailed procedure for sale of assets is given in Annexure-9.

18. INSURANCE OF ASSETS

Insurance cover would continue to be obtained in all NPA cases, including recalled , taken over, RR and suit filed cases as per the operational guidelines issued by the Corporation from time to time. It will be the responsibility of the Field Officers to ensure the renewal of insurance. Cost of insurance will be considered as 'OE' for the purpose of fixing liability of the borrower. If the security is land only, insurance need not be insisted. And if the CM/BM is of opinion that insurance of a unit/security is not required, the same shall be reported to H.O and approval obtained.

Insurance Register shall be maintained by the Branch office with upto date details.

19. SALE OF ASSETS

Sale of assets under Sn.29 will be done through e- sale (through the web-portal of KFC), the procedure of which is given in Annexure-9.

However assets which are of small value having only local buyers can be sold through local advertisement/publicity after getting approval from CMD.

Delegation in such cases is as follows:

BLSC - Sale offer more than 100% of Reserve price.ZLSC - Sale offer more than 80% of Reserve PriceGMLC - Sale offer more than 70% of Reserve price.CMDLC - Sale offer less than 70% of Reserve price.

20. GENERAL GUIDELINES

Any clarifications regarding the Loan Monitoring Guidance Note 2013-14 or any related instructions or procedures etc. can be issued by C&MD from time to time.

….....................


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Annexure – 1 FIELD OFFICERS REPORT (STANDARD CASES)

Name of F.O & Date and time of visit :

1. Loan Number & Name of unit , Phone No. :

2. Date of last visit :

3. Whether any pre-sanction/pre-disbursement audit observation are yet to be complied with and its details :

4. Balance outstanding as on …............ : Principle :Interest :Total :

5. Arrears details (stressed if any) as on …............. Principle :Interest :Total :

6. Name of person contacted and his relation with the unit(Owner, Manager etc.) and phone No. :

7. Result of contact/proposal of the promoter for clearingarrears, if any :

8. Whether the project implemented as per schemeif not give details :

9. Date of commencement of commercial operation :

10. Date of expiry of insurance :

11. Whether any statutory permission/Compliance pending -provide details. :

12. Any managerial/marketing problem, give details :

13. Recommendation /remarks of Field Officer :

14. Decisions of CM/BM :

FIELD OFFICER CHIEF MANAGER/BRANCH MANAGER


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Annexure – 2Guidelines for considering relief/concessions to stressed accounts

1. General

Stressed assets should be defined as “those Standards assets where principal or interest has been in default for more than 30 days”. Thus, a Standard account should be shifted to the “Stressed” category after 30 days of continuous default and the remaining period of 60 days (before the account would become NPA) should be utilized to apply primary nursing tools and negotiations for launching a case specific recovery programme to the extend possible, if not already done, so as to prevent the account from becoming NPA.

The stressed accounts should be specifically reviewed at least on a fortnightly basis, at the branch level. The branch should suggest remedial steps/further action to be taken in specific cases, so as to prevent the account from becoming NPA and/or applying an appropriate recovery tool to maximize recovery.

After identifying the assisted units in the stressed assets category which is having difficulties in its operations and ensuring that such difficulties are not indicative of any long-term impairment of the unit’s economic/financial viability, a detailed study of its operations should be undertaken. Such a study should analyze the causes for difficulties experienced like delays in implementation and/or stabilization of commercial production, non-achievements of market penetration and thus capacity levels necessary for servicing the loan, unfair competition, external reasons viz. drought/floods/other natural calamities, internal reasons such as managerial, technical and financial problems resulting in lower or irregular cash flows and/or difficulties in servicing the debt obligations in a timely manner, etc.

A visit to the assisted unit should be carried out to hold discussions with the promoters/management and other related agencies such as working capital banker/financial institutions, suppliers/vendors, State Government agencies, etc. The purpose is to establish the causes of operational weaknesses and to identify appropriate remedial measures including relief/concessions which may be required to be taken so as to prevent the asset from slipping into NPA category. However, since each unit operates in a some-what different scenario and operational location, there cannot be any standard relief/concessions package for all the units and instead a solution has to be tailor made depending upon the circumstances prevailing in each case.

The problems faced by the units may be temporary in nature or may have long term or structural deficiencies that required a longer time frame to resolve.


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The relief/concessions in respect of stressed accounts facing temporary problems could include funding of interest, waiver of penal interests etc. while units facing long term or structural deficiencies could be granted relief/concessions in the form of need based reduction in rate of interest, reschedulement of outstanding loan instalments and/or additional assistance besides aforestated waivers, if necessary. The relief/concessions could be extended, in consultation with the promoters/management, based on an analysis of the past operations of the unit, so as to determine its strengths and weaknesses and identify the deficiencies that need to be overcome. The prevailing business environment, market prospects and inclination of the promoters/management to observe financial discipline should be kept in view while considering necessary relief/concessions.

Upon classification of any account into “Stressed Asset” category, a report should immediately be sent by the Branch Office to the ZM along with background of the case and recommendations for the further course of action proposed to be adopted in order to prevent the account from slipping into the NPA category. ZM, if required, will issue necessary directions to the BO in the matter.

II. Eligibility

The units that have been extended term loan assistance under any financial schemes of the Corporation and categorized as stressed asset would be eligible for consideration of suitable relief/concessions.

III. Purpose

To provide need based relief/concessions to deserving units in the stressed asset category, which on account of temporary problems or long term or structural deficiencies, may be prone to slipping into NPA category.

a. Nature of relief/concessions

Any one or a combination of the following relief/concessions may be considered to the identified unit having difficulties in its operations so as to ensure its continued viability.

IV (a).Reschedulement of instalments

The reschedulement of principal instalments could be considered keeping in view the following aspects:


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• Fresh and realistic cash flow statement to be obtained from the unit keeping in view its past performance.

• Examine whether outer date of repayment can be left unaltered by reducing/postponing the earlier instalments and by increasing/accelerating the later ones; this may even be tried with an assurance to review the position after a suitable period.

• Extension of the terminal date of repayment schedule should be agreed to only in cases where it is apprehended that, but for such a course, the unit might not be able to overcome its present problems.

• The modified repayment schedule is to be finalized based on the extant desirable norms of DSCR.

•Postponed instalment would carry interest at document rate or the rate decided after approval of relief/concessions proposal, whichever is lower.

IV (b) Reduction in interest rate:

• In respect of proposals involving long term structural deficiencies, reduction in rate of interest, as a supplement to reschedulement, could be considered selectively.

• The reduction in interest rate up to a maximum of 200 basis points below the document rate could be considered in respect of cases sanctioned assistance at KFC’s prevailing PLR. However, in case of assistance sanctioned at rate of interest above the prevailing PLR, such reduction could be more than 200 basis points, on selective basis for deserving cases, but the revised interest rate should not be less than 200 basis points below the prevailing PLR. Any interest reduction upto 200 basis points can be done with the approval of GM Level Committee and more than 200 basis points with the approval of CMD Level Committee.

• The rate of interest could generally be reduced from the immediate next due date after the date of approval of the relief/concessions proposal. In case the reduction in interest rate is to be made effective retrospectively, re-appropriation of receipts could be considered by way of rectification entries.

IV(c) Funding

Overdue interest (including penal interest), wherever applicable and interest which would fall due in future (in respect of not more than 12 months) could normally be funded. The interest so funded should be payable within a maximum period of 36 months commencing after an initial moratorium not exceeding 6 months from the date of such


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funding. Funded amount would carry interest at the document rate or the rate decided after approval of relief/concessions proposal, which is lower.

IV (d) Waiver of penal interest

Full waiver of penal charges could be considered as part of the relief/concessions proposal. Partial/full waiver of interest/penal interest could also be considered in proposals where reduction of interest rate if required.

IV (e) Fresh assistance:

• Term Loan - Fresh Term Loan assistance could be considered, on a selective basis, in respect of cases where it is seen that providing such assistance would be helpful in bringing a turnaround of its operations.

• Working capital term loan (WCTL) – Liquidity support through adequate WCTL may be considered on a selective basis to units whose operational difficulties are primarily due to liquidity constraints/non-availability or inadequate sanction of working capital facilities.

V. Delegation of Powers

Extension of relief/concessions involving reschedulement, waiver of penal interest, reduction of interest, funding of interest/other dues and sanction of fresh loans in respect of stressed accounts shall be considered by the next higher authority as indicated at clause 12.

VI. General

• Multiple restructuring of the same account should normally not be resorted to and any subsequent restructuring in deserving cases, should be considered, only after taking adequate care and being satisfied on the genuineness of such requirement.

• The benefit of relief/concessions should not be extended to the units declared as willful defaulters/fraud cases. Accordingly, while entertaining proposals for considering relief/concessions, the operating offices should ensure that the borrower has not been classified as a willful defaulter/fraud.

• In respect of assistance sanctioned to projects under joint finance with banks/FIs, the line of action taken by the lead institution/major lenders for providing relief/concessions to such projects can be followed.

…........................


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Annexure – 3

POSSIBLE REASONS FOR ACCOUNTS TURNING INTO NPA

1. HUMAN PROBLEMS

(i) Appraisal quality(ii) Market appraisal inputs(iii) Follow-up and monitoring(iv) Delay in taking decisions(v) Stipulation of impractical terms and conditions of sanction(vi) Improper application of recovery tools(vii) Any other

2. EXTERNAL PROBLEMS

(i) Changes in Govt. policy(ii) Changes in the operating environment(iii) Natural calamities(iv) Power related problems (v) Lack of adequate working capital(vi) Unfavourable changes in market forces(vii) Recession in the industry(viii) General economic recession(ix) Law and order problems(x) Any other

3. BORROWER RELATED PROBLEMS

(I) Inexperience of management team / workers(ii) Inadequacies in key personnel(iii) Conflict among promoters / partners / directors(iv) Diversion / siphoning of funds / willful default(v) Fraud(vi) Internal liquidity problems(vii) Improper management(viii) Technology failure(ix) Technical problems(x) Raw material/consumables problems(xi) Location related problems(xii) Time overrun


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(xiii) Cost overrun(xiv) Dependence on few buyers(xv) Any other

4. PROCEDURAL PROBLEMS

(i) Improper compliance of terms of sanction(ii) Inadequacies in examining proper end use of disbursed funds.(iii) Inadequacies in assessing need for funds(iv) Inadequate/Non-examination of No Lien accounts/stock statements, etc.(v) Pre-disbursement site visits not carried out.(vi) Inadequacies in periodical follow-up visits.(vii) Non-adherence to other procedural requirements.(viii) Any other.

5. LACK OF EXPERIENCE/TRAINING (OF THE OFFICERS OF THE CORPORATION)

(i) Project / Technical / Management appraisal.(ii) Analysis of financial statements.(iii) Follow up and monitoring.(iv) Coordination with working capital bankers/other lenders.(v) Market information(vi) Borrower related intelligence mechanism(vii) Any other.

…................


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Annexure – 4

FAILURE CAUSE ANALYSIS OF FRESH NPAs

a) Brief particulars

Branch :

Name of the borrower/unit/company :

Position as on :

Scheme Principal outstanding (Rs. in lakhs)

NPA date Provision (Rs. in lakhs)

b) Failure cause identificationCategory

A Human problems

B External problems

C Borrower related

D Procedural problems

E Lack of experience

F Any other cause

c) Failure cause description

Detailed description

Category Code Sub-category code Detailed explanation of failure cause

(d) Future strategy for upgrading/closing the account


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FO/BO's views :

F.O: Dy.M: CM/BM :

Note: Procedure for recording details in item 'C' of the format is as follows: The first column is the Category under which the failure has happened as shown in item b. For every category there is sub-category as given in the Annexure 3 of LMGN and this has to come in the 2nd column. Detailed explanation of failure cause for each sub-category code to be explained in the third column.

…..........................................


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Annexure - 5

TRIGGER POINTS

Sl. No

Trigger Points Desirable Action

(i) Slippage to Sub-standard Asset category

Examine the reasons for account turning NPA based on the indicative list given in Annexure - 3. See how best the account can be brought back to performing category. If the default is not of temporary nature, examine application of an appropriate recovery tool and initiate action quickly.

(ii) Unit shows signs of long term problems, but not a sick unit

Take up restructuring under the Corporation’s guidelines in consultation with other lenders wherever the unit appears to be potentially viable. Otherwise, explore the possibility of Compromise Settlement of dues. Effective action should be used only as the last resort, but normally before the account slips to Doubtful Asset category.

(iii) Unit becomes sick Ascertain the status with regard to networth erosion, other indicators and examine viability. Consult other lenders and explore the restructuring option, if found potentially viable. Otherwise, explore the possibility of Compromise Settlement of dues. Effective action should be used only as the last resort, but normally before the account slips to Doubtful Asset category.

(iv) Slippage to Doubtful Asset category

Check up whether effective action has already been initiated and if not, why. Initiate quickly if it has been decided to take the effective route for recovery. Keep also exploring the possibility of settlement at all stages.

(v) Slippage to 100% provision/Loss Asset category/Prudential Write off

Explore the possibility of compromise settlement and negotiate accordingly. Adopt a flexible approach in recommending CSS to the delegated authority in such cases. Continue to pursue effective action, keeping updated information on the borrower unit/company.

(vi) Dishonour of cheques

Take up with the borrower unit/company for obtaining DD/Banker’s cheque(s) in place of bounced cheque(s). In the absence of proper response, file criminal complaint(s) under Section 138 of the Negotiable


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Instruments Act against the Company/Directors.(vii) Classification as

willful defaulter/appearance in willful defaulter list.

Check out whether the borrower unit/company and/or its director(s)/partner(s)/proprietor has/have been classified as willful defaulter(s) by another bank/financial institution. Initiate legal action as required in terms of RBI guidelines Any proposal for restructuring/compromise settlement with such borrowers should be considered keeping in view the extant policy guidelines in this regard.

(viii) Incidence of suspected fraud

Ascertain further details of fraud and initiate criminal proceedings immediately, as applicable by filing police case/vigilance case as the case may be. Approval of C&MD necessary for filing such cases. Also, consult other lenders to the borrower to decide on the recovery action to be initiated.

(ix) Default in cases covered by CGTMSE guarantee

Report the default to CGTMSE in the specified format within the stipulated time frame and file the claim expeditiously.

(x) Borrower approaches for compromise settlement

Check out whether a compromise is actually desirable for the Corporation in the given circumstances. If yes, leverage the available information/security to negotiate with the borrower for an improved offer vis-à-vis the acceptable CSS amount. Approach the competent authority for approval after satisfying on the basic requirements of CSS. Where borrower is ready for immediate Compromise Settlement by remittance of cash against full and final settlement, all delay to be avoided and minor concessions from norms can be extended with the approval of C&MD.

…...................


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Annexure – 6 Format – 1

Monthly ReportFIELD OFFICERS REPORT (EXCEPT D3 CASES)


1. Loan Number & Name of unit with phone No. :

2. Loan sanctioned (Amount & Year)

Loan disbursed (Amount & Year)

Balance out standing as on ….............

Princial :-Interest :-OE :--------------------------------------Total

3. Arrears position as on …............................. Principal : Interest :

OE :-------------------------------------------------------------------------------Total :=================================================

4. Name of person contacted & his relations with the unit(Owner, Manager etc.) & Phone No. :

5. Problems of the unit, if any, and suggestions for its remedy. In case S2, reasons thereof & remedial action taken to make it S1 :

6. Result of contact/proposal of the promoter for clearing arrears :

7. Date of expiry of insurance :

8. Recommendations of the F.O :

9. Decision of Chief Manager / BM :

FIELD OFFICER CHIEF MANAGER / BRANCH MANAGER


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Annexure - 7Format – 2

MEMORANDUM OF D3 CASES


1. Name of unit & loan No. :

Loan sanctioned (Amount & Year)

Loan disbursed (Amount & Year)

Balance out standing as on ….............

Arrears as on …..........................

Amount remitted so far

Princial :-Interest :-OE :-------------------------Total

Princial :-Interest :-OE :-------------------------Total

By Party : Rs.

By Sale : Rs.(Sec 29/RR)

Total

2. Product / activity :

3. Location of unit :

4. Present status of the unit :

5. Reason for the failure of unit :

6. Details of promoters :

Sl.No.

Name Address Phone No. Financial status (living conditon and present activity)

7. Details of co-obligants :Sl.No.

Name Address Phone No. Financial status(living conditon and present activity)

8. Recovery steps taken ( Details with dates) :


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9. Party's proposal to settle the account :

10. Recommendation of FO :

11. Decision of CM/BM :

Field Officer CM/BM

Annexure – 8

ASSET CLASSIFICATION AND INCOME RECOGNITION NORMS

a) For classification of assets, Corporation would continue to follow the guidelines issued by RBI/Government/Board from time to time in this regard. In terms of the same, a Non-performing Asset (NPA) is a loan or an advance where

i. Interest and/or instalment of principal remain overdue for a period of more than 90 days in respect of a Term Loan;

ii The account remains 'out of order' for a period of more than 90 days, in respect of an Overdraft/Cash Credit (OD/CC);

iii. The bill remains overdue for a period of more than 90 days in the case of bills purchased/discounted;

iv. Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.

Non-performing assets would be further classified into the following three categories based on the period for which the asset has remained non-performing and the realisability of the dues:

a. Sub-standard Assetsb. Doubtful Assetsc. Loss Assets


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a. Sub-standard Assets

A sub-standard asset would be one, which has remained NPA for a period less than or equal to 12 months. In such cases, the current net worth of the borrower/guarantor or the current market value of the security charged is not enough to ensure recovery of the dues to the Corporation in full. In other words, such an asset will have well defined credit weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct possibility that the Corporation will sustain some loss, if deficiencies are not corrected.

b. Doubtful Assets

An asset would be classified as doubtful if it has remained in the substandard category for a period exceeding 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values – highly questionable and improbable.

c. Loss Assets

A loss asset is one where loss has been identified by the Corporation or internal or external auditors or the RBI/SIDBI/AG inspection team but the amount has not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

INCOME RECOGNITION

i) Income from NPAs should not be recognised on accrual basis but booked as income only when it is actually received.

ii) If any advance, including bills purchased and discounted, becomes NPA as at the close of any year, interest accrued and credited to income account in the corresponding previous year, should be reversed or provided for if the same is not realised.

iii) In respect of leased assets, the net lease rentals (finance charge) on the leased assets accrued and credited to income account before the asset became non-performing, and remaining unrealised, should be reversed or provided for in the current accounting period.

iv) The term 'net lease rentals' would mean the amount of finance charge taken to the credit or Profit & Loss Account and would be worked out as gross lease rentals adjusted by amount of statutory depreciation and lease equalisation account.


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PROVISIONING NORMS

a. Loss assets

In respect of Loss Assets, 100% of the principal outstanding should be provided for or the asset should be written off.

b. Doubtful assets

i. 100 percent provision should be made to the extent the advance is not covered by the realisable value of the security to which the Corporation has valid recourse and the realisable value is estimated on a realistic basis.

ii. For the secured portion, provision may be made on the following basis, at the rates ranging from 20 percent to 100 percent of the secured portion depending upon the period for which the asset has remained doubtful:

Period for which the advance has been

considered as doubtful

Classification of doubtful asset

Provision recruitment(%)

Upto one year DA 1 20

One to three years DA 2 30

More than three years DA 3 100

iii. The unsecured portion should be fully provided for.

c. Sub-standard assets

A general provision of 10 percent on total outstanding should be made without making any allowance for DICGC/ECGC/CGTMSE guarantee cover and securities available.

d. Standard assets

i. Corporation would continue to follow the guidelines issued by RBI in this regard from time to time. Corporation is required to make a general provision for standard assets at the following rates for the funded outstanding on global loan portfolio basis:

(a) direct advance to agricultural and SME sectors at 0.25 per cent;(b) advances to Commercial Real Estate (CRE) Sector at 1.00 per cent;


36

(c) all other loans and advances not included in (a) and (b) above at 0.40 per cent.

ii. The provisions on standard assets should not be reckoned for arriving at net NPAs.

iii. The provisions towards Standard Assets need not be netted from gross advances but shown separately as 'Contingent Provisions against Standard Assets' under 'Other Liabilities and Provisions – Others' in Schedule 5 of the balance sheet.

UPGRADATION OF NPAs

a. Corporation would continue to follow the guidelines on prudential norms and asset classification issued by the RBI/SIDBI from time to time. Upgradation of NPAs should also be governed by the said guidelines in force.

b. NPAs not subjected to restructuring will be upgraded immediately on clearance of defaults, if the account does not otherwise show any inherent deficiencies.

c. The restructured sub-standard accounts would be upgraded after satisfactory debt servicing performance for the specified period in terms of the extant RBI guidelines. Any excess provisions made against upgraded assets would be written back after the specified period.

….........................


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Annexure - 9

PROCEDURE FOR SALE OF PROPERTIES TAKEN OVER UNDER SECTION 29 OF SFCs ACT.

In the judgement in Civil Appeals No.3446,3450 and 3451 of 2003, (Cables India, Thrissur) the Hon’ble Supreme Court has directed the Corporation to adhere to some directions till Rules or Regulations are framed for sale of properties taken over under Section 29 of State Financial Corporations Act. Accordingly following procedures shall be complied with for conducting e-sale (through the web-portal of KFC) of the assets taken over under Section 29.

1. Valuation of Asset Valuation of both movable and immovable assets to be conducted by an approved valuer (registered under section 34 AB of Wealth Tax Act, 1957). Other secured creditors if any may also be consulted while fixing the Reserve Price of the property, if they have also got any charge over the property.

Criteria of valuation

As per the norms approved by the Institute of valuer.

1. Branch Manager concerned should also ensure that the valuer invariably indicates in the valuation report both the values, viz., the Fair Market Value and the Realistic Realizable Value (RRV) of the cases on a conservative basis.

2. Branch Manager should ensure that the valuation certificate from the empanelled valuer invariably contain detailed explanation about fixing of the realizable value of the assets and factors taken into account to determine the same, such as the market value, book value, depreciation, deterioration in quality of assets, increase in land prices in the region, government restrictions, etc. It should be clearly indicated to the empanelled valuer that a realistic assessment of the immediate realizable value of assets (realization within 2 months) should be furnished. Procedure for valuation specified at 17 of the LMGN (2013-14) also to be complied with.


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2. Reserve price

A registered / speed post notice will be issued to the borrower specifying the Reserve price of the property. If borrower has an e-mail address/Mobiles No. this notice can also be sent as e-mail/SMS message and proof of these shall be filed. The borrower may also be informed that he has an opportunity for personal hearing with the Branch Manager concerned in case he wishes to make any representation regarding fixing of the reserve price, within 7 days of receipt of the notice. In case no representation is received from borrower Reserve Price fixed can be confirmed. If a representation received and borrower appears for a personal hearing, his representation will be considered and proceedings issued fixing Reserve Price after considering his views/representations.

3. Notice

Contents of notice

30 days notice is served to the borrower before conducting the sale.

The notice shall contain the details of loan account including balance outstanding, rate of interest, description of property, reserve price. EMD, last date of tender, time and place of tender etc. Draft letter given at Annexure.

4. Advertisement In the e-Sale system also a brief advertisement through one vernacular language and other in English will be mandatory. It will be given in the advertisement that details of the e-sale are available in the kfc e-sale website 'www.kfcauction.org/www.kfc.org'. Bidder can see the property information ie., Description of the property, Terms & conditions, EMD details, Reserve Price, Minimum Incremental Bid Amount (MIBA), Auctioner Information, Statutory Information, Inspection date and Bid Opening/Closing Date &Time relating to the asset in e-Sale website. These informations are posted by the Admin Officer in each branch office after login with their username and password.

5. Mode of sale Procedure of e- sale is enclosed as Appendix-I.


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6. EMD EMD shall be linked with the Reserve Price of the assets for disposal. If asset value is 5 lakhs or more EMD amount should be 5% of the Reserve Price, rounded to next higher fifty thousand rupees and in case of less than 5 lakhs cases, EMD should be equivalent to 5% of Reserve Price, rounded to the next five thousand rupees. The EMD details should be entered in e-sale portal at the time of posting property details by the Local Admin Officer.

Besides EMD of the successful bidder the EMD of the next highest bidder could be retained, subject to his consent, so that if the successful bidder backed out, the offer above Reserve Price could be extended to the next highest bidders in the order.

7. Confirmation of sale The Branch Manager is the authorised officer (Local Admin Officer) for conducting the e-Sale of property under Section 29 of SFC Act. The System Department, KFC will issue the username and password to the Admin Officer and he can manage all the operations under e-Sale with secured username and password.

The sale shall be confirmed in favour of the bidder who offers the highest sale price. If the sale is not confirmed the concerned authority shall have the power to refix the reserve price by lowering the price by 15% and to comply the sale procedure once again with in the period of one year.

8. Periodicity of valuation Current valuation within a period of one year shall be reckoned.

9. Payment of sale price On confirmation of sale the bidder has to pay 25% of the sale price or Rs.5.00 lakhs whichever is lower within 7 days and the balance amount on or before the 30th day from the date of sale confirmation. The EMD has to be adjusted to the sale price.

If the bidder fails to pay the sale price as above the authority concerned has the power to set aside the sale and to forfeit the part payment and EMD. The Sale will be conducted afresh in compliance of the above procedure.


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10. Delivery and Execution of sale deed.

On remittance of sale price as directed the authority concerned shall execute the sale deed in favour of the bidder at the earliest date as proposed by the bidder. The cost of the stamp duty and documentation has to be borne by the bidder. Any statutory or other dues or liabilities known or unknown relating to the asset are to be borne by the buyer. The delivery of property has to be made to the bidder with proper acknowledgment.

In the case of movable assets sale certificate shall be issued infavour of the bidder.

11. Appropriation of sale expenses

All the expenses for conducting the sale shall be deducted from the sale price and the balance sale amount shall be appropriated to the loan amount. If there is any residue of sale price after appropriation in the loan account, it shall be returned to the borrower provided there is no subsequent charges.

12. After Sales Service Corporation will give atleast two years Legal/Technical guidance/support in all matters relating to sale of property without involving financial commitment for the Corporation.


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Appendix-I to Annexure – 9

Proposed e-sale procedure under Section 29 o f SFC Act.

After complying the basic formalities of Sale under Section 29 of SFC Act, a brief advertisement through one vernacular language and other in English will be published about e-Sale. The details about the property to be sold will be entered in the e-sale portal after login by the Admini Officer (Local Administrator at Branch Office/Branch Manager) and it will be displayed in the KFC e-Sale website (www.kfcauction.org). Bidder can see the auction information ie., Description of the property, photos and videos of the property, Terms & conditions, EMD details, Reserve Price, Minimum Incremental Bid Amount (MIBA), Auctioner information,Statutory information Date / time of opening and closing Bid relating to the asset in e-Sale.

The bidders can register online. Digital Signature is mandatory for the registration. The registered user can login with the username and password provided by the e-sale site at the time of registration.

Payment of EMD can be made through (Cheque/DD/Payment Gateway) against an Asset (Property) and report to Admin Officer with EMD details by mail or in person.

Bidder will get Auction Permission Letter with an auto generated 'Bid Key Code' from the Admin Officer after verification of the EMD details. – One bid key against one Asset to one bidder.

Bidder Bid the Asset with Bid Key provided against the Asset ID specified. The bid is opened automatically for e-Tender/e-Bid on the bid opening date & time.

e-Tender : Tender in e-format will be collected for a specific period, say 3 days.

e-Bid : The bid is opened for specific period, say 1 day or 1 hour.

Automated opening of bids under e-Tender/ e-Bid will be made by the system on bid close date & time. When authority confirms the auction sale the automated system will intimate the status to bidders. This intimation is not a legal finalization of sale.

First Successful Bidder will get auto-mail/SMS indicating that his bid is the highest. Second successful bidder will get auto-mail/SMS indicating that his bid is second.Other bidders will get regret auto-mail alert.

(A highest bidder in public auction cannot have a right to get the property or any privilege, unless the authority confirms the auction sale, being fully satisfied that the property has fetched the appropriate price and there has been no collusion between the


42

bidders.) If the first party does not remit the 25% of the amount before the said time or backed out the second highest bidder(offer higher than reserve price) may be considered for the e-Sale.

After e-Sale Admin Officer can generate the following Reports.

1)E Auction2)Comprehensive List of Properties sold through e-Auction. 3)List of Successful e-Auctions 4)Live e-Auctions as on date 5)Un-Successful List

E-Sale only computerizes the bidding procedure. All other actions, procedures and statutory notices will be complied with in the procedure for sale under the Section 29 of the SFC Act.


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Annexure - 10

PROCEDURE FOR ENFORCING THE RIGHT UNDER SARFAESI ACT, 2002

1) Security Interest Enforcement Rules, 2002 stipulate the procedure for enforcing the security interest under SARFAESI Act.

2) Right under this Act to be exercised by an authorized officer of the secured creditor.

3) The right can be enforced against a defaulted borrower whose debt has been classified as a Non Performing Asset (NPA).

4) Before enforcing the right the secured creditor shall issue a registered notice in writing to discharge in full liabilities within 60 days from the date of notice.

5) Notice shall specify the details of amount due and convey intention of secured creditor to enforce the security interest on non payment of the amount due.

6) Creditor shall consider objection, if any, made by borrower on receipt of notice and communicate the reason within one week from the date of objection for its non acceptance.

7) On default of the borrower in discharging his liability the secured creditor shall have recourse to one or more of the following measures to recover the secured debt.

A. Take possession of secured asset including the right to transfer by way of lease or sale for realizing the secured asset.

B. Take over the management of the business of the borrower including the right to transfer by way of lease or sale for realizing the secured asset.

Procedure to be followed up on 60 days Demand Notice:

1) Take over possession of movables shall be in the presence of two witnesses.

2) Notice effecting the take over shall be given to the borrower or pasted on the conspicuous part of the property.

3) Inventory of the movable to be prepared and copy delivered to the borrower.


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4) Authorised Officer shall serve borrower notice of 30 days for sale of the property.

5) Possession Notice in the case of immovable property shall be published in two new papers, one in vernacular language.

6) Valuation to be conducted by approved valuer.

7) Sale proclamation should be published in two news papers, one in vernacular language with details of property, date and time of sale with reserve price fixed for it.

8) Sale shall be conducted by public auction, inviting tender or by private treaty.

9) Purchaser shall deposit immediately 25% of the purchase money and the balance on or before 15 days of confirmation of sale.

10) No sale shall be confirmed for an amount less than reserve price.

…................


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Annexure – 11

Sub:- Guidelines regarding takeover of units under section 29 of SFC Act – reg.

In order to streamline the procedure for upkeep & maintenance of take over units following instructions are issued.

At the time of take over of the industrial concern the authorised officer may inform the loanee if he is present on the spot regarding the orders of take over. In case the loanee is absent his Manager or other representative who is present there may be so informed and then the team of officers shall proceed to prepare a Mahazar or Take Over Memo of the industrial concern. They should also prepare a general inventory of the machinery equipments, etc. On completion of the preparation of Mahazar and Inventory statement (Take over Memo) the CM/BM should show the Memo of Taken over unit to the loanee or in his absence the Manager or any other representative if available in the unit and get his signature if he is willing to affix his signature. If the promoter or his representative is not available the same may be noted in the Memo. Two witnesses also shall be taken along with for the take over process and signature of the witnesses shall also be obtained on the Take over Memo. The authorised representative and all the officers of the team shall also put their signature with date and time on Memo of Take over. A copy of the Take Over Memo should be forwarded to GM(A&R) & V.O in HO. Copy of the format for preparing Memo of Take over is enclosed.

Bankers to the unit should also be informed about the take over. Consumables, perishables, and all the personal belongings of the promoters and connected persons should be handed over to them after obtaining acknowledgment.

The team of officers should then lock and seal the building and gate of the premises with Corporation's own lock. Before locking up they should ensure that the electrical system is switched off and main fuse removed and any inflammable or otherwise dangerous objects are stored with caution and care. The doors and windows of the unit may also be fastened firmly using wooden battens.

After the take over is completed a notice may be pasted on the wall near the main entrance of the unit to the effect that the unit has been taken over by the Corporation under its powers under Section 29 of the SFCs Act and that any attempt to trespass would be liable for prosecution for damages. Also a written notice may be issued to the borrower with request to settle the account immediately and also informing that the assets will be sold if he fails to do so within 30 days.

Required number of Security Personnel (from the approved agency) may be temporarily posted after getting acknowledgment of inventory from the security and the taken over unit in locked condition will be in the custody of the security staff. The number of security guards required maybe decided based on the size and type of the unit.


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A proposal regarding posting of Security Guards should be sent to Vigilance Officer (VO) at HO in the enclosed format. Further action regarding posting of security guards etc. is to be taken as per orders of VO. Until the unit is disposed of the CM/BM or Field Officer authorised by him shall make periodical visits to the unit so as to ensure that the possession is undisturbed and proper security is maintained. They will check the attendance of the security personnel at random and record the same in a register to be maintained for the same. The VO shall be responsible for all the security related arrangements in the taken over units. The CM/BM should forward all Field visits reports relating to security to VO in the HO. Any follow-up with local police etc. for any trespass, encroachment etc. should be done under the guidance of VO. VO should scrutinize the same and bring any important issues to the knowledge of under signed. He should also give necessary directions regarding security to the branches based on field reports.

If the borrower fails to remit the arrears/balance outstanding within the notice period, Branch Office may inform the KSEB and Water Authority offices concerned to disconnect the electric /water connection, so as to avoid further billing. Also Panchayat/Municipality/Corporation office may be informed of the non-functioning of the unit to avoid future building-tax payments. Approval for incurring any expenditure on Taken over units other than security should be obtained from GM(A&R) in HO. The Branches should ensure that Take Over units are kept and maintained in good and safe condition. They should be periodically got cleaned & any wild growth of bushes etc. should be got cleared.

Monthly payments made to security guards, statutory dues, other expenses etc. may be debited in the loan account under 'OE' in the respective heads of account and a report showing the above details along with attendance of the security personnel and status of the unit may be sent to VO & GM(A&R) in HO before 10th of the succeeding month, as per the enclosed format.

Take Over Memo (Format)

In pursuance of the notice dated …............................proposing action under Section

29 of the SFCs Act 1951 and as per orders of Chairman & Managing Director of the

Corporation to take action as contemplated in the notice, I

…..............................................................................................................................along with

….................................................................... proceeded to the industrial concern viz.

….....................................................................................today the ….......................date of

…......2013 at …..am/pm after due intimation to the


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…........................................................Bank/G.M, DIC/SIDECO (as may be applicable)

…..................................................................................................................... and entered the

industrial premises of the concern. In view of the anticipated resistance from the

Borrowers I have taken Police protection from the Sub-Inspector of Police,

…......................................................Police Station and the Civil Police Officer (mention the

name of the Police Officers/Civil Police Officers …........................................................

(mention the name of the Police Officers/Civil Police Officers Nos. and addresses)

accompanied our team (use wherever applicable). On entering the premises I intimated

the intention to take over the industrial concern under Sec.29 of the Act to the

Borrower/his/her/Manager/other representatives. Thereafter take over process started.

An inventory of the plant and machinery, Office equipments, raw-materials, finished goods

and other movables have been taken and given as Annexure (since the raw-materials,

finished goods etc. are under lock and key and in locked condition the go-down is not

opened and inventory of the articles contained therein has not been taken*). The

representative of the bank ….................... has taken an inventory of the articles contained

in the locked go-down and also a list of other current assets available in the open in the

unit. A physical verification of the land, building and machinery has also been conducted

with the help of …..........................Legal Officers and …...........................................Technical

Officer who are in the team. The Office records, cash if any, and other personal

belongings of the Borrower have been allowed to be taken away ( for which an

acknowledgment of having taken possession of such articles should obtained, if they fail to

give such acknowledgment such things, also should be listed separately in the inventory).

Particulars of land, building, machinery and other equipments are separately indicated in

the inventory being items specifically under charge to the Corporation. A copy of the

inventory of all the items as mentioned above has been given to the Borrower (his

representatives).

All inflammable, explosives, dangerous objects (if any) are stored in a safe place so

as to protect the building and other assets. All ventilators, windows and doors have been

closed after switching off the electrical systems and water supply. All exits and entrances


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have been locked and sealed. The main entry has been closed, locked and sealed with the

office seal of the Corporation. The take over process came to close at …........... am/pm.

*In case raw-materials & Finished goods are in locked condition

Name and Signature of the Officer taking over the unit:

Officers in the team for takeover :

Independent Witnesses:

1.

2.

Signature of Police Officials:

1.

2.

Note : Give the full name and addresses of all the Civil Police Officers Numbers in the case of Police officials.


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Details of Security Persons

Number of security persons posted :

Name of the Agency & HO reference letter by which approved :

Name of Security Personnel with Mob.No. 1. :

2. :Total Expenditure on security :

Signature of Branch Manager

Orders of Vigilance Officer

Proforma for posting Security Staff in the Taken over unit

1. Loan No. :

2. Name of the Unit & Address :

3. District :

4. Product/Services :

5. Date of takeover of unit :

6. Land

a. Extent of land :

b. Whether compound wall/fencing provided :

7. Building


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a. Building area :

b. No. of floors :

c. No. of building block :

d. No. of external door openings :

e. Open shed, if any :

f. Valuation of building :

8. Plant & Machinery

a. Cost of machinery :

b. Whether any plant & machinery installed at the open space. If so give details :

9. Whether any stock of raw-materials/finished goodsstocked at the open yard, if so give details including its valuation.

10. No. of rooms/building locked and sealed :

11. Name of Police Station & distance from the unit :

12. Details of adjacent premises of the taken over unit :

13. No. of security staff required for the unit :

14. Details of photos of premises/inventory(Photos to be signed at the back by BM/TO/security agency)

15. Recommendation of Field Officer :


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16. Recommendation of CM/BM :

17. Recommendation of Zonal Manager :

18. Remarks of Vigilance Officer :


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Proforma for Field Officer Inspection report on taken over unit

1. Loan No. :

2. Name & address of the unit :

3. District :

4. Date of take over of unit :

5. Name of the Field Officer and designation :

6. Date of visit and time :

7. No. of security staff posted :

8. No. of security staff available at the time of inspection & name and employee code, :mobile No. if any of the security staff

9. Whether the security staff had uniform at the time of visit. :

10. Whether attendance register, properly maintainedand if any remarks observed, give details :

11. Whether the premises maintained properly :

12. Is there any local problem faced during the period if so give details.

13. Is there any damages occurred in the land/ building/machinery due to natural calamities or otherwise : if so, give details with remedial proposal.

14. Remarks of Field Officer :

15. Remarks of CM/BM :

16. Remarks of the Zonal Manager :


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Proforma for Inventory Statement

A. Building & Civil structures

Sl.No. Building details with building No.

Brief specification

Plinth area Present physical condition

B. Plant & Machinery& other equipments

Sl.No. Details of plant & machinery Name plate details Present condition of the machines

C. Stock details

1. Raw-materialsNo. Details of the raw-materials Quantity

2. Semi finished goods No. Details of products Quantity %of conversion from raw-

materials to semi finished product.

3. Finished goods No. Details of product Quantity

4. Others if any, (specify the details)

Signature of Officers of the Take Over Team


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Annexure – 12 (Draft letter for fixing Reserve Price)

REGD. WITH ACK.DUETo

Name of the Unit/PromotersAddress

Sir/Madam,

Sub:- Consultation notice to Promoters with regard to fixing of reserve price - M/s................... (Loan No.......................)

Ref:- 1. Loan agreement dated …............... 2. Equitable Mortgage dated …..............

Please note that the Corporation intends to fix the reserve price of your property mortgaged to it which is scheduled hereunder at Rs.......................

You are requested to signify your acceptance / objection thereof in writing or appear for a personal hearing with the undersigned within 7 days, in case Corporation does not hear from you about your objection of the same within the time aforesaid Corporation shall complete the procedure for fixing of reserve price without any further notice.

Schedule of property

1. LandRe-survey No.Reserve price

Extent Village Taluk District Document No.

Reserve Price

2. Building (details)

3. Plant & Machinery (details) =========

Total==========

Yours faithfully,

Local Admn. Officer


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Annexure – 13

(Draft letter for Notice of sale)REGD. WITH ACK.DUE

To

Name of the Unit / PromotersAddress

Sir/Madam

Sub:-Notice of sale under Section 29 of SFC Act – M/s. …................... (Loan No.............................)Ref:- 1. Loan agreement dated ….......... 2. Equitable Mortgage dated …......... 3. Recall letter dated …...............

4. Notice under Section 29 of SFC Act dated ….............

Please note that in bona-fide exercise of the power and authority vested in the Kerala Financial Corporation by virtue of the Section 29 of the State Financial Corporation Act, 1951, I the under signed being the authorized LOCAL ADMIN OFFICER for e-sale, hereby give you NOTICE that the property mortgaged by you towards security for the loan of Rs............. availed by you is heavily in arrears. Details of the arrears of the loan are given below:

Sl.No. Principal Interest Balance Outstanding

In spite of the repeated demands including registered notice issued to you by the Corporation you have failed to clear the same and therefore we have taken over the assets U/S 29 of the SFC's Act. Hence I hereby give you notice and if you still fail and / or neglect to clear the entire outstanding together with interest and cost thereon within 30 days of the receipt of this notice, Corporation shall proceed with e-sale of the property scheduled hereunder U/S.29 OF SFC ACT for realization of the entire loan amount and cost by PUBLIC AUCTION BY E-SALE on the day published by us in the website of the Corporation, www.kfcauction.org / www.kfc.org and hold you liable for the shortfall, if any, on loan accounts as also costs, charges and expenses incidental thereto and all loses and damages suffered by Corporation.


http://Www.kfcauction.org/

http://www.kfc.org/

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Schedule of property

1. LandRe-survey No.Reserve price

Extent Village Taluk District Document No.

Reserve Price

2. Building (details)3. Plant and Machinery (details)

========= Total

==========

Yours faithfully,

Local Admn. Officer


contents · contents item no. description page no. ... assets (npa) by proper application of...

Documents