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Non Performing assets implications, Limitations on recovery & measure to NPA

Posted Date: 18-10-2023 Posted By: user

Non Performing Asset is a status of a borrower when he commits default in repayment obligations against the various loan facilities availed from the bank. If there is a continuous default of 90 days, the borrowers account is categorized as a Non Performing Asset. The NPA in India has grown and is growing at a very past pace.

The implications of NPA are very serious, as post NPA classification, the bank  starts initiating the recovery process aggressively through SARFAESI ACT, RDDBFI Act, MCS Act or IBC Act etc as applicable or as the Bank may deem fit. The entire focus is on maximum recovery of dues rather than helping the borrower to revive the business.

The business thus likely comes to a standstill. Non-performing Assets are confiscated. The personal assets and personal guarantees of borrowers and guarantors are also encashed. The borrowers and guarantors can lose their mortgaged assets within 170 – 200 days from the date of receipt of the first notice under Section 13(2) of the SARFAESI Act.

After NPA there are various options available for the bank to recover the dues:

Option 1- Banks predominantly initiates recovery under the SARFAESI Act as it is a matter of mere 200 days.

Option 2- Banks can file OA before the Debt Recovery Tribunals (DRT)

Option 3- Nowadays, with the enactment of Insolvency and Bankruptcy Act, 2016 (IBC), the secured lenders can file their claim before the National Company Law Tribunal (NCLT) against the Corporate Debtor.

Option 4 - Cooperative banks can resort to any of the above or adopt recovery procedure under the provision of MCS Act.

Limitations on Recovery

The present system of NPA needs to be reconsidered. Every NPA account is expected to revive within 90 days, which has no rational.

Some sickness may prevail for a long time while some may get cured within a short time. In case of business that has come to standstill it cannot be revived in a mere 90 days span. In my opinion, the business may be classified as NPA but the NPA recovery process in banks should not be pursued immediately by the secured lenders or the debt recovery agencyor debt recovery agent appointed by them. There should be a reasonable ventilation period for the business to revive itself. NPA Recovery process may be initiated even if the business does not revive after sufficient opportunity is provided to them

Measures or reduce NPA

One way is to support & revive the NPA accounts ensuring the Non-Performing Asset becomes a Performing Asset. And the other way is to kill the NPAs so that there is no NPA in the system.

Unfortunately, our Ministry and the lawmakers have adopted the second method which is absolutely irrational, unfair, and unjustifiable.

Let us understand what is business sickness?/p>

NPA is basically a business sickness. If a living being falls sick, what do we do? We give proper medical treatment. If the sickness is serious, we provide hospitalization services to monitor the sickness thoroughly.

Similarly, it is very essential that a business has to be treated as a living being. If you are killing a NPA unit, it should also be treated as an offense