Assets of the bank that are classified as NPA cease the income generation for a bank. To prevent it; banks are supposed to make provisions.
Thus, NPA is a double-edged sword. At one end, it cuts the revenues and affects the top line. On the other hand, it forces the bank to spend on measures to reduce the NPA; it hits the bottom line.
As long as a loan (or advance) remains in the bank book, a part of it remains in NPA. It is impossible to avoid NPA; measures of npa management are taken to keep it as low as possible. Here are some ways banks use to recover NPA.
Pre and post sanction credit monitoring
It plays a significant role in recovering NPA. The qualitative appraisal of financial statement senses the unhealthy development in accounts.
It examines the viability of the project. Finding out the early symptoms of sickness is a major tool to reduce NPA.
Using the Indian Bankruptcy Code (IBC)
When the IBC was introduced in India, its objective was to give great relief to lenders. It decides a priority order to distribute assets or liquidate assets.
a) The top priority is for secured creditors. They will receive the whole outstanding amount. b) The next priority is to unsecured creditors. c) The third priority is for government dues. Under the IBC, a resolution plan or RP will be implemented within timelines specified in the code. If RP is not implemented according to the specified timelines, then lenders are supposed to file insolvency applications under the code.
It could be a single or joint application filed within 15 days from the expiry of the given timeline. Some other ways to do npa account settlement Recovery using Lok Adalat Recovery by applying to drt Mumbai Recovery through SARFAESI proceedings