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Stage I -Lenders:Flooding of notices related to irregularity, warnings, threatening. The moment panic button of stress is pressed lenders run for recovering their money forgetting that they are major financial partners. To prove their capability, lenders flood the borrower lot many letters, notices, warnings etc. Instead they should try to find the reason behind this.
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Effect of the Action:The borrower first tries to convince the lenders humbly. Then becomes defensive and in final stage after convincing self that now he may be thrown out of the business, and loose every penny , starts avoiding the lenders. Lenders start calling them so often that the borrower gets scared and resorts to avoid. |
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Stage II-Lenders:Further pressurize the borrower by giving warnings, threatening and levying penalties, higher rate of interests and non cooperation with the borrower. Lenders Never discuss why it happened, only concern is pay money even if you lost every thing. They never show any interest in knowing the facts.
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Effect of Action:The borrower starts hiding the facts as he feels , lenders are not interested in helping to revive but only in their money. He starts avoiding the lenders, and simultaneously try to safeguard his own interest. Thus the unit becomes orphan and gradually moved towards sinking. |
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Legal Actions by Lenders:Still lenders feel that their actions of recovery were right. They further burden him with legal notices. Here, the lenders feels that if they threaten the borrower with stringent actions, money will come. They forget, this theory is suicidal and will result in huge losses but the lenders in the race of proving themselves honest and shrewd (which is very rare) they virtually kill all the hopes of revival.
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Effect of Action:Gradually the issue between lender and borrower turns into lawyer and lawyer. Result can be immediately expected as two lawyers are more interested in winning the fight not in win-win situation. |
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Settlement, write-off and provisioning by Lenders: Lenders by this time believe that the borrower is cheater, mafia, dishonest, criminal, non professional and so on. He has siphoned off money and now enjoying life . Also that their seniors or predecessor were not capable enough and they did mistake. So the lending institution has to suffer the loss. They have tried their best and nothing can be done.
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Effect of Action:Borrower and Lenders settle the account on the basis of the security available as the business by now is dead. In most cases Lenders loose money. |
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Conclusion:Finally the fight between layers does not lead anywhere and behind the curtain, negotiation starts to settle the dues and disputes. No body wins and poor stake holders loose heavily.
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In my view this set trend of handling the account is absolutely ridiculous as it does not help any one. Lenders and borrowers behave differently depending on the loan amount, security pledged and mistakes done in handling the accounts. |
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An urgent attention is required to look into the strategy and methods of handling the defaulting /stressed accounts, particularly at the initial stage. The action should be to help in bringing back the stressed accounts to normal and revive instead of just killing to recover the money. |
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On one side the borrower is in problem.The strategy of pushing the borrower to corner with sole objective of recovery is not only dangerous but pathetic too. How can an unit where the major financing partner is the bank suddenly become untouchable. Sometime we feel pity of such policy. Pushing, punishing, criticising, reprimanding the borrower is in no case going to serve the purpose. This strategy is no where can be termed as intelligent. |
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Do we punish our body when it is getting in stress? Do we punish our kids when they do not perform as per our wish or they fail in something? Even in private sector whenever some borrower gets into stress the lender tries to save him so the money can be recovered.
Current situation of NPA in banks in our country is mainly due to this reason where no Banker could think other way of handling the stressed accounts. |
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Mistrust between the lender and borrower causes the maximum loss and that too to the lender. By punishing the borrower or trying to Finnish him or throwing in dust may give some satisfaction of revenge but not money. |
