DRA 2024 FREE NOTES PDF | LEGAL ASPECTS OF LOAN RECOVERY | PART -1

DRA FREE NOTES PDF | LEGAL ASPECTS OF LOAN RECOVERY | PART -1

This post provides dra-free notes briefly on the legal aspects of loan recovery under different Acts/ Lok Adalats/DRT for 2024.

DEBT RECOVERY AGENT EXAM LATEST STUDY MATERIAL | 2024

Candidates preparing for debt recovery agent exams and going through the below-given text to understand the legal aspects of loan recovery as provided in the syllabus of DRA free notes and examinations to be held in 2024.  IIBF administers this exam almost every month in the year and one can easily adjust themselves on the official website of IIBF to qualify for this examination.

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LEGAL ASPECTS OF LOAN RECOVERY | DRA FREE NOTES & STUDY MATERIAL

So, we’re going to discuss some important aspects of recovery as well as how the recovery of loans is done under the SARFAESI Act, through Lok Adalats, compromises and debt recovery tribunals.

Any lending needs to be inherently staff liquidating to provide validation for it in the first instance. When the loan is given, its repayment is implicit. Banks and Financial Institutions, if you want to earn profits and keep lending money, it’s important that lent money is recovered and recycled back. When there is inadequate recovery of loans, it not only disturbs the ability of the system to recycle the funds but also takes away the opportunity of someone who could have gotten the money. With the current RBI guidelines relating to Income recognition and NPAs, recovery of loans has become more and more important.

Adequate and timely loans: 

Time is important whether it is when the loans should be granted or when they should be recovered. So, it is very important that the loan that has been granted is repeated back as per the schedule. Persuasive efforts should be made to recover the loan back by medical contacts with the borrowers to remind prompt prepayments.

Proper pre-sanction formalities:

All the pre-sanction formalities which include: 

• the correct assessment with the finance or money that is being lent is not over-financed or under-financed (It should be ensured that only viable projects are being financed) and 
• whenever sanctions are made there should be a pre-sanction appraisal and counselling with 
• realistic repayment schedule after considering the income flow that is expected out of the activity that is being financed and 
• after proper allowance for an adequate gestation period.

Post-sanction follow-up:

As mentioned previously, repayment is as important as lending out the money. So proper use of credit i.e. ensuring that this was meant that are being made are actually used for the activity that has been asked to be financed or not. 

There should also be a provision of supportive services such as arranging the supply of inputs, transport, marketing etc.

In case the repayment capacity of the borrower is adversely affected due to natural calamities, banks and Financial Institutions should not hesitate to extend conversion or reschedule the facilities in that case.

Follow-up of recovery:

• If borrowers remain uncontacted for months, it increases the risk of default. The banks in such situations can arrange widely publicized meeting in some Central located villages or other locations to get in contact with the farmers/borrowers to educate them in regard to timely repayment of bank loans.
• Recovery notices should also be sent on a timely basis.
• The institutional tie-up is also one other way to ensure proper repayments.
• There should be quick scheduling of loans in case of natural calamity such as flood or drought etc. While in other cases an extension of the loan period should not go beyond the economic life of the Asset that has been charged to the bank.
• Borrowers can also be used in lodging their claims with insurance companies and to try to get them settled to improve their own recoveries. In the case of cattle loans, banks also need to ensure that they are adequately insured and that insurance policies taken on them are renewed on due dates.
• The people who have given guarantees against development should also be kept in the loop.
• Acknowledgement of loans i.e revival letters should also be obtained on a timely basis to keep the debt alive.
• Those having good repayment should really be appreciated and honoured in Gram Sabha with small gifts as a token of appreciation.
• With the help of government officials, recovery Camps could also be organised to help create a favourable climate where loans can be covered.

Recovery of loans under the SARFAESI Act:

The government of India enacted the securitisation and reconstruction of financial assets and enforcement of security interests in 2002. Both movable and immovable properties are taken by the banks as securities. Before the enactment of the SARFAESI Act, banks used to face a number of difficulties in enforcing their right over the immovable properties that have been pledged as security such as:

• Especially cumbersome civil laws that it took years for the banks to get a decree.
• Banks had to go through a court or Tribunal / Court size divide on the immovable properties

But with the enactment of the Sarfaesi Act, banks and Financial Institutions have been empowered to take possession of the secured Assets of the borrower which includes the rights to:

• To transfer the asset by way of a lease
• To assign the property
• To sell the property to realise the secured asset

All this now can be done without any interference from the court or Tribunal. The banks of Financial Institutions need to fulfil the below 4 conditions to enforce their right to the Asset:

• Debt has been secured
• Debt has been classified as a non-performing asset by the banks
• Outstanding due in relation to Debt > or = 100000.00 and more than 20% of the principal & interest amount.
• That security that is to be enforced is not agricultural land.

RECOVERY THROUGH LOK ADALAT

Loans amounting to the maximum of 20,00,000.00 can be settled cordially between the borrower and the lender with the help of Lok Adalat. 

Here in, Lok Adalat takes cognizance of the cases where: 

• any of the parties involved in the dispute agree to utilize the services of the forum or 
• any of the parties involved makes an application to the court to refer the case to this Adalat.

It is to be noted that Lok Adalat is vested with the same powers as that of the Civil courts under the code of civil procedure while trying out a suit in respect of summoning and enforcing the attendance of any witness and examining him or her on oath,

• In respect of discovering and producing any document
• In respect of requisitioning of any public record or document or copy thereof

PASS DRA 2023 EXAMS IN 1 ATTEMPT

This has been all about part 1 of the detective reagent notes for today’s article. We will discuss more how the loans can be recovered through:

• Local recovery acts
• Compromise settlements
• Filing of Suits
• Debt recovery tribunals
• Guarantor etc. in the next article.

You can find some important free classes on the DRA free notes syllabus 2023 on our YouTube channel. The latest study materials are also available at the Learning Sessions’ platforms at the lowest prices (LINKS PROVIDED AT THE START OF ARTICLE)