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by Rakesh Waghela

17.1 Recovery strategy by bucket

Different buckets demand different tactics. Pushing legal action on a SMA-0 borrower wastes goodwill; doing only soft collection on a 90+ DPD NPA wastes time. This page maps bucket → recommended action.

Bucket framework recap

Section titled “Bucket framework recap”
BucketDPDWhat it means
Standard0Performing
SMA-01 – 30First missed payment; usually cures fast
SMA-131 – 60Sustained delinquency; concerning
SMA-261 – 90Material stress; almost-NPA
NPA — Sub-standard> 90, <= 12 months from NPAConfirmed NPA
NPA — Doubtful D1> 12, <= 24 months from NPALong-tenured NPA
NPA — Doubtful D2> 24, <= 48 monthsOlder
NPA — Doubtful D3> 48 monthsVery old
LossIdentified lossProvisioned 100%; recovery efforts continue

SMA-0 (1 – 30 DPD)

Section titled “SMA-0 (1 – 30 DPD)”

Likely cause

Section titled “Likely cause”
  • Forgotten / miscommunicated date.
  • Temporary cash-flow lumpiness.
  • NACH glitch on a single cycle.
  • Borrower travel / personal disruption.
Section titled “Recommended action”
  • Automated reminders (already running pre-due; intensify post-due).
  • Single soft tele-call by Day 5 — friendly, “just confirming you’re aware”.
  • Re-present NACH per cycle.
  • PTP capture if borrower commits a date.

What NOT to do

Section titled “What NOT to do”
  • Heavy escalation — borrower may cure naturally; aggressive treatment harms the relationship.
  • Visit — premature for SMA-0.

Cure rate

Section titled “Cure rate”

~70 – 85% typical; most SMA-0 cures by 30 days.

SMA-1 (31 – 60 DPD)

Section titled “SMA-1 (31 – 60 DPD)”

Likely cause

Section titled “Likely cause”
  • Sustained cash-flow issue.
  • Business slowdown.
  • Borrower avoiding contact.
Section titled “Recommended action”
  • Active tele-calling — multiple calls per week.
  • Field visit by Day 45 if borrower non-responsive on phone.
  • PTP capture and follow-up.
  • Refresh data — AA pull on latest bank-statement; check if material drop.
  • Trigger EWS triage — material business deterioration?
  • Escalate to supervisor if borrower’s responses suggest distress.

Disposition

Section titled “Disposition”
  • Cures naturally → exit.
  • PTP made + honoured → exit.
  • Borrower in distress → consider restructure offer.
  • Non-responsive + no signal of cure → prepare for SMA-2 escalation.

Cure rate

Section titled “Cure rate”

~50 – 70% typical.

SMA-2 (61 – 90 DPD)

Section titled “SMA-2 (61 – 90 DPD)”

Likely cause

Section titled “Likely cause”
  • Material business stress.
  • Promoter health / family issue.
  • Borrower failed to renegotiate with other lenders (stacking).
  • Borrower in active dispute with the lender (rare but possible).
Section titled “Recommended action”
  • Hard collection — daily contact attempts.
  • Mandatory field visit by Day 70.
  • Senior involvement — branch manager / RM / credit head outreach.
  • Restructure offer if borrower genuinely distressed and recoverable.
  • Settlement offer consideration for chronic underperformer.
  • Pre-legal notice preparation by Day 80 — draft demand notice ready.

Disposition

Section titled “Disposition”
  • Cures → exit.
  • Restructured → enters observation-period workflow.
  • Settled → OTS workflow.
  • NPA imminent → legal pipeline preparation.

Cure rate

Section titled “Cure rate”

~25 – 50% typical; below this becomes harder.

NPA — Sub-standard (> 90 DPD, within 12 months of NPA)

Section titled “NPA — Sub-standard (> 90 DPD, within 12 months of NPA)”

Status

Section titled “Status”
  • Daily classification has moved the loan to NPA.
  • Provisioning applied per IRACP.
  • Bureau reporting includes NPA classification.
  • Co-lent loans: both lenders’ classification lockstep.
Section titled “Recommended action”
  • Demand notice issued within 15 days of NPA classification — formally invokes default; precondition for many legal paths.
  • Continued hard collection — calls + visits.
  • Settlement / OTS offer — credit committee approval for material concessions.
  • Restructure offer — only if borrower demonstrably has cash flow returning + a credible plan.
  • Legal pipeline initiated — pre-arbitration / pre-civil-suit / pre-DRT depending on path.
  • SARFAESI notice (for secured loans) — 60-day notice issued under Section 13(2).

Disposition

Section titled “Disposition”
  • Cures via payment → upgrade only on full clearance of arrears.
  • Settles → OTS executed; write off the haircut.
  • Restructures → downgrade per IRACP; observation period.
  • Goes to legal → arbitration / civil suit / DRT proceeds.
  • SARFAESI invoked (secured) → possession + sale workflow.

Recovery rate

Section titled “Recovery rate”

~30 – 50% of NPA pool over 12 months typical.

NPA — Doubtful D1 (12 – 24 months of NPA)

Section titled “NPA — Doubtful D1 (12 – 24 months of NPA)”

Status

Section titled “Status”
  • Provisioning higher (100% on unsecured + higher % on secured for some categories).
  • Bureau reflects.
  • Legal action may be in progress.
Section titled “Recommended action”
  • Settlement is the dominant tool — accept materially higher haircut if recovery probability supports.
  • Continue legal action — execute judgment, attach assets, pursue recovery via court order.
  • SARFAESI for secured — possession typically taken; sale process ongoing.
  • Sometimes assignment to NBFC-ARC — sell the asset and recognise loss; remove from book.

Recovery rate

Section titled “Recovery rate”

Incremental ~10 – 20% over the next 12 months typical.

NPA — Doubtful D2 (24 – 48 months of NPA)

Section titled “NPA — Doubtful D2 (24 – 48 months of NPA)”

Status

Section titled “Status”
  • Provisioning maxed.
  • Legal action may have produced judgment or still pending.
  • Recovery probability declining.
Section titled “Recommended action”
  • Continue legal execution.
  • Aggressive settlement offers; very high haircut acceptable.
  • NBFC-ARC transfer — common at this stage.
  • Selective write-off — accounts where recovery has clearly stalled.

Recovery rate

Section titled “Recovery rate”

Incremental 5 – 10% typical.

NPA — Doubtful D3 + Loss

Section titled “NPA — Doubtful D3 + Loss”

Status

Section titled “Status”
  • Provisioned at 100%.
  • Many such accounts already written off prudentially.
  • Continued recovery effort on cash basis.
Section titled “Recommended action”
  • Maintain legal posture for accounts with viable judgment.
  • Settlement if any opportunity arises.
  • Write off as appropriate per board policy + IRACP.
  • NBFC-ARC if pool exists.
  • Lok Adalat for amenable cases (smaller, settle-able amounts).

Recovery rate

Section titled “Recovery rate”

Slow tail; ~2 – 5% per year incremental.

Cross-bucket: pre-NPA triggers that change strategy

Section titled “Cross-bucket: pre-NPA triggers that change strategy”

Even before NPA, certain triggers warrant pre-emptive action:

  • Borrower’s GSTIN cancelled → near-certain stress; immediate hard collection.
  • MCA strike-off notice → corporate insolvency risk; immediate legal preparation.
  • Anchor relationship terminated → for SCF borrowers, business may collapse; escalate.
  • PG provider deceased / insolvent → recovery vector lost; review settlement offer.
  • Borrower’s primary plant flooded / fire → temporary distress; restructure / moratorium consideration.

Bucket-level metrics to track

Section titled “Bucket-level metrics to track”
  • Bucket roll-rate week-on-week (SMA-0 → 1 → 2 → NPA).
  • Cure rate per bucket.
  • Per-bucket recovery cost.
  • Vintage curves — bucket distribution by months since disbursement.
  • Per-agent / per-agency performance.

Per-bucket cost-benefit framework

Section titled “Per-bucket cost-benefit framework”

For each bucket, the platform’s recovery decision-engine computes (rule-based or analyst-driven):

  • Expected recovery without action — base case.
  • Marginal recovery from action — calls, visits, legal, etc.
  • Cost of action.
  • Net recovery = marginal recovery - cost.

The optimal action is where net recovery is highest. For SMA-0, that’s typically light-touch + automated. For SMA-2, that’s typically intensive personal effort. For old NPAs, that’s settlement or ARC.

What the platform must build

Section titled “What the platform must build”
  • Bucket-driven case routing — cases route to appropriate queue / treatment based on bucket.
  • Per-bucket SLA enforcement — escalation if SLAs missed.
  • Settlement / restructure offer workflow triggered at right buckets.
  • Demand notice generator by Day 90 of NPA (or earlier as policy).
  • Legal pipeline trigger by appropriate bucket.
  • SARFAESI workflow for secured.
  • Bucket-level metrics dashboards for risk / recovery teams.
Section titled “Related”