Non-performing assets (NPA) have become a major problem and a big threat to the economic well-being in India during the past decade. It is a symptom of an ailing banking sector. According to the reports, in the end of the past decade, the figures touched an unbelievable height of around 2 trillion rupees. Due to that, the government has introduced stringent measures to control the NPA and to define a structured npa recovery process.
What Is A Non-Performing Asset?
The Non-performing assets are loans or advances that are in default or in arrears.
In India, an asset is classified as an NPA if the borrower has the principal or interest on the loan or advance given by the lender overdue for a period of 90 days.
It has three categories:
- Sub-Standard Assets: An asset that has remained an NPA for a period less than or equal to 12 months.
- Doubtful Assets: An asset that has remained an NPA for a period exceeding 12 months.
- Loss Assets: An asset that has been identified by the bank or internal or external auditors or RBI ias NPA but the amount has not been written off completely.
The npa recovery process has been defined to deal with all these categories.
Recovery Mechanisms
The recovery mechanism is a process of carrying out the recovery procedures and mechanisms required to restore financial assets.
Lok Adalats
The Lok Adalat is one of the dispute redressal mechanisms. This forum takes the disputes or cases pending in the court of law and settle them mutually. They have been given statutory status under the Legal Services Authorities Act, 1987.
Debt Recovery Tribunals (DRTs)
The Recovery of Debts Due to Banks and Financial Institutions Act,1993 (RDDBFI Act) made provisions to file Original Applications in the Debt Recovery Tribunals (DRTs) and appeals in Debts Recovery Appellate Tribunals (DRATs).
Under the Securitization Act, DRT has the power to decide upon the applications filed against the secured creditors by the borrower or mortgager for the action taken by them.
Sarfaesi Act
The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) was formed after the considerations were carried out by committees constituted by the government.
Insolvency And Bankruptcy Code (IBC)
After the enforcement of the IBC, all the matters in relation to the code were to be filed in the National Company Law Tribunal (NCLT). The main purpose of the IBC is to provide a speedy npa recovery process and remedies for the banks against NPAs and to reduce the burden of the long pending cases in courts.