[FREE EPDF] CAIIB ABM Exam | Rehabilitation and Recovery Part 1

In this video, we explore “Rehabilitation & Recovery”, a crucial chapter from Module C of ABM/CAIIB. We’ll break down:

• What leads to loan defaults and how banks classify stressed assets
• Strategies like restructuring, rectification, and recovery
• The role of Provision Coverage Ratio (PCR) & NPA classification
• Legal actions under DRT, SARFAESI, and IBC
• How banks handle wilful defaulters & non-cooperative borrowers

If you’re a banker preparing for JAIIB/CAIIB, a finance enthusiast, or a credit risk manager, this guide is a must-watch! Drop your thoughts in the comments section and let’s discuss banking strategies together. ✅

Before we dive in, watch this video for a complete breakdown:

Understanding Credit Defaults & Stressed Assets

📌 What is a Credit Default?

A credit default occurs when a borrower fails to repay a loan. This can happen in various forms:

• Direct Loan Default: Borrower doesn’t repay principal or interest.
• Guarantee or Letter of Credit Default: A third party fails to honor a bank guarantee.
• Treasury Default: Counterparties in financial agreements don’t fulfill obligations.
• Securities Trading Default: Issues in settlement of securities transactions.
• Cross-Border Default: Restrictions in international transactions.

📌 Causes of Credit Defaults

Understanding the root causes of credit defaults helps in minimizing risks. Some common reasons include:

• Economic Downturn: Recession or slowdown in the economy affects repayment ability.
• Poor Financial Management: Borrowers mismanage funds leading to defaults.
• High-Interest Rates: Increasing interest burden makes repayment difficult.
• Fraudulent Activities: Some borrowers deliberately divert funds for personal gain.

Classifying Non-Performing Assets (NPAs) & IRAC Norms

📌 What happens when a loan becomes an NPA?

Once a loan is not repaid as per the terms, banks classify it under IRAC (Income Recognition & Asset Classification) norms:

• Sub-Standard Assets: Loans remain unpaid for up to 12 months.
• Doubtful Assets: If unpaid for more than 12 months, further divided into:
  • Doubtful 1: 12-24 months
  • Doubtful 2: 24-36 months
  • Doubtful 3: More than 36 months
• Loss Assets: If deemed non-recoverable, banks fully provision for losses.

[FREE EPDF] CAIIB ABM | Module C Chapter 23 Part 2 | Risk Management Credit

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