The greatest crisis that the banks and financial institutions face now is the recovery of debts and the unabated increase in Nonperforming Assets which affect the performance of the banks and financial institutions and the economy of the nation.

In spite of the government enacting legislation for the recovery debts equipping the banks and financial institutions with more stringent powers, there is no appreciable reduction in the quantum of NPAs. The economy is showing a tendency towards recession and the precarious liquidity problems being faced by the banks and financial institutions, unless drastic remedial steps are taken, the probability of a Lehman Bros like calamity occurring cannot be ruled out.

What ails the current approach to recovery of debts? If a pragmatic and practical retrospective analysis of the recovery process so far undertaken by the banks and financial institutions, if viewed dispassionately and diligently, would reveal the focus was and is on the symptoms and not on the deep routed disease. The process presently adopted would never yield any appreciable desired result.

Any recovery proceedings undertaken should take into account the overall impact it creates on the economy of the nation and the affliction imposed on the industry and the connected people and not merely on the recovery of debt.

The pertinent questions are:
(1) Will the recovery of debt as being pursued now really ease the liquidity problem faced by the bank and financial institution?
(2) Will it not adversely affect the overall development of the economy and GDP of the nation?

The questions raised are answered as under:
The latest data released by Insolvency and Bankruptcy Board of India as reported in the print media states that “fewer cases were admitted for insolvency action in Q1 out of which only 14% realised by Creditors and 55% ended in liquidation”. Besides, “what is also worrisome is that in 20 cases during April and June quarter where a resolution could be achieved, financial creditors managed to realise only 14% of their claims, which in other words means that they had to sacrifice 86% of the loan claims that had been admitted”. The result shows that neither the lenders nor the borrowers gained anything out of approaching NCLT and both of them were left on the lurch and that too after protracted legal entanglement.

The obvious question is, Is it worthwhile to take recourse to legal remedies to recover the loans?

Why this unending dilemma persists in the banking field? The focus of banks and financial institutions is only on the recovery of debt forgetting the fact that restructuring / rehabilitation is also one of the positive means of recovery. But it takes more time, patience and perseverance and also required knowledge, capacity and capability to efficiently implement an effective credit monitoring system and procedures and most importantly a knowledgeable workforce who can implement the process of recovery of debt diligently. Above all it also needs induction of more funds to successfully run the business. The fear of the uncertainty regarding its success and the consequences of failure of such remedial actions always linger in the minds of the decision-making executives and implementing employees. The human tendency is to take the path least resistance and the banks and financial institutions prefer to take the path of recovery through the legal means so that they can avoid or evade their efforts and responsibilities involved in restructuring / rehabilitation schemes.

Yet another form of recovery is to go for One Time Settlement (OTS). But the truth is that it mostly is a one-way traffic and the borrower does not have any say in the matter of settlement and in most of the cases the offer by the bank is not an affordable choice for the borrower, the main reason being the value of the security.

The Nonperforming Assets (NPA) can be classified in to three categories via.
(1) Born NPA
(2) Acquire NPA status and
(3) NPA status forced on it.

The scope of this article does not include a study on these aspects. But it plays an important role in finding solutions to the management of Nonperforming Assets (NPA). Any NPA resolution undertaken should ensure the equitable sharing of its benefits between the lender and the borrower to create a win-win situation so that the value of assets is not eroded any further. On the contrary it should be the foundation for creating wealth on the assets to optimise its value in the days to come.

The optimal recovery of debt can be achieved through the concept of Recovery with a human touch.

The basic principles of Recovery with a human touch are as follows:
(i) Understanding is the first step to acceptance, and only with acceptance can there be recovery.
(ii) “Generally, the NPA is more likely to be resolved in terms of recovery if the company is in operation.” (RBI)
(iii) Recovery should be based on ‘bonding’ and not ‘binding’ between the lender and the borrower.
(iv) It is the process of recovery without jeopardizing the interests of the lender and the borrower with affordable sacrifices from both the sides depending upon the circumstances that led to the creation of NPA.
(v) The basic rule is to fix the problems and find solutions and not fix responsibility and accountability and punish.
(vi) it takes considerable time to build and it takes no time to destroy. Hence, recovery process should facilitate construction and not destruction.
(vii) The interests of the lender and the borrower are complimentary to each other and not contradictory and should serve mutual benefits and also national interest.
(viii) Revival and rehabilitation take precedence over recovery. (Supreme Court of India)
(ix) Constitutional rights of the citizens particularly under Article 14 and Article 21 are to be protected. Apart from Constitutional rights, the principles of natural justice also are to be upheld since the Tribunals are governed by principle of natural justice as enshrined under section 17 (7) of SARFAESI Act read along with section 22 of RDB Act.
(Availing a debt from the banks and financial institutions becomes a debt trap for the borrower and the classical example is the suicide of CAFÉ Coffee Day chief V. G. Siddhartha).
(x) Judicial implicit bias and prejudices should be removed.
(xi) Adherence to Banking Codes and Standards as announced by Banking Codes and Standards Board of India and adopted by banks and bank’s commitment to MSE sector in the case of accounts coming under MSE category
(xii) Compliance of RBI guidelines and provisions of the various Recovery Acts and also the provisions of MSME Development Act, 2006.
(xiii) Expediency should not be a policy to declare the borrower as wilful defaulter.
(xiv) Arbitrary and unilateral assignment of debt to Asset Reconstruction / Securitisation Company without the consent of the borrower cannot be pursued by the banks and financial institutions.

Every practical and implementable aspects of the principles of Recovery with a Human Touch has a bearing to the outcome of the recovery process affecting both the lender and the borrower and also the economy of the nation and if understood and carried out with their correct perspectives and purposefully, it will definitely lead to better realisation of recovery of debt without harming the interests of the lender and the borrower creating mutual respect and appreciation from both sides creating a congenial environment to augment national wealth.

The feeling of alienation and animosity being felt between the lender and the borrower which has been developed on account of lack of understanding of the importance of the close inter-connectedness between the lender and the borrower, should be removed for the veritable realization of the objectives of Recovery with a Human Touch.

It is imperative and inevitable need that the executives and employees of lenders are to be sensitized to understand the problems and predicaments faced by the borrowers who mostly are honest and trustworthy but have become defaulters due to circumstances beyond their control and who are also ready to settle the matters amicably but find no way to raise required funds at affordable cost and repayment time to fulfill their commitments. The lenders should reorient their approach to the challenge of tackling and taming the menace of NPA with true grit for which the following qualities are to be instilled.

# Rebuilding trust and understanding by reinventing and refocusing on the customer relationship, paying particular attention to their genuine problems and predicaments with clarity on the remedial actions being undertaken, transparency of pricing and educating the borrower on good governance and to help the borrower to implement any of the recovery methods to settle amicably the recovery of debt.

# Focusing on customer loyalty by finding solutions to the problems of the customer, responding promptly to their complaints and offer them with an exemplary customer service which will make recovery more effective. A loyal customer will not ditch the bank / financial institution.

# Enhance the customer experience – by investing in branches, delivering personal attention across channels and combining customer insights with technology to improve offerings and practicing transparency in their dealings and fulfilling their commitments to the borrowers coming under priority sector. Legal proceedings to recover the loan should be the last resort when all other means fail including multiple rehabilitation / restructuring.

Ultimately what is required is quality leadership in banks and financial institutions to implement a robust recovery plan of action with compassion and empathy for the Recovery of Debts with a Human Touch.

Leadership is pivotal to produce the results and it is turning a vision into a mission to achieve success by planning to do the right things and doing the things right. The quality of leadership is the ability to recognize a problem before it becomes an emergency and lies in guiding others to success by ensuring that everyone is performing at their best, doing the work they are pledged to do and doing it well.

Experience is not what happens to a man. It is what a man does with what happens to him.

"Besides, The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands in times of challenge and controversy.

It takes another thorough and intense study to understand the importance and the impact of introducing Recovery with a Human Touch and also the effect of non-implementation of the concept and how it affects the human lives and national interest. That is another chapter.

Written by: T. R. Radhakrishnan, The author invites comments from readers. He can be contacted through his mobile 9229248048 or E-mail; [email protected]