Rules on Management of Problem Loans

Negotiating and Documenting Workout Plan Banks should develop a process for negotiating and documenting the workout plan with a viable borrower. The process should cover the following components: i. Developing the negotiating strategy: Banks should have a proper process to manage the negotiations with viable borrowers on the potential workout solutions, the process should cover the following: a) Identify minimum information required to objectively assess the borrower’s capacity to repay the proposed restructured solution. b) Assess the strengths and weaknesses of both the bank’s and the borrower’s positions and then develop a negotiating strategy to obtain objectives of a successful restructuring for a viable borrower. c) Where deemed essential, encourage less sophisticated borrowers to seek the advice of counsel or financial advisor to ensure they fully understand the terms and conditions of the proposed restructured solution. d) Develop covenants appropriate to the level of complexity and size of the transaction, and comprehensiveness of the information available. ii. Communicating with the borrower during the workout process: Communication with borrowers should be as per the procedures outlined in the bank’s code of conduct. This should include; timelines for responding to borrower’s requests/complaints, identify who within the bank is responsible/authorized to issue various types of communications to the borrowers, documenting process for all communications to/from the borrowers, signing/acknowledgement protocols with timelines, approval requirements for all workout proposals, templates to be used for communication with the borrowers. iii. Resolution of disputes: Banks should follow the objection handling process for managing disputes with the borrowers in cases where the bank and the borrower fail to reach an agreement. This should include providing the borrower with prompt and easy access to filing an appeal, along with all necessary information to review the appeal, and a timeline for its closure, it should also be ensured that the dispute is being reviewed independently of the individual or team against whom the appeal has been filled. 6.2 Monitoring the Workout Plan i. Banks should develop proper policies and procedures for establishing a monitoring mechanism over restructured loans in order to ensure the borrowers continued ability to meet their obligations. Banks monitoring mechanism should analyze the cause of any failed restructuring, and the analysis should be used for improving the workout solutions provided to borrowers. ii. Banks should define proper and adequate key performance indicators (including workout effectiveness) comparable with their portfolios and should be monitored on a periodic basis along-with regular detailed reporting to the executive management. 7. Collateral Banks should ensure proper collateral management and apply the following requirements throughout the credit process irrespective of the performance on the loan.