Learning Objectives:

• Identify and classify problem loans.

• Develop workout strategies.

• Understand recovery mechanisms.

8.1 Identifying Problem Loans

Problem loan identification involves triggers that move a credit from performing to problem status . This includes establishing the internal escalation path and special assets team involvement . Early identification of problem loans is essential for effective loss mitigation .

8.2 Workout Strategy Development

When loans become distressed, a structured approach is required . Workout strategy development evaluates restructuring, forbearance, and liquidation options for each problem credit . Strategies are selected based on borrower viability and collateral coverage . Negotiating with distressed borrowers requires negotiation techniques specific to the lender-borrower workout context, including communication strategies, concession management, and documentation of agreements .

8.3 Recovery and Enforcement

Legal recovery mechanisms such as the SARFAESI Act provide frameworks for enforcing security interests . Charge-off and loss recognition explains the accounting and regulatory process for recognising loan losses . Collateral liquidation and recovery involves executing collateral enforcement actions to recover outstanding loan balances through processes such as foreclosure and repossession