credit data to lenders. banks are required to furnish credit information to crilc on all their borrowers having aggregate fundbased and non - fund based exposure of ₹ 50 million and above with them. notified systemically important non - banking financial companies ( nbfc - si ) and nbfc - factors would also be required to furnish such information. crilc ’ s essential objective is to enable banks to take informed credit decisions and early recognition of asset quality problems by reducing information asymmetry. 20. banks are also required to monitor both qualitative and quantitative stress building up in their large accounts at an early stage under three categories of special mention accounts ( sma ), viz., sma - 0, sma - 1 & sma - 2. while, sma – 1 and 2 will be based on past due criteria, sma – 0 will contain non - past due qualitative and quantitative stress in the account. 21. once an account is reported to crilc as sma – 2, lenders will be required to form a joint lenders forum ( jlf ) and take prompt corrective action. the corrective action plan ( cap ) includes ( a ) rectification ( b ) restructuring and ( c ) recovery. restructuring can be carried out either under the corporate debt restructuring mechanism or under jlf, but if not found to be feasible, jlf will initiate recovery measures. jlf formation will be mandatory for distressed borrowers, engaged in any type of activity, with aggregate fund based and nonfund based exposure ( ae ) of ₹ 1000 million and above. non - adherence to regulatory guidelines has been disincentivised by way of accelerated provisioning. 22. since in terms of section 128 of the indian contract act, 1872, the liability of the surety is coextensive with that of the principal debtor, when a default is made in making repayment by the principal debtor, the banker will be able to proceed against the guarantor / surety even without exhausting the remedies against the principal debtor. as such, where a banker has made a claim on the guarantor on account of the default made by the principal debtor, the liability of the guarantor is immediate. in case the said guarantor refuses to comply with the demand made by the creditor / banker, despite having sufficient means to make payment of the dues,

r gandhi : banks, debt recovery and regulations – a synergy talk by mr r gandhi, deputy governor of the reserve bank of india, at the “ workshop for judges of drats and presiding officers of drts ”, conducted by the centre for advanced financial research and learning ( cafral ), lonavala, 29 december 2014. * * * assistance provided by ms sadhana varma is gratefully acknowledged. 1. honourable judges of debt recovery appellate tribunals ( drats ) and the presiding officers of debt recovery tribunals ( drts ) and other distinguished guests. it is an honour for me to address you all here at this workshop organised under the aegis of cafral. this workshop comes at a very opportune time when banks are facing multidimensional challenges to recover their debts. the rising level of non - performing assets is a major concern of the banking system. in spite of the fact that various legislations have been enacted and repeated efforts are made to emphasize importance of recovery, the non performing assets continue to increase. what is debt recovery? 2. a bank begins a debt recovery process when it seeks money it is owed. a bank takes recovery action for a number of reasons, but the most common is when a customer fails to make loan repayments. debt recovery may include : • referring the matter to a specialist debt recovery team within the bank • employing an external debt collection agency to act on its behalf • selling property over which the bank holds security • seeking a judgment from the courts to enforce the debts why timely recovery of loans is important 3. timely recovery of a normal loan between two parties may not be of critical importance to anyone, except to those two. a bank loan is not just a contract between the bank and the borrower. entwined with this contract is the general welfare of the public, out of whose deposits the bank loan has been granted. however, timely recovery of bank loans are important for variety of reasons and from various perspectives. from the borrower ’ s angle, the longer the delay in settlement, the outstanding liabilities of the borrower increase ; the likely penalties may also increase with time. from the bank ’ s perspective, the longer the delay in recovery, they lose the opportunity to earn income in alternative investments, the security and collateral may lose value and hence may incur capital loss as well. more importantly, the delays in recovery proceeds can lead to liquidity crisis in the bank, run on the bank and con