Loans and Advances – II:

CREDIT CARD
ADVANTAGES AND LIMITATIONS
What is a credit card?
A credit card is a financial instrument issued by a bank with a pre-set
credit limit. A credit card helps you make cashless transactions for
anything and everything. The credit limit issued by the bank completely
depends on the cardholder’s credit score, credit history and income.

What are the advantages of a credit card?

1. Credit cards help manage your expenses: Credit cards are a great way
to manage your finances. They provide you with an easy way to take care
of your daily expenses as well as help you save some extra money for
unforeseen expenses or emergencies that may crop up in future.

2.Credit cards provide you with instant money: Having a credit card
means having money every time. Even if you fail to carry money with
you, you can swipe your credit card, make a purchase, and pay the bill
later.
3.Credit cards help you maintain your credit score: The biggest advantage
of credit cards is that they can help you build or maintain your credit
score. If you pay your bills on time, it will be easier to get loans at a
lower interest rate in the future. If you don’t pay them on time and have a
bad credit score, it’s harder for banks to give out loans or mortgages.

4. Credit cards are convenient: Credit cards are a convenient way to make
purchases. You can use them to buy things online, or in person at stores
that accept credit cards.

5.Credit cards offer emergency cash: When you use a credit card, you can
get cash at any time. If you’re in an emergency situation like in a hospital
or so and you don’t have cash with you, you can easily swipe your credit
card and get instant help.
6.Credit offers rewards points and special discounts: Almost every credit
card provides amazing discounts, offers, and rewards. Also, many e-
commerce websites offer cashback options and discounts on purchases
made via a credit card.

What are the disadvantages of a credit card?

1. Credit card fees: Credit cards have a fee for the privilege of using
them, and some are much higher than others. Moreover, if you don’t pay
off your balance every month, then your interest rates will continue to
climb until they average, and the lender will also charge you some fees.

2.High-Interest rates: The interest rate is the amount of money you pay to
borrow money. In the case of credit cards, it can be as high as 20% or
more, and it’s one of the biggest costs associated with using a credit card.
The interest rate can be even higher if your credit score is low, therefore,
it’s important to pay off your balance in full each month so there is no
chance of having any late fees or other charges added to your account.
These types of charges will end up costing much more than just paying
off balances monthly like most people do today, simply because they
don’t know better yet.
3.Hidden cost: Almost all credit cards have hidden costs. For example,
the fees you have to pay for money withdrawal at an ATM, joining fees,
renewable fees, processing fees, etc.

5. Minimum due trap: When you pay only the minimum due on your
credit card statement, you’re setting yourself up for trouble. The
minimum due trap is a common problem with credit cards, which can
lead to bigger problems down the road. The best way to avoid it is by
paying more than what’s required on each statement and making sure that
you pay off all your balances every month before they expire.

6. Overspending: When you have access to money every time, you tend
to make unnecessary purchases. It leads to more bills in the month’s end.

GUIDELINES ON CREDIT CARD OPERATIONS

RBI Guidelines for Credit Cards

Who can issue cards
As per RBI, most Scheduled Commercial Banks (SCBs) with a net worth of Rs. 100
crores can issue credit cards. However, the exception is Regional Rural Banks (RRBs)
as it needs to collaborate with other banks to do so. Moreover, Urban Cooperative
Banks (UCBs) with a net worth of more than Rs. 100 crores can issue cards subject to
certain guidelines. NBFCs registered with the RBI with a minimum net owned fund of
Rs. 100 crores can issue credit cards, but they should have a Certificate of
Registration and permission to enter the business.
Issue of Co-branded cards
Banks do not require RBI’s approval to issue co-branded credit cards. UCBs cannot
issue credit cards in tie-ups with other non-bank entities.
Explicit written consent for cards
RBI rules state that explicit written consent will be required for all cards issued by a
card issuer. Moreover, alternative digital modes with multifactor authentication are
also eligible to be used in place of writing. However, that needs to be communicated
to the RBI’s Department of Regulations.
Issue of unsolicited facilities
Credit card issuers cannot unilaterally upgrade credit cards and increase credit limits.
They will require explicit consent from the customer for all changes in terms and
conditions.
Reporting to credit information companies
In this guideline, card issuers cannot report any credit information about a new credit
card account to Credit Information Companies (CICs) before the card is activated. In
case any such information is provided to CIC, the card issuer will be required to
inform the customer.
Other important rules for issuing credit cards
In this guideline, the credit card issuer needs to provide a one-page key fact statement.
The issuer also needs to provide all the Most Important Terms and Conditions
(MITC). The details are fees, charges, withdrawals, credit limits, etc.
Provisions regarding telemarketers
Credit card issuers need to ensure that the telemarketers who aim to promote the card
comply with TRAI regulations as well as guidelines on Unsolicited Commercial
Communications – National Customer Preference Register (NCPR). Moreover,
telemarketers are only allowed to contact customers between 10:00 AM to 07:00 PM.
EMI conversion rules
In the case of EMIs, the issuer needs to provide clear details about principal, interest,
and discount provided to make it at no cost and also, need to include such details in
the card statement. Furthermore, all loans offered via credit card should comply with
RBI instructions.
Credit cards to be closed within seven days
If a customer requests for credit card closure, the request needs to be fulfilled within
seven days. The delay will result in a penalty of Rs. 500 per day till the account will
be closed. Also, issuers need to provide their customers with multiple channels to
submit a request to close a credit card like a helpline, dedicated e-mail-id, Interactive
Voice Response (IVR), prominently visible links on the website, internet banking, and
mobile app.
If the customer doesn’t use the credit card for more than a year, the issuer can close it
after informing the cardholder and not receiving a response within 30 days.
Interest rates to be justifiable
RBI guidelines state that the interest rate needs to be justifiable, “having regard to the
cost incurred and the extent of return that the card-issuer could reasonably expect.”
Minimum amount payment and past dues
RBI guidelines state that the issuers must inform the customers about the
consequences of paying the only minimum amount due. Issuers can report a credit
card account to CICs or levy charges only if a card account remains past due for over
three days. Moreover, issuers need to mention all the charges before as no hidden cost
will be applicable while issuing the credit card.
Credit Card Billing
This guideline states that there should be no delay in dispatching bills and customers
should be provided with one fortnight to make payments. Moreover, cardholders now
have a ‘one-time option to modify the billing cycle of the credit card as per their
convenience.’ RBI has rolled out this guideline by recognizing the fact that issuing
companies do not have a standard billing cycle for all credit cards issued by them.
Conduct to Customer
In this guideline, RBI states that any type of intimidation or harassment of any
customer during debt collection would not be permissible.
Redressal of grievances
Credit card issuers are expected to have a grievance redressal mechanism in place.
Also, they need to publicise it through electronic and print media, credit card bills,
and account statements. Moreover, in case, complainants do not receive a satisfactory
response from the issuer within one month, they have the right to approach the Office
of the RBI

HOME LOANS
PROCEDURE AND DOCUMENTATION
Step by step – Home Loan Procedure

Step 1: Filling the form

Home Loan Procedure starts with filling out the loan application form.
Applying for a Home Loan from HDFC Bank is easy. Following are the
basic details which you will have to fill in the form:

Name

Address

Contact details – phone number and email ID

Education

Type of employment – salaried or self-employed

Income earned

Step 2: Documentation
Once you fill in your basic details, you will have to attach the following
documents for verification:

Identity proof – PAN card/ Aadhar Card / Voter ID/ Driving license

Address of proof – can be a copy of any utility bill

Salary slips of the last 3 months

Proof of employment

Bank statements of the last 6 months

Form 16

Note: If you are a self-employed individual, you need to provide the ITR
of the last 2 years and the other income documents.

Step 3: Processing and Verification

On submission of the form along with the required documents, the bank
starts processing your Home Loan application. The bank will verify all
the documents provided by you. A bank representative may even visit
your workplace or home for the same.

The next step is checking your creditworthiness as a borrower. The bank

conducts an extensive enquiry into your credit score. Hence it is
important that you maintain a healthy credit history.

If all your documents are in order and you have a satisfactory credit score
and report, the bank will proceed with your loan application.

Step 4: Sanction Letter

On successful approval of your Home Loan application, the bank will

send you a sanction letter. This letter acts as proof that the bank has
approved your loan. All essential details about the loan transaction are
enclosed in this letter, such as:

The loan amount you are eligible for.

The interest rate offered.

Whether the interest rate is fixed or variable.

Tenure of repayment.

Terms and conditions of repayment.

After carefully reviewing all the points mentioned in the sanction letter,
you can sign the letter and send it back to the bank. Only after the bank
receives the signed letter from you, the Home Loan procedure moves to
the next step.

Step 5: Secure Payment Fee

On signing the sanction letter, you will have to pay a one-time secure
payment fee. The bank may ask you to pay the fee upfront either before
or after the loan sanction.

Step 6: Legal and Technical Check

Before the bank disburses the loan amount, it conducts legal and technical
checks. The bank representatives will verify the property you have
applied the loan for. They will check if the ownership rights of the
property are transparent. The representatives will also check if the
documents submitted, and the proofs provided have any conflicting
information.

During the technical check, the bank representatives will evaluate the
actual value of the property. The status of the property – under
construction or resale – will also be taken into consideration.

If the property is under construction, they will check the construction

stage and quality of the work. Whereas, if the property is a resale one, the
bank will check the age and maintenance of the property. In case of the
resale, the bank may also check if the property has already been
mortgaged before.

Step 7: Loan Disbursal

Once the bank is satisfied with the checks conducted, your Home Loan
application will be approved. You will receive a final agreement letter.

Post loan disbursal, you will receive a welcome kit and a detailed housing
loan EMI schedule.

It is important that you check whether you meet the required Home Loan
eligibility criteria before applying for the loan. You can seek professional
guidance here to make a more informed decision.

If you already are a borrower and want to switch your lender, you can opt
for the Home Loan Transfer procedure.

A loan application may be disposed by HDFC Bank within 10 working

days of receipt of the same subject to submission of all documents and
details as may be required by HDFC Bank in processing the Loan along
with the requisite fees.

PERSONAL LOANS
PROCEDURE

How Personal Loan Applications are processed

The process of sanctioning of a personal loan is simpler than property loans such as home loan
and car loan. This is because, in case of property loans, the bank has to verify not just your
financial information, but also the credibility and eligibility of the asset that you are purchasing with
the loan amount. For personal loan, you are the collateral security yourself, so the bank has to do
a background verification only on you.

 Once the bank receives your loan application, it will check the information provided by
you against the data available with them, such as bank balance, salary deposits made into
your account, EMIs being deducted from your account, etc.
 The bank will cross-check and confirm your identity and address details through your
Know Your Customer (KYC) documents. Banks may visit you at home to confirm your
place of residence and check with your office on your employment tenure.
 The copy of your Income Tax Return or salary payslips will help the bank gauge your
repayment capacity. This will help determine how much loan amount the bank is willing
to sanction to you.
 Some banks might ascertain your credit-worthiness by finding out your CIBIL score. The
higher the CIBIL rating, the more your chances of getting the loan approved.
 The bank will also review your age, number of years of employment left, and salary
growth prospects, to decide how much loan it can approve for you and what the
repayment period should be.
The two key elements in ensuring approval for your personal loan application are to maintain a
credit score of 750 or more, and to ensure that you provide all the documents sought by the bank.
Once the loan is availed, the onus of repayment lies with you and the bank can levy penal interest
on outstanding balance if EMI is not paid on time. If you miss several EMIs, the bank can also take
legal action.

Documents required to apply for a personal loan

 Proof of age and identity - passport, Aadhaar card, Voter ID card, etc.
 Proof of residence - house registration certificate, sales deed, Aadhaar card, Voter ID
card, etc.
 PAN Card
 Proof of Income - Form 16, Salary slips, Bank statements, Income Tax Certificate, etc.
 Passport-size photographs.
 Duly-filled and self-attested personal loan application form.

SOCIAL BANKING
MICROFINANACE PRODUCTS AND SERVICES

What Is Microfinance?
Microfinance, also called microcredit, is a type of banking service provided to low-
income individuals or groups who otherwise wouldn't have access to financial services.

While institutions participating in microfinance most often provide lending—microloans

can range from as small as $50 to under $50,000. But many banks offer additional
services such as checking and savings accounts as well as micro-insurance products,
and some even offer financial and business education.12 The goal of microfinance is to
ultimately give impoverished people an opportunity to become self-sufficient.

Typical microcredit products look like this (the numbers are

only hypothetical):

Product Purpose Terms Interest rate

Income Income 50 weeks 12.5% (flat)
Generation generation, asset loan paid 24%
Loan (IGL) development weekly (effective)
Mid-Term Same as IGL, 50 weeks 12.5% (flat)
Loan (MTL) available at loan paid 24%
middle (week 25) weekly (effective)
 of IGL
Emergency All emergencies 20 weeks 0% Interest
Loan (EL) such as health, loan free
funerals,
hospitalization
Individual Income 1-2 years 11% (flat)
Loan (IL) generation, asset loan repaid 23%
development monthly (effective)

The Income Generating Loan is used for a variety of activities

that generate income for their families. Clients submit a loan
application and based on approval receive the loan after one
week. Loans are paid in 50 equal, weekly installments. After
completion of a loan cycle, the client can submit a loan
application for a future loan. The approach with smaller short-
term loan is to avoid long-term economic problems with
bigger loans.

The Mid Term Loan is available to clients after 25 weeks of

repaying their IGL loan. A client is eligible for a MTL if the
client has not taken the maximum amount of the IGL. The
residual amount can be taken as a MTL. The terms and
conditions of the MTL are otherwise exactly the same as IGL.

The Emergency Loan is available to all clients over the course

of a fiscal year. The loan is interest free and the amount and
repayment terms are agreed upon by the MFI and the client
on a case by case basis. The amount is small compared to the
income generating products and is only given in times of dire
need to meet expenses such as funerals, hospital admissions,
prenatal care and other crisis situations.

The Individual Loan is designed for clients and non clients that
have specific needs beyond the group lending model. Loans
are given to an individual outside of the group lending
process. Amounts are typically higher than that of the income
generating loan and repayments are less frequent. Applicants
must complete a strict business appraisal process and have
both collateral and a guarantor.

Microfinance is not panacea from all troubles, this also means

that not any poor person can obtain the loan. In particular,
representatives of very poor population, lacking stable income,
living by means of chance earnings, and particularly having
debts (in relation to community facilities, relatives, friends,
etc…) cannot be clients of microfinance, since in case of
microcredit non-repayment they will have more debts,
becoming poorer. For such people special programs of social
assistance are needed, which are able to support main needs
of people living in the poorest dwellings, lacking garments
and food.

MICRO FINANCE SERVICES

Group Loans
small group loans are targeted to very low-income entrepreneurs with the smallest
enterprises, where group members provide a guarantee for each other.

Individual Business Loans

Larger loan sizes and more flexible terms help entrepreneurs continue to grow their
businesses and generate jobs.

Agriculture Loans
These loans let rural clients purchase seeds, fertilizer, livestock and equipment when
they are needed and repay the principal when the harvest comes in.

Insurance
Credit, disability and funeral insurance help reduce the financial stress of meeting
major or unexpected expenses.

Money Transfers
FINCA clients have a safe and affordable way to receive and send money for
business and personal purposes, giving them more free time to spend on their
growing businesses.

Energy Loans
Clients can purchase or lease clean electricity systems or products for use at home
or to improve their small businesses. The systems also improve health and safety by
eliminating the use of kerosene or charcoal.

Savings Accounts
Savings help clients build a cushion against hard times. They can also serve as a
nest egg for education, medical care, major life milestones, old age, business
expansion and other long-term goals.

SELF HELP GROUPS IN INDIA

Self-Help Groups are small groups of people, mainly women, who live in
rural areas and come together to save money and provide loans to each
other. They decide on savings and loan activities together, including the
purpose, amount, interest rate, and repayment schedule.

If someone fails to repay a loan, other members take it seriously and help
with the recovery. The group also discusses and takes action on various
social issues such as health, nutrition, and domestic violence.

What are Self-Help Groups?

SHGs are voluntary associations of the economically poor, usually drawn

from the same socio-economic background and who resolve to come
together for a common purpose of solving their issues and problems
through self-help and community action.

Introduction of SHGs in India:

In 1984, the concept of social mobilization through the organizing of
SHGs was introduced based on Prof. Yunus’s Grameen Bank model.
Initially, NABARD along with impaneled NGOs designed and developed
the promotional ecosystem, including the SHGs-Bank linkage program.
In the year 1990, the RBI recognized SHGs as an alternate credit flow
model.
Functions of Self-Help Groups
The SHGs revolve around promoting the self-worth of its members. It is
built upon four pillars:

Social Mobilization, Formation, and Promotion of Sustainable

Institutions of the Poor:
1. Community-based organizations adhere to democratic governance and
financial accountability principles.
2. They actively participate in local governance, address livelihood
concerns, facilitate access to entitlements and public services, and
promote development.

Financial Inclusion:
1. promote effective bookkeeping
2. capital support for the poor
3. culture of prompt loan repayments.
Livelihood:
1. The focus is on strengthening existing and new income sources and
creating opportunities for economic growth.
2. Women SHGs are empowered to engage in non-farm livelihood
activities.
Social Inclusion and Convergence:
1. SHG platforms are leveraged to better implement various public
welfare schemes and programs.
2. They serve as a bridge between SHG members and social safety nets.

Advantages of Self-Help Groups

1.Low Transaction costs: for both lenders and borrowers.
2.Women Empowerment: Self-help groups empower poor people,
especially women, in rural areas.
3.Decrease informal borrowing: They reduce the influence of informal
lenders in rural areas.
4.Support by Big corporate houses: they promote self-help groups in
many places.
5.No collateral required: SHGs help borrowers overcome the lack of
collateral.
6.Generate Social support: Women can discuss their problems and find
solutions in the group.

What are Self-Help Groups Examples in India?

These are examples of famous self-help groups (SHGs) in India:

Mahila Arthik Vikas Mahamandal (MAVIM): MAVIM is a women’s

development corporation in Maharashtra. It works towards the economic
empowerment of women through the formation of SHGs, providing them
with training, credit facilities, and support for various income-generating
activities.
SEWA (Self-Employed Women’s Association): SEWA is a trade union
and women’s cooperative that aims to improve the economic and social
conditions of self-employed women workers in the informal sector. It
organizes women into SHGs, provides them with training, and helps them
access financial services.
Kudumbashree: Kudumbashree is a poverty eradication and women
empowerment program initiated by the Government of Kerala. It
encourages the formation of neighborhood groups, which eventually
come together to form SHGs. Kudumbashree focuses on various income-
generating activities and capacity building of women.
Bandhan-Konnagar: Bandhan-Konnagar is a non-governmental
organization (NGO) that works towards poverty alleviation through the
formation of SHGs. It focuses on providing microfinance services,
training, and livelihood support to women in marginalized communities.
Bhagini Nivedita Gramin Vigyan Niketan (BNGVN): BNGVN is a
rural development organization that promotes women’s empowerment
and sustainable livelihoods. It facilitates the formation of SHGs and
provides training, financial services, and technical support to women for
income-generating activities.

Problems of Self-Help Groups (SHGs)

While SHGs have made significant strides in poverty alleviation and
empowerment, there are still challenges that need to be addressed:

1.Recognition of beneficiaries: Identifying and including the poorest of

the poor remains a challenge.
2.Limited Training, Capacity Building & Skill Upgradation: There is a
lack of appropriate training plans, quality training, and expert training
institutions.
3.Lack of Financial Inclusion: There is a lack of financial literacy and
proper coverage of members of SHGs by formal institutions.
4.Lack of market linkages: Poor market linkages and forward integration
hamper the growth of SHGs.
5.Support Structure in the Community: lack of a conducive business
environment and value chain additions limits the growth of SHGs.
RECOVERY OF ADVANCES
MANAGEMENT OF NPA
Debt Recovery Tribunals: The Debts Recovery Tribunal has been
constituted under Section 3 of the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993. The main feature of the DRT is to
receive claim applications from Banks and Financial Institutions against
their defaulting borrowers. After the enforcement of SARFAESI Act in
2002, it also becomes an adjudicatory authority for that Act.

Now, The DRT now deals with both the SARFAESI act and the DRT act,
the aim of both the acts is similar but the way is different. Appeals
against orders passed by DRTs lie before Debts Recovery Appellate
Tribunal (“DRAT”). DRTs can take cases from banks for disputed loans
above Rs 10 Lakhs.

Debt Recovery Procedure: Banks have to file an application for the

recovery of a loan taking into consideration the jurisdiction and cause of
action. Other banks or financial institutions can also apply jointly. The
application is filed with the required fees, documents and evidence. The
LI Act is also applicable to the DRT cases, so the bank has to take proper
care and file the application well within time. If the defendant has to
appeal an order of the DRT, he has to first deposit the 75% or the
prescribed amount as decided by the tribunal. Failure of payment would
automatically mean a failure of filing application of appeal.

The tribunal also issues a recovery certificate to the applicant. Recovery

officers attached to the tribunal have adequate powers for recovery under
the act. On the receiving of the recovery certificate, the recovery officer
has to proceed by attachment and eventual sale of a movable and
immovable property. The defendant is not allowed to dispute the
correctness of the amount given in the recovery certificate. Orders of the
recovery officer are applicable within thirty days to the tribunal.

Banking Ombudsman:It is a grievance redressal system. The service is

available for complaints against a bank’s deficiency of service. A
customer of the bank can submit a complaint against the deficiency in the
services of the bank. If he does not get a satisfactory response from the
ban, he can go ahead and approach the banking ombudsman for further
action and investigation. Banking Ombudsman is typically appointed by
the RBI under the Banking Ombudsman Scheme, 2006. RBI as per
Section 35A of the BR Act, 1949 introduced the Banking Ombudsman
Scheme with effect from 1995

LOK ADALATS FOR DEBT RECOVERY

RBI GUIDELINES ON LOK ADALTS

To make increasing use of the forum of Lok Adalts to settle banking
disputes involving smaller amounts, RBI during April 2001 advised bank
and financial institutions to follow the following guidelines for
implementation:
AMOUNT Cases involving an amount up to Rs. 30 lakh may be referred
to Lok Adalats BORROWERS All NPA accounts, both suit filed and
non-suit filed which are in “doubtful” and “loss” category.
No cutoff date is suggested since Lok Adalat is an on-going process.
SETTLEMENT FORMULA
1. It would be flexible with following essential parameters
2. A decree should be sought from the Lok Adalat for the principal
amount and interest claimed in the suit and after full payments of decree
amount, a discharge certificate should be issued by the bank/financial
institutions.
3. Repayment period to be within 1-3 years
4. The negotiated agreement should contain a default clause. If borrower
does not pay due amount regularly, within the repayment period, entire
debt will fall due for payments and bank may initiate legal proceedings
5. The representing Offices should have sufficient powers to accept the
compromises worked out within bank policy framework and should
respond pro-actively to the suggestion of the Presiding Officer of the Lok
Adalat.
DRT LOK ADALTS Banks can take up matters where outstanding
exceed the ceiling of Rs. 20 lac, with Lok Adalats organised by the Debt
Recovery Tribunals / Debt Recovery Appellate Tribunals.
SUPREME COURT SUGGESTION Supreme Court has suggested that
personal loan cases up to Rs. 10 lac should preferably settled through Lok
Adalts.
ORGANISATIONAL ARRANGEMENTS The individual banks and
financial institutions should be more pro-active and should take the
responsibility of organising Lok Adalts. The institutions should get in
touch with State/ District/ Taluk level Legal Services authorities for
organising Lok Adalats. The banks should report the progressing to RBI
at quarterly intervals within one month from the quarters ending
MARCH, June, September and December. RBI monitors the progress
made by the institutions in effecting recovery under the scheme.
PROVISIONS OF INSOLVENCY &
BANKRUPTCY CODE IN INDIA (WITH SPECIAL REFERENCE
TO NPA)

The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law
of India which seeks to consolidate the existing framework by creating a
single law for insolvency and bankruptcy. The Insolvency and
Bankruptcy Code, 2015 was introduced in Lok Sabha in December 2015.
It was passed by Lok Sabha on 5 May 2016. The Code received the
assent of the President of India on 28 May 2016. Certain provisions of the
Act has come into force from 5 August and 19 August 2016.

India had numerous acts in place to punish the defaulters like the Indian
Contract Act, the Recovery of debts due to Banks and Financial
Institution Act 1993, the Securitizations and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002, the Sick Industrial
Companies (Special Provisions) Act, 1985 (SICA). The Government
decided to replace the existing insolvency laws with new stringent laws
which would take care of the existing defaulters in a time bound manner.

The proposed bankruptcy legislation seeks to address the issues faced

currently in the context of insolvency and winding up. The provisions of
the Code are applicable to companies, limited liability entities, firms and
individuals (i.e. all entities other than financial service providers).

Process
Here, we will discuss some of the key features and Institution associated
with the bankruptcy code

Key Features
Insolvency and Bankruptcy Board of India
The Board will be set up as the regulator under the Code.
Insolvency Professionals:
The Bill proposes to regulate insolvency professionals and insolvency
professional agencies. Under the oversight of the Board, these agencies
will develop professional standards, codes of ethics and exercise a
disciplinary role. Three sets of Resolution Professionals are sought to be
appointed Interim Resolution Professional, Final Resolution Professional
and Liquidator.
Insolvency Information Utilities:
The Code proposes for information utilities which would collect, collate,
authenticate and disseminate financial information from listed companies
as well as financial and operational creditors of companies. An individual
insolvency database is also proposed to be set up for the purpose of
providing information on the insolvency status of individuals.
Insolvency Adjudicating Authority:
The adjudicating authority will exercise jurisdiction over cases by or
against the debtor.

The Debt Recovery Tribunal shall be the adjudicating authority with

jurisdiction over individuals and partnership firms other than Limited
Liability Partnerships. Appeals from the order of the DRT will lie to the
Debt Recovery Appellate Tribunal.

The National Company Law Tribunal shall be the Adjudicating Authority

with jurisdiction over companies, other limited liability entities (including
LLPs.). Appeals from the order of NCLT shall lie to the National
Company Law Appellate Tribunal and NCLAT shall be the appellate
authority to hear appeals arising out of the orders passed by the Regulator
in respect of insolvency professionals or information utilities.
Priority:
The following debts will be paid in priority given below:

 Insolvency Resolution cost and liquidation cost

 Debts to secured creditor (who have relinquished their security interest)
and workmens dues (for 24 months before commencement)
 Wages and unpaid dues to employees (other than workmen) (for 12
months before commencement)
 Financial debts to unsecured creditors and workmen dues for earlier
period
 Crown debts and debts to secured creditor following enforcement of
security interest
 Remaining debts
 Preference shareholders
 Equity Shareholders or partners The priority being given to secured
creditors relinquishing security needs specific attention, especially on
account of the same having the potential to be misused, especially if
the debtor and the secured creditor can collide and impair the
collateral.

Highlights:
  Insolvency code has been ranked at 136th position by World Bank in
2017.
 Three banks have applied under IBC so far .
 RBI is expected to to bring in some clarity on accounting treatment
of assets under IBC.
Though there has been very slow response in the Insolvency & Bankruptcy code currently, yet it is
expected to play a major role in addressing the non-performing assets of Indian Banks coming
ahead.