Have you ever wondered how banks recover loans from defaulters? With rising NPAs (Non-Performing Assets), effective loan recovery is crucial for banks and financial institutions. But what happens when borrowers fail to repay their loans? What strategies do banks use to recover their money?
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- The Recovery of Retail Loans process
- Special Mention Accounts (SMA) and their classifications
- SARFAESI Act & legal aspects of loan recovery
- Preventive measures to reduce loan defaults
- Role of Debt Recovery Tribunals (DRTs) and Lok Adalats
- Insights on Recovery Agents and RBI regulations
If you are a banker, finance professional, or preparing for JAIIB/CAIIB exams, this guide is a must-read for you! 💡
👉 Before we dive in, watch this video for a complete breakdown:
📌 Recovery of Retail Loans Explained
🔹 What are Special Mention Accounts (SMA)?
The Reserve Bank of India (RBI) introduced Special Mention Accounts (SMA) in 2014 to identify stressed accounts before they turn into NPAs.
- SMA-0: Default of 1-30 days
- SMA-1: Default of 31-60 days
- SMA-2: Default of 61-90 days
- NPA: Default of 91+ days
🔹 How Banks Handle SMA Accounts?
- SMA-0: Banks send reminders & follow-ups 📞
- SMA-1: Issue reminder notices & meet borrowers 📄
- SMA-2: Conduct field visits & involve the recovery team 🏦
- NPA: Issue a Loan Recall Notice & proceed with legal action ⚖️
🔹 Preventive Measures to Reduce Loan Defaults
Banks can take proactive steps to reduce defaults:
- 🔹 AI-Based Early Warning Systems: Tracks borrower spending patterns & predicts defaults
- 🔹 Timely Follow-ups: Banks should continuously remind borrowers about EMI due dates
- 🔹 Incentives for Timely Payments: Offering lower interest rates or cashback 💰
- 🔹 Credit Bureau Monitoring: Tracking borrower’s credit history & repayment behavior
- 🔹 Restructuring Loans: Offering revised repayment plans for struggling borrowers
📜 RBI’s Prudential Norms for Irregular Loan Accounts
RBI has laid down rules for Asset Classification, Provisioning, and Income Recognition:
- Standard Asset: No default, timely payments ✅
- Sub-Standard Asset: NPA for up to 12 months
- Doubtful Asset: NPA for more than 12 months
- Loss Asset: Non-recoverable assets 🚫
[FREE EPDF] JAIIB Role of AI and Technology | Retail Banking Exam
📥 Download Free PDF: Complete Guide on Loan Recovery
🎁 Get an exclusive PDF guide covering:
- ✅ Loan Recovery Strategies
- ✅ SARFAESI Act & RBI Guidelines
- ✅ NPA Management Techniques
- ✅ DRT & Lok Adalat Insights
- ✅ Best Practices for Recovery Agents
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