Factors to Consider When Creating a Recovery Mechanism for NBFCs.pdf (1)

1. In a developing economy like India, the significance of non- banking finance companies (NBFCs) cannot be overstated. NBFCs play a critical role in providing loans to entrepreneurs to help them establish their businesses as well as providing working capital to help them grow. The collection of these loans, as well as the interest, is a difficult task for most NBFCs. F A C T O R ST O C O N S I D E R WhenCreatingaRecovery MECHANISM FOR NBFCS The Reserve Bank of India (RBI) regularly releasing Master Directions and Notifications about the operating of NBFCs as a result of various pain points faced by NBFCs. S O U R C E: H T T P S : / / E N T E R S L I C E . C O M / L E A R N I N G / N B F C S - R E C O V E R Y - M E C H A N I S M /

2. To manage their NBFCs properly, every NBFC must have a Board- approved Recovery process in place. Customers' dignity should not be harmed in any way by such NBFC recovery mechanisms. Furthermore, NBFCs should follow best practises in terms of debt collection and security repossession in order to foster client confidence and long-term relationships. Objectives that are clear and precise 01. and respect The goal of the policy set should be clear and explicit while creating a recovery mechanism for an NBFC. It must not be unfair to customers and must comply with any RBI notices, circulars, and Master Directions issued from time to time. The goal of the NBFC recovery process should be to reduce the non-performing asset level of the NBFC in absolute terms of account slippage, provide directions to control account slippage to the NPA category, and accelerate recoveries in existing NPAs. What is the purpose of the recovery process for NBFCs? The goal of an NBFC's recovery mechanism should be to make the 02. loan recovery procedure as painless as possible in nonpayment, rather arbitrarily deprive the owner of his or her property. The recovery method should follow best standards, such as fairness, transparency in possession, security valuation, realisation. Following up, recovering assets, and repossessing security should all be done in accordance with the law, not against it. the event than of to and security 03. What is the purpose of the recovery process for NBFCs? The following are some of the considerations that should be made when designing the recovery process for NBFCs: Page 2

3. The system should spell out how the management should engage with customers, as well as their precise duties and obligations. The periodicity of payments, interest rate, and interest rate paid as a penalty on late payments should all be clearly stated in the recovery policy. 01. The approach should allow for continuous updates in terms of identifying and reporting accounts that are showing indicators of slipping into the NPA category. 02.In order to take action against a defaulting borrower, the policy should specify a time frame. 03. The recovery procedures, as well as any legal costs that will be borne by the borrower. grounds for initiating If the borrower's intent is positive, the NBFC's attitude should be exploring solutions, which may include loan restructuring. proactive in Borrowers who are genuinely unable to repay their debts can have their loans restructured before the entity becomes non- performing. However, restructuring should be carried out in accordance with the Board's restructuring policy. 04. Exhaustive coverage of Terms and Conditions any The terms and conditions for the purpose of recovery should be included in the NBFC's recovery process

4. CONCLUSION The importance of a strong recovery mechanism for NBFCs cannot be overstated. However, the recovery procedure of such NBFCs should not be designed to deprive the borrower of his security. A fair policy should always be present in a recovery mechanism, and it should be clearly stated so that debtors do not enter into contracts with uncertain conditions. Contact Us- Website: www.enterslice.com Email: info@enterslice.com Call Now: 9870310368 Address: B 78 Sector 60 Noida U.P. 201301 Uttar Pradesh