Many people misinterpret the term loan settlement. It is not a loan closure.
When you pay all the installments of your loan regularly and the borrowed amount becomes zero, it is the closure of your loan account. When this happens, the bank issues a NOC or No Objection Certificate to you. The intimation of the loan closure is sent to the credit rating agencies as well. It gives a great positive impact on your credit rating if you repay the loan without fail.
However, the situation described above is an ideal one. Every time this does not happen. Had it happened all the time, then the number of npa in india would not have gone up.
Sometimes, the borrower cannot repay the loan amount. When installments stop, the financial company or bank starts chasing the borrower. It puts pressure on paying the installment regularly.
The reason behind the non-payment of installment could be anything. The business faces an unexpected loss. There is a change in the external environment that puts a negative impact on the business. If the business of the individual does not pay the loan, it becomes NPA or Non-Performing Asset.
There is no other choice than looking for a npa debt settlement.
The lender gives a one-time option to the borrower where he takes some time off and then settles the entire loan in one shot. The borrower gets some time for repayment. Hence, he accepts the offer readily.
When the borrower pays the loan, it goes into a ‘settled’ state. The credit rating agency also takes it into account and updates its records accordingly.
How does one-time Settlement happen?
When the lender is convinced with the legitimacy of the reason behind non-payment, it can consider offering a period of 180 days for non-payment of the installment.
However, it is only if the borrower is ready to settle the loan in one go.
A certain portion of the amount will be written-off so that it becomes easy for the borrower to repay the remaining amount. Since both parties sign the loan settlement agreement, the status of the loan will be “settled” after repaying the lowered amount. It will not be “closed” because the complete loan amount is not repaid, but the reduced amount.
Consultants who offer npa services can help borrowers in settling down the loan amount.
Impact of loan settlement on Credit Score
A borrower gets the services of npa consultant in india and successfully settles the loan amount, the information is passed to the CIBIL and other agencies that issue a credit rating.
You should not forget that though the transaction comes to an end after the settlement, it cannot be called ‘closure’
technically. The status is ‘settled’. It is reflected as a negative credit behavior. Therefore, the credit score drops. Since the information of loan settlement is stored for up to seven years, it hampers the repayment capability of the borrower. Even it is possible that the subsequent loan application may get rejected.
How can one deal with such a situation?
Some borrowers take loan settlement as an opportunity to pay less to the lender. However, they forget that this puts a negative impact on their credit rating. Hence, it is not a good idea to get swayed by that. The maximum effort should be made to pay the loan in full. One has to consider all other possible ways before considering a loan settlement. Put it as the last resort.
Try other ways such as extending the repayment tenure, revaluation of monthly installments, and so on. Going for a secured loan instead of an unsecured loan would be the appropriate way.
Non-performing asset or npa in india has been a pain in the neck for quite some time. While every sector is getting affected by this problem, the public trust in Indian banks has been shaken due to many failures.
The majority of these failures were contributed by misgovernance and corruption. It is needless to say that this impending catastrophe will put the economy under stress.
All these things keep the banking industry under a constant spotlight, but because of unflattering reasons. The risk has been aggravated by COVID-19 as several companies lost their businesses and failed to pay the loan installments. The government-mandated moratorium on interest payment and state-guaranteed loans put the system under tremendous threat.
It is not a crisis that has been ignored
The problem of NPA or npa management has not erupted overnight. Neither it is a problem that was not known. On the other hand, it was a known issue.
However, due to the improper policies and lack of ordinance, the problem became worst. It is estimated that the magnitude of NPA in the banking sector only will rise further.
It may go up to 11 percent of gross loans in the coming 12 to 18 months. It is estimated by global ratings recently. The financial institutions will face great difficulty in keeping the momentum under control. It is because the proportion of NPL (Non-performing loans) versus total loans disbursed has shown a great decline this year.
Moreover, there is a difficulty in identifying the real problem arising from the COVID-19 outbreak and others. Financial institutions have performed better than expected in the second quarter of the last financial year.
It increased the npa account settlement cases.
Six-month loan moratorium and the decision is given by the Supreme Court ruling barring from classifying borrowers as NPA were the reasons behind this situation.
All of these things will result in an increase in gross loans in the coming one to one-and-half years. From the current 8 percent levels, it will go to 10-11 percent.
There is an impact on the credit cost of the banking system as well. Experts fear it will go up to 3 percent this year and next year. The stress on banks for NPA will have to be reduced by taking special measures. Let’s understand the ways to limit it.
What can limit stress?
To limit the stress, a holistic approach will be required. The following three measures can be taken: • Government credit guarantee for businesses of small and medium magnitude • Resumption of economic activity • Resilient liquidity
Even if rigorous efforts are made by implementing npa loan takeover or other steps, it will take at least the fiscal year 2023 to materially recover the financial strength. Around three to eight percent of loans may get restructuring. Banks have built reserves and making extra provision for COVID. Like banks, collections have increased. It will benefit banks and reduce in risk premium. Such polarization will persist in the next one or one and a half years.
MSME or Micro Small and Medium Enterprises constitute a major part of the economy of India. The majority of businesses fall under this category with an estimated share of 8 percent. The sector gives more than 110 million employments and two and a half million jobs every year. The growth of MSME is vital for the economy.
It is quite obvious that npa in india is also contributed by the MSME sector the most. More MSMEs are facing the problem of the inability of paying their loans. In the most unfortunate scenario, they have to forfeit their businesses. Indeed, the banks have their limitations. They cannot afford to leave the defaulters as it is against the larger interest of the bank. However, it is essential to look into the matter from the larger perspective.
There is no need for hurriedly declaring the borrower as Non-Performing Asset or NPA and liquifying its assets. It will yield only 30 to 40 percent of the borrowed amount. Instead, the banks should work on a solution that will benefit the borrower, the bank, and the economy. It should be a win-win solution for all.
The npa debt settlement is one of the steps taken by the government to control the NPA situation.
Role of NPA consultant
When the macro, medium, or small enterprises default on their loans borrowed by banks, they have to face different consequences. Instead of deciding on the course of action on their own, enterprises should hire NPA consultants. They can assist the MSME to achieve a turnaround from the crisis with their npa services. The consultants can guide on the methods and ways to counter the situation.
What are the strategies obtained by the NPA consultant? These strategies are well within the periphery of the laws and regulations. They give a new life to the defaulters by restructuring the business. As per the definition of NPA, any organization that has defaulted the loan repayment for more than 90 days is called NPA. Banks or financial agencies can initiate the process of selling the mortgaged assets after the 90 day period.
There is an adverse impact of this. In an attempt to recover its money, the bank hampers the operations of the MSME. They paralyze the activities and put the MSME out of business sometimes. Entrepreneurs find themselves in a soup and remain at the mercy of the financial institute or bank.
A npa consultant in india can take the business out of trouble by following the right path. It can use the property as third-party security for the borrower. It develops a viable and workable solution so that both banks and borrowers can safeguard their interests. It makes sure that none of these parties should feel cheated.
NPA consultants after Covid-19 outbreak
The role of the NPA consultant becomes furthermore crucial after the COVID-19 crisis. As we know there has been a great dent in the economy after the lockdown, MEME is the most impacted sector. NPA consultant is not just an expert in npa debt settlement, but it knows how to select and structure the right distribution channel and do product positioning. It knows how to design the strategy for “push or pull” process. It knows the ways of managing working capital.
A consultant ascertains areas that add value by raising finance from different channel partners or by searching for sound business propositions instead of taking more money on interest.
The consultants can offer training to the people working in MSME. It can counsel the top management to promote strategic thinking. Consultants try to recover from the NPA situation by making their clients financially strong instead of projecting financial problems.
To give a resolution to stressed assets, the formation of the bad bank may help. Rather, it may play a key role in that, according to some experts. Analysts were assuming that the concept will kick off in the union budget and the finance minister did not disappoint them.
The move will help in realizing the stress of the management from recovering the stressed assets. It would bring transparency in the process. It will be the single entity that will derive decision-making as a lender.
It is needless to say that it will reduce the burden on national company law appellate tribunal as well.
What all can a bad bank do?
The bad bank will buy the stressed-out loans of banks owned by states. The volume of such loans is much higher than people think. Estimates say that it is in the magnitude of 4.5 lakh crores.
No wonder, the announcement of setting up a bad bank to deal with a high number of toxic loans was welcomed by everyone; bankers, finance experts, distressed asset managers, and even nclt lawyers Mumbai.
Still, the details are awaited, but it has raised expectations of a reduction in NPA for sure. When thing clears, it will make people further assured about it.
How much capital will be allocated to the new asset reconstruction company? How will be the process? What will be the modus operandi of the bad bank? Answers to such questions are still hidden.
Regardless of its nitty-gritty, the concept will definitely be going to reduce the headache of people handling npa legal matters.
Everyone felt that it is a step in the right direction. Surely it will reduce the time required to resolve NPA.
The establishment of bad banks will expedite the resolution of bad assets. When there will be bad loans taken over, it will enhance the ability of banks to lend to more productive sectors. It will spur growth and take the economy to new heights.
There has been a demand for the creation of a bad bank for many years. In the light of the economic turmoil after the Covid-19 outbreak, the demand was further aggravated. Since the spike in NPA was high, it was expected that the budget will have some announcements about the bad bank. And the government did not disappoint people.
Establishment of Asset Reconstruction Company will take over the existing stressed debt from banks and consolidate them to other potential investors as well as AIF or Alternate Investment Fund.
According to the government, there are plans to establish a holding company where banks can transfer the stressed loans. These loans can be sold at the price determined by the market.
According to the experts in bad debts and NPA, the step of setting up a bad bank will bring down the provisioning pressure. Public sector banks can clean up their books.
Everyone is looking for a better impact of the concept of Bad Bank, despite the fact that the details are still to be revealed. Further information is awaited.
The lockdown situation post-March 2020 has impacted every sector. The short-term impact everybody has seen, but economists say that the long-term effects will be far more severe than expected.
It has been observed that almost half of the outstanding bank loan accounts opted for a moratorium, the relief measure declared after a lockdown in India.
It is estimated that despite that NPA in india will show a surge in the coming years. The gross NPA ratio of all commercial banks will rise up to 12.5 percent by the end of the financial year. It means, there will be strong measures required to improve npa management.
RBI draws a further gloomy picture by speculating the NPA ratio reaching up to 15 percent.
What could happen in the future?
The actual impact of the moratorium is still unrated. It is uncertain and evolving. How it will affect ultimately is unknown. However, one thing is sure that banks need to strengthen the npa recovery process further to minimize the impact.
Experts believe that the pandemic has the capacity of amplifying the financial vulnerability much higher than expected earlier. If major economic contraction happens, then corporate and household debt burdens may increase further.
The impact is global and not limited to specific sectors. From the service sector to the retail loan sector, construction, retail, or gems and jewelry; everything will see a downfall.
Increasing disputes will result in more cases getting registered with nclt lawyers Mumbai.
It is certain that npa financial services will have to work hard to keep the situation under control. The efforts will have to be from both sides. At one side, it is important that liquidity increases in the market. On the other side, efforts will be needed to encourage the borrowers to repay the loan without fail.
It is easier said than done because fiscal revenues will see a hit due to lockdown and other disruptions. Also, expenditures will be under strain. There will be a tendency to delay the expenses.
With other things, bank credits will also get weakened further in the second and third quarters despite unlocking phases one, two and further.
With the increased cases of NPA and NPA-related disputes, DRT lawyers will have to deal with more disputes.
In short, the downfall will be far severer than estimated earlier. Several hidden impacts will come out subsequently. It is important that strong and effective steps are taken to tackle the problem.
What is an MSME (Micro, Small, and Medium Enterprises) loan? As the name suggests, it is a loan offered to small businesses or startups.
Since the objective of the loan is to promote new businesses, the payment terms are quite flexible. The repayment tenure changes from the case to case basis. Despite stringent measures, NPA in india is showing an increasing trend. Hence, financial institutes are keen to scrutinize the applications thoroughly.
To support the already stressed MSME after Covid-19 situation, the government has declared credit guarantee of 3 lac crores. It is going to bring a significant improvement in the situation.
The scheme will fund MSME and interested MUDRA loan borrowers with this money.
Under this scheme, the National Credit Guarantee Trustee Company Limited (NCGTC) will offer a 100% guarantee coverage for another 4 lakh crore to eligible loan seekers. The guarantee will be given in the form of GECL Facility (Guaranteed Emergency Credit Line).
On 1st August, the government widened the scope of this 3 Trillian scheme by making the upper ceiling of loan outstanding double. It also included loans given to professionals such as chartered accountants, lawyers, and doctors under its ambit.
The interest rates are offered based on the amount borrowed. It also depends on the profile of the applicant and the payment history.
The loan amount is sanctioned by banks and NBFCs after validating the eligibility criteria. The loans are unsecured loans.
As per the definition given by the Reserve Bank of India, MSME loans are loans given to business enterprises to offer support for finance, infrastructure, and other areas.
As mentioned earlier, the loan amount is sanctioned only if the enterprise fulfills loan eligibility criteria. It is important to know about the criteria in detail. Strict adherence to the process reduces the unnecessary burden of npa management later.
Also, there more than 200 thousand MSMEs, which have either NPA account or stressed accounts. To help such enterprises, the government has kept aside a reserve of another 20 thousand crores as subordinated debts.
It is guaranteed that all these steps will help MSME to overcome the situation and come out of NPA condition.
MSME loan eligibility criteria
Financial institutions and banks offer easy-to-meet MSME loan eligibility criteria to the borrowers. The loan induces additional capital to the business and gives it a boost. The loan can help entrepreneurs in meeting the big-ticket requirement to improve and scale-up the business.
The fund can be used in several ways:
To minimize the possibility of npa financial services need a long list of documents while processing the loan.
The loan can be given to the following categories:
The applicant should be an Indian resident between 25 and 66 years. The business should be in operations for three or more years.
Sales tax and municipal tax document
The Indian economy has seen the worst lean period because of the lockdown situation followed by the worldwide Coronavirus pandemic.
All sectors of industries have seen a stop in manufacturing. After the step-by-step unlock, industries are struggling with a shortage of labors and raw material.
No wonder it will hamper the npa account settlement process as well. Experts recommend the need for restructuring of loans to combat the situation. Surely nclt lawyers india will have to deal with an increased number of NPA cases in the future.
When the borrower is unable to repay the loan despite all efforts, he can approach the bank for restructuring. It happens only if the bank is convinced that the restructuring will address the existing stress of the loan.
Restructuring is a loan settlement process that entertains genuine borrowers, who are unable to repay the loan regularly because of the financial crisis. When a borrower defaults, his credit rating score affects adversely. Restructuring of the loan helps to remove the overdue amount and improves the credit score.
When the loan payment schedule is restructured, it matches the operational cash flow. Agencies that manage the funding for npa accounts observed that the cashflow shrinks for a certain period. However, it comes to the earlier levels after some time.
Real operational issues tide over by rescheduling of the loan.
It is another method of loan restructuring. At times, it happens that banks issue loans at a higher rate than the ideal rate. The reason for it could be several. Higher interest rates are not recommended, and they create the worst impact when the situations are adverse.
Borrowers may approach the financial institution for the reduction of the interest rate so that the loan can be repaid without any difficulty.
Rate reduction puts a positive impact on the project cost. IT makes the loan viable again.
When banks impose charge penalties or extra interest on the unpaid amount, it adds to the project cost. In extreme situations, banks waive off the excess interest as part of the restructuring of the loan.
NPA management has been always a matter of concern. Every economist and financial expert has different views about recovery and account settlement. Why is it such an important issue?
Well, it is because a non-performing asset is not just bad for the financial institute or bank that issues the loan, but also for the economy. It has been observed that the recovery of the NPA has worsened in the past decade.
There was an estimate that the NPA rate will reduce as the economy will improve. However, the pandemic situation has impacted the economy badly. Hence, there is no scope of improving the NPA soon.
In this situation, rigorous efforts should be made to recover non-performing assets so that banks and financial institutes can improve their condition.
Indeed, banks have been heavily relying on this code for the recovery and npa account settlement. Experts assume that banks will be able to release more than 25000 crores in the next five years. The overall NPA recovery rate will sustain at 33% or more, which is a healthy figure.
However, it is equally essential to strengthen the npa recovery process as well. Without that, the desired results will not be achieved.
The recovery tools can be Lok Adalat, legal proceeding under the SARFAESI act, and DRT (Debt Recovery Tribunal). Whatever method is used, the aim is to recover the amount as much as possible.
Both NPA recovery and debt settlement are important for the right functioning and financial well-being of a bank. Unless the loan amount is not recovered, it cannot be reinvested. Thus, the circulation of money does not happen.
A npa consultant in india helps in speeding up the recovery process. By recovering the outstanding amount, a bank strengthens its working capital. It achieves higher efficiency and capitalizes on the net profit. It is the reason, npa in india is the most concerning issue today. It is not just about unrecovered money but has various dimensions to it.
Though the process of unlocking has been initiated in different phases, corporates see a bigger challenge in the coming months. The biggest problem is liquidity and solvency. And another challenge is to make a budget for the next financial year. The costs will remain the same whereas revenues will be greatly stressed. Of course, it will put stress on npa management as well.
Businesses have been attacked from three fronts- the demand fallen, the supply chain got hampered and liquidity vanished. Though some measures were taken by the government to improve liquidity by infusing the same through the banking system. The main aim was to avoid job loss and eventual financial crisis.
The true effect of liquidity transmission will be visible only when the Micro Small and Medium Enterprises (MSME’s) will get benefited. So far, only large business houses are getting the fruits of the efforts. Also, banks are giving limited credit risk in the pandemic situation. So, there is no major positive effect as such. Experts suspect a surge in npa in india.
Large corporates will have a direct impact if they will not get demand from MSME as it is the essential element of the supply chain. Hence, liquidity flow has to be there up to the MSME.
MSME will have to rework the payment terms because their customers present less credit risk and can refinance the loans. Large corporates will have to do reverse factoring arrangements. Thus, MSME can monetize their receivables and control the situation in a better way.
It is important that a credit guarantee scheme is announced by the government. It will avoid the NPA crisis. Measures like wage subsidy can provide better liquidity reach. Most importantly, there should be efforts made to build more resilient enterprises so that they can sustain further episodes of pandemics.
So, what is the takeaway? It is preserving liquidity. Also, the government has to prioritize customers and products based on cashflow. The focus has to be moved from CAPEX to OPEX. It can be a gamechanger in boosting the economy and keeping the npa recovery process in control.
It is a revolutionary step by RBI to allow MSMEs to restructure their existing loans that have defaulted but not fall in the NPA category as on 1st January 2019.
Since MSME is more vulnerable to disruptive changes after the Covid-19 outbreak, this step will provide great help to them. It is being appreciated by not only the sector but across all businesses. Looking at the situation of npa in india, this step will support the economy.
The key elements of this guideline about loan restructuring are:
Since the policy does not entertain businesses that are already NPA, there is no adverse impact on the npa recovry process. Similarly, there is no adverse impact on the economy as well.
The move will not add any the burden on nclt lawyers Mumbai and the tribunal as it considers only non-NPA cases. This exercise will revive stressed businesses. It is a policy support for loan restructuring, which is a good thing for sure.
This move is quite good for the MSME sector. Now, the government runs an awareness program for banks and other lenders so that they make restructuring a part of lending program for MSME. Thus, it will come into the mainstream.
The severely impacted MSME sector will have some relief by this step at least.
There has been a lot of debate and discussion happened about npa in india.The standing committee of financehas raised serious concerns about the capacity of Indian banks to lend due to increasing NPA percentage. There has been another committee appointed to evaluate the performance of public sector banks about NPA and loan recovery.
RBI has also released guidelines for the timely resolution of the stressed assets. Regarding this context, the blog examines some underlying issues about the NPA and npa management.
Banks give advances and loans to the borrowers. A loan can be termed as a standard asset that is a loan where the borrower is making regular payments, and an NPA or Non-Performing Asset where the borrower stops paying the installments. A loan is considered NPA when the interest of principal repayment becomes overdue for 90 days or more.
In the last few years, there has been a phenomenal increase in the gross NPA from 2.3 percent to 9.3 percent. It means a large proportion of the bank’s asset is not generating any income. It means the profitability gets lowered and its ability to gain further credit diminishes.
Increasing NPA means a bank has to make larger provisions for loss. The bank has to keep aside extra money for paying anticipated future loss and npa account settlement.
The parameter of the bank’s profitability is its ROA or Return on Investment. ROA is the ratio of the net profit of the bank to its net assets.
Two types of measures are taken to address the problem of NPA. First, imposing regulatory means to resolve NPA per various laws, e.g., bankruptcy code and insolvency. Secondly, banks need to prescribe remedial measures regulated by the RBI for managing the NPA process in India.
In 2016 May, the IBC (Insolvency and Bankruptcy Code) was enforced to provide a time-bound 180-day npa recovery process. If a timely decision is not taken, then the procedure is adjudicated by nclt court.
Non-performing assets or NPA has shown a drastic increase in the past few decades, and it is considered a big threat to the economic growth in India. Post Covid-19, the situation seems to be getting worse.
In view of the various npa management policies being followed by the government to keep it under control, OTS or One Time Settlement is a prime one.
In OTS, the borrower proposes to settle all the dues at one shot and the bank agrees to accept a lesser amount if the payment is made in a single transaction. When banks do the npa account settlement in this way, they have to compromise on a portion of profits.
Still, One Time Settlement is considered better than the other methods of management of Non-performing assets.
The negotiations and settlement are done by the bank under a written policy document for loan recovery. However, it should not be missed that the OTS is not for every NPA account. It is the discretion of the bank to decide whether it should be chosen or not. Obviously, it is not applicable for deliberate defaulters.
Whenever a bank goes through the OTS path, there is a dent to the productivity. Hence, it is not an answer to the fundamental problem of NPA.
As far as the benefits of OTS are concerned, then the biggest benefit is the speedy recovery of loans and advances. It increases the liquidity of the bank and an easy flow of funds encourages banks to keep on the lending process.
When NPAs get settled through npa recovery process, the banks, financial institutes maintain good financial health. It further makes the whole economy healthy.
To reduce the npa in india, the government is encouraging One Time Settlement. Big, medium, and small units are benefitting of it. In case of the account not settling through the OTS path, banks or financial institutes are required to involve the legal process. To help this, there are several qualified nclt lawyers india who help the clients. Call an expert npa consultant in india to understand the finer points.
Buying a property is everyone’s dream. When one wants to buy a property that is under auction, you can save as much as 30 percent on the market value. The saving is substantial indeed. Looking at the increasing cases of npa in india, there are various opportunities for buying NPA properties. However, it is important that you tread with utmost care while doing that.
What should you expect from it? Well, you should always remember that it is a repossessed property that belongs to a default mortgage borrower. It has been taken over by the financial institution or bank under the npa recovery process. You can legally own it at a discounted value. But you must be aware of the risks associated to it such as:
Thus, the final amount that you pay may be more than the final bid.
Take the following steps to buy a property that has been auctioned under npa account settlement.
It is not a difficult thing to buy a NPA property, the only thing is you need some preparation. As the npa management becomes stringent in India, more such properties will be available for buyers. It will be a golden opportunity for those who want to own a property at a reduced price.
Finance Minister Nirmala Sitharaman in Budget 2020 has proposed to launch a scheme for giving subordinate debt to MSMEs stressing on the working capital challenge faced by them. The scheme is useful with respect to npa management and recovery.
Subordinated debt (also known as a subordinated debenture) is an unsecured loan or bond that ranks below other more senior loans or securities with respect to claims on assets or earnings. Subordinated debentures are thus also known as junior securities. In the case of borrower default, creditors who own subordinated debt will not be paid out until after senior bondholders are paid in full. Certainly, it will control npa in india up to some extent.
The government has asked the Reserve Bank of India to extend the debt restructuring window for micro, small and medium enterprises by a year to March 31, 2021, in measures aimed at imparting thrust to the MSME sector. It is proposed to introduce a scheme to provide subordinate debt for entrepreneurs of MSMEs. This subordinate debt to be provided by banks would count as quasi-equity and would be fully guaranteed through the Credit Guarantee Trust for the Medium and Small Entrepreneurs (CGTMSE).
This move is beneficial and will boost the financial health of MSMEs. Compared to other alternatives the subordinate debt will be less expensive. Also, it will aid to faster npa recovery process. So surely this is a welcome move and will enhance the economic and financial sustainability of MSMEs. However, the success of the model will hinge on the quality of the due diligence done prior to the lending. Even within the MSME sector, albeit it is crucial, the quality of the borrower will have to be maintained for this to be a long term model which can be supported by lenders notwithstanding the government of India’s support.
"An app-based invoice financing loans product will be launched. This will obviate the problem of delayed payments and consequential cash flow mismatches for the MSMEs".
Necessary amendments will be made to the Factor Regulation Act 2011 to enable non-banking financial companies (NBFCs) to extend invoice financing to the MSMEs through TReDS thereby enhancing the economic and financial sustainability
The MSME borrower should have less than Rs 25 crore outstanding as on 29.02.2020 Turnover of Rs 100 crore.
The tenure of the loan would be 4-years with 12-months moratorium on Principal repayment.
MSMEs require more liquid funds than large corporates, but banks and NBFCs are often unwilling to extend them the requisite line of credit due to scepticism around the MSME sector in general, and the added fear of bad loans.
Subordinate debt, though it carries a higher rate of interest, is listed as a long-term liability on the company books – it gives them more liquid capital to invest in their growth in the present. In case of any defaults, the entrepreneur is required to first clear the senior loans (known as unsubordinated loans) before the subordinate debt.
For lending institutions, subordinate debt fetches higher interest rates but is a bigger risk in the case of defaults. However, according to the Budget proposal, the subordinate financing will count as quasi-equity and will furthermore be guaranteed by the CGTMSE. The Trust’s funds will be augmented for this very purpose. Therefore, in the face of a government guarantee, the banks will not find it as risky to extend subordinate financing to the MSME sector. It will reduce the burden on nclt lawyers Mumbai.
The Indian government has decided to provide some financial relief to the MSME sector in the form of the “Fund of Funds (FoF) Scheme.” This scheme was announced by Nirmala Sitharaman, the Finance Minister of India, on 13th May 2020. As per the announcement, the aim of the FoF scheme is to infuse ?50,000 equity into MSMEs.
The scheme will cater to around 25 lakhs MSMEs spread across India. The corpus that this scheme has been set up with is around ?10,000 crores. It is a welcome move in the background of high npa in india.
Indian micro, small and medium enterprises that have an ‘AAA’ rating. The triple-A rating is indicative of high credit-worthiness. It is the highest possible rating that is assigned by a major credit rating company?—?like Crisil?—?to an issuer’s bonds. It shows that the issuer (MSME company) has a good track record of meeting their financial obligations and also has the lowest risk of default.
The Fund of Funds scheme is intended to primarily approach the issue of shortage in equity (growth capital) as well as revenue for MSMEs. The scheme will primarily aid those businesses who are in their nascent and initial stages, where there are almost no prospects to raise funds through the help of professional corporations or venture capitalists. The scheme proposes to buy upto 15% growth capital in high credit MSMEs. Better health of MSME will help in making the economy strong and strengthening the npa management.
In terms of structure, the Fund of Funds scheme will be managed by a ‘Mother Fund’ in addition to a few ‘daughter funds.’ It has been stated that FoF may be operated by the ‘National Small Industries Corporation’ or another governmental body. The scheme’s structure will aid in leveraging ?50,000 crores at the levels of daughter-funds. In tandem, these funds will enable MSMEs to grow in capacity and size. The Fund of Funds scheme will also encourage MSMEs to list themselves on the central board of Indian stock exchanges.
Within the next two years, India’s MSME Ministry has been striving to grow the average rate of turnover of India’s village industry to ?5 lakh crores from its current ?88 thousand crores. According to Gadkari, the FoF scheme offered by the government for MSMEs is going to aid in achieving this target in a huge way. MSME village industries include India’s khadi sector who is expected to play a big role in aiding this goal as it is entering the arena of exports.Agencies offering DRT legal solutions and nclt lawyers Mumbai are preparations to handle the additional demand to manage NPA disputes if any.
Don’t worry about funding of NPA accounts, get the best NPA services from NPA Consultants, Reach out to us today.
Unveiling the first tranche of economic stimulus to help businesses during the Covid-19 pandemic, Finance Minister Nirmala Sitharaman on May 13 announced collateral-free loans up to Rs 3 lakh crore backed by government guarantee. Meant to help businesses suffering from a severe cash crunch, the Government has since the announcement come out with the guidelines on how the scheme will operate key details of the scheme. This move will surely reduce the possibility of npa in india.
The 100% collateral-free MSME loan is being called the Emergency Credit Line Guarantee Scheme (ECLGS), which is being provided by the National Credit Guarantee Trustee Company (NCGTC) to banks, NBFCs and Financial Institutions (FIs).
According this scheme, every eligible MSME or business enterprise, gets a pre-approved sanction limit of up to 20% of loan outstanding as on 29th February, 2020. This is in the form of additional working capital term loan facility (in case of banks and Financial Institutions), and additional term loan facility (in case of NBFCs). This is a special scheme to help small businesses battling the economic impact of Covid-19 and includes Pradhan Mantri MUDRA Yojana (PMMY) borrowers. It will help in bringing down the pressure on of npa recovery process.
All business enterprises or MSMEs that have a combined outstanding loan across different banks, NBFCs and FIs up to Rs. 25 crores as on 29.2.2020, and when the annual turnover of the firm is up to Rs. 100 crores for FY 2019-20 is eligible for the Scheme. Proprietorship, partnership, registered company, trusts and Limited Liability Partnerships (LLPs) are all eligible under the Scheme, but only the loans taken for the business is being covered. Any loan taken by a promoter or director in his personal capacity will not be covered under the scheme.
What is important to note is that the Scheme is valid for existing customers of a bank, NBFC or FI. This means this scheme is not for new borrowers. Also, the loan account should be less than or equal to 60 days past due as on 29th February, 2020 and the borrower has not been classified as SMA 2 or NPA by any of the lender as on 29th February, 2020. A borrower must also be registered under GST, unless the business is not required or exempted from having a GST registration.
It is essential to consult nclt lawyers Mumbai to know exact terms and conditions.
The maximum amount eligible under this scheme either in the form of additional working capital term loan facility (in case of banks and Financial Institutions), and additional term loan facility (in case of NBFCs) is set at 20% of the total outstanding loans up to Rs 25 crore as on 29th February, 2020. To arrive at the total outstanding, only on-balance sheet exposure like an outstanding amount in working capital loan, term loa.
To ensure that the scheme is beneficial to the borrowers and the cost of borrowing is kept low; Banks and FIs link their lending rate to one of the external benchmark rates prescribed by RBI plus 1% subject to a maximum of 9.25% per annum. Similarly, NBFCs cannot charge more than 14% as interest for the loans under this scheme
This facility is available for borrower from May 23, 2020 to 31st October, 2020, or till an amount of Rs. 3 lakh crores have been sanctioned, whichever is earlier.
The loan under this scheme is extended for a period of four year from the date of disbursement and there will be no pre-payment charge if a borrower wants to repay early. There will also be no processing fee for such loans.
What is important to note is that a there will be a moratorium of one year on the principal repayment, but interest payment will continue during this period. The principal repayment will then be converted into equated instalments spread across the remaining period, ..
NPA consultant in Mumbai is single window solution for Npa in India. Do not let the non performing assets be a nightmare for you.
Non-performing Assets or NPA has been pain n the neck for quite some time in our country. Because of various loopholes in the system, companies and individual lenders used to get huge loans that were eventually turning into npa. As per new regulations, banks can now sell the stressed assets to other lenders, financial institutions, or non-banking financial companies.
Npa recovery process is a move that will speed up the resolution process and help banks in recovering huge money. Banks have been asked to frame clear policies and guidelines to sell stressed assets. It is assumed that this process will clear up the balance sheets and remove trillions of rupees marked as a non-performing asset.
Top management of banks has been told to review and find out assets for sale at the beginning of the financial year. The early it is identified, the better the price a bank gets. Some people think that banks should not be in the business of resolving or buying stressed non-performing assets. However, it came out to be a useful and effective idea.
In the year 2014, a framework was released to liberalize the rules and norms for selling and buying non-performing assets. For example, buyouts leveraged for specialized entities. Also, other steps were taken to improve the functioning of NPA recovery with the help of nclt lawyers mumbai.
Studies indicate that the process of selling and buying of the asset has brought a big change in the situation. Amongst other important steps are the establishment of national company law appellate tribunal, and DRT or Debt Recovery Tribunal.
RBI has asked banks to draft and outline clear policies on deciding the policies of valuing their assets that are required to be sold and to seek for DRT legal solutions. For exposure of more than 50 crores, RBI directs banks to maintain two external valuation reports.
Reduction in the gross npa of banks is the amount that was written off and ultimately debited to profit and loss accounts. RBI or The Reserve Bank of India submits the reports to the government on the trends and progress of banking in India.
This report analyses the trends and progress of the banking sector. There are separate captions in this report, such as perspectives, policy environment, performance, and operations of commercial banks and development of various banking and non-banking financial institutions. Banks and financial institutions have been taking the help of nclt lawyers Mumbai to resolve the cases.
There has been a great impulse in the credit demand because of the slowdown in the domestic as well as global market. Let’s look into some common issues. Banks have improved after a long, stressful time of economic stress. But the challenge is not limited to banks only. There are challenges for non-banking companies and cooperative banks as well.
According to experts, issues such as the resolution of stressed assets, frauds, and weak corporate governance also need to be addressed. Then only, it will be possible to reaffirm the robust financial sector in our country. Establishment of national company law appellate tribunal has given forum to the banks where they can raise disputes and get resolution.
These are some ways of minimizing systematic risks by seeking the help of DRT legal solutions. So far, performance indicators for banks are considered capital adequacy, liquidity standards, fund and recoveries, and of course, non-performing assets as well. The Gross NPA ratio of commercial scheduled banks has dropped after 2019 after a consistent increase for a few years. The credit goes to the recognition of npa recovery process and the effective ways of resolving it. Studies show that the problem of NPA has been tackled better by understanding the issues better.
India faces a massive and rising challenge in order to create decent employment opportunities for its citizens, especially the youth. The unemployment rate was 7.20% in January and rural areas had a 9.7% unemployment rate while urban areas had 5.97%. The adoption of a pragmatic approach has become rather essential to tackle the increasing unemployment. A major concern currently is the NPAs in MSMEs. These MSMEs are responsible for employing millions and contributing over 28% of the GDP of the India economy.
Thus, closing down of these corporates gives a hard blow on unemployment. There has been an unexpected increase in NPA numbers due to the change in classification of NPAs. The current NPA norms need to be revised and employment generation schemes need to be adopted. In fact, the CSC (Common Service Centre) is promoting schemes implemented by the Ministry of MSME which aims to help independent and growing entrepreneurs.
Moreover, another scheme includes MSMEs inviting applications from start-ups, technocrats, students, and MSMEs from all over India. Those who get selected will be offered funds up to Rs. to Rs 15 lakh per approved idea. In addition, there is also ECL Finance Ltd which has signed up for priority sector lending to MSME customers. It will permit banks and NBFCs to co-lend to a broader set of enterprise owners. Most importantly, in the Union Budget 2020, our Finance Minister stated the importance of this sector and how it keeps the wheels of Indian economy moving, thereby allotting Rs 900 Crore debt-funding for MSMEs.
Thus, these floating schemes for new start-ups and ventures will help in employment generation. In addition to that, it becomes rather essential to also work for the revival of existing stressed units to maintain employment much similar to creating new opportunities.
New ventures have helped greatly in creating new employment opportunities. In 2019 alone, there were more than 1,300 start-ups helping India maintain its rank of being the third-largest start-up ecosystem in the world. These start-ups helped create an estimate of 60,000 direct jobs and 1.3-1.8 lakh indirect jobs.
While employment generation won’t come easy, a pragmatic approach can solve it to a great extent. Killing NPA accounts to promote new ventures for employment generation will consume more time and efforts. In fact, if we worked to enhance the MSME NPA that has already generated employment, would prove to be more fruitful. With that being, a lot of norm revision and policy adoption will become crucial to deal with the current crisis of rising unemployment.
NCLT or National Company Law Tribunal is a quasi-judicial authority which was created under the Companies Act 2013. The purpose of it is to handle corporate civil disputes.
NCLT has equal powers as a court of law or judge, which objectively determines facts and decides cases with the principles of natural law and justice. It concludes in the form of orders. The orders become a remedy to a situation and correct incorrect legal penalties or costs. National Company Law Tribunal affects the duties, privileges, and legal rights of the affected parties.
Though strict judicial procedures and rules do not bind parties, it follows the principles of natural justice to decide the cases.
National Company Law Appellate Tribunal or NCLAT is an appellate tribunal. It is an authority which deals with appeals that arise out of the decisions of the tribunal. The purpose of it is to correct the errors made by the tribunal.
NCLAT is an intermediate appellate forum. According to the procedure book, it is possible to challenge the decisions of the appellate tribunal in the Supreme Court about loan settlement. Any party which is not satisfied with any order released by the NCLAT can file an appeal to contest the decision.
The appellate tribunal reviews the decision of the tribunal, and it has powers to modify, confirm, or set aside the same.
NCLT has primary jurisdiction, and NCLAT has appellate jurisdiction. NCLAT is a higher forum than NCLT.
NCLT Mumbai is presented with the witness and pieces of evidence to make the decision. NCLAT reviews the decisions taken by NCLT and examines it from the point of view of facts and law.
The primary task of NCLT is to find facts and collect pieces of evidence. NCLAT, on the other hand, decides cases based on witnesses and evidence already received by the tribunal.
The RBI has given an estimate that the asset value of banks will take a further bad shape by the end of September 2020. The gross NPA ratio for commercial banks may go as high as 9.9 percent from 9.3 percent at the beginning of the financial year. The reason is obviously the nationwide lockdown followed by an outbreak of Covid-19 pandemic. The next two quarters will be equally bad as the situation is not going to be under control by the end of 2020. The situation of npa in india is going to be worse than expected.
Of course, the reasons are beyond our control and driven by the global scenario also. However, the government is taking concrete actions for better npa management. This blog talks about some measures.
Other than that, various corrective measures are being taken to keep NPA under control. A few examples are, a lot of focus is on preventive methods such as considering CIBIL score before indulging in fresh lending, provide the benefit of the latest schemes announced by the Government to all eligible borrowers as soon as possible taking strict actions against NPA accounts who have intentionally defaulted, and so on.
The efforts will bring down the percentage of NPA and improve the economy.
It is said that justice is universal, and it doesn’t discriminate between the rich and the poor.
However, it is a fact that the process of getting justice is quite costly. Not everyone can bear the expenses incurred in legal procedures such as loan settlement.
Free legal aid, therefore, is considered the fundamental need in many countries.
In India, there is a possibility of getting free legal aid for people who belong to the category of Scheduled Caste and Scheduled Tribe.
Also, victims of human trafficking, women or children, people with disabilities, and people becoming victims of mass disaster or ethnic violence can demand free justice.
Other than these predefined criteria, it is possible to get free aid in very exceptional conditions or scenarios. Npa lawyers normally don’t fall under this category.
If a person qualifies the eligibility criteria of the LSA act, then he or she must contact the appropriate body constituted under the act.
Some of the forums where one can get free legal aid are:
Here, the application is made to the DRT after paying off the required fee. There are 33 DRTs in 22 locations such as drt mumbai. Under Section 19 of the RDDBFI Act, all prerequisites are mentioned.
The application has to be submitted to the DRT that falls under the same jurisdiction region where the bank or financial institution runs the business.
The legal service authorities in the districts are supposed to establish legal aid clinics in every village or cluster of villages as per the size of it.
It is all the more essential in areas where social, geographical, and other barriers exist.
Like medical colleges provide medical services to people, law colleges and universities provide legal aid to people.
It is part of legal education, and there are no charges incurred.
Several Non-government organizations offer free legal services to people and help them in getting justice in cases like npa account settlement.
Nowadays, it is possible to get legal advice to people through online services for npa management.
Recovery of bad loans has been a pain in the neck for financial institutions and banks for a long time. Due to the loopholes in the system and the absence of stringent laws, there was a massive increase in the percentage of loans turning into Non-Performing Assets or NPA.
Increasing cases of NPA became a cause for concern, and it leads to the formation of DRT or Debt Recovery Tribunal after passing the RDDBFI Act in 1993.
DRT handles loan disputes above 10 Lakh. It deals with the appeals against the order passed by DRT.
Application filing can be done in two ways.
Either you can do it directly to the DRT or through SARFAESI; there are two ways of applying.
Here, the application is made to the DRT after paying off the required fee. There are 33 DRTs in 22 locations such as drt mumbai. Under Section 19 of the RDDBFI Act, all prerequisites are mentioned.
The application has to be submitted to the DRT that falls under the same jurisdiction region where the bank or financial institution runs the business.
DRT has the power to pass an interim order against the defendant, restricting him from transferring or disposing of the property without the assent of the tribunal.
The term Bad Loan has been historically used in the banking and financial sector for ages. It is a loan account that is pending for repayment and overdue for a long time.
In India, after the implementation of Narsimhan Committee recommendations about npa management, the term NPA or Non-Performing Asset is being used.
We must understand one thing that all bad loans are NPA, but all NPA are not bad loans. There is a thin line of demarcation between the two.
As far as NPAs are concerned, there are two types of it-willful NPA and non-willful NPA.
Willful NPA is bad because it is a loan taken by people who have the capacity to pay but they do not pay.
Non-willful NPA is where the borrower becomes defaulter because of reasons beyond his control, e.g., business failure or natural calamity.
It is possible to nurse back the account to good health by additional financing. Exceptionally, non-willful NPA turns into a bad account if npa account settlement doesn’t happen.
An NPA is also a loan on which no payment has been made for a period of 90 days or more. The same holds true with a bad loan as well.
Hence, technically, they are the same things. However, there is a possibility of receiving money when the account is classified in the category of NPA.
Whether you call it NPA or Bad Loan, it is not at all a desirable thing. Efforts should be made to keep both of them at the minimal level.
With the new regulations and rules, it has become difficult for a borrower to become NPA. Lenders take necessary precautions by hiring npa lawyers to check the credit risk before lending the money.
It is not possible to get loans if the credit score is below a certain level.
When the economy of a country is going through a boom period, everything is considered fair. People don’t want to look into the aspects that may become a problem in the long run.
Loans were available on-demand, and there was not much attention towards the recovery of it. It caused poor recycling of funds and a deleterious effect on the deployment of credit.
Due to the lack of stringent processes and loopholes in the system, the non-recovery of loans became a major issue. Bad loan or npa in india affects not only the availability of credit but also the financial soundness of a bank or lender.
clt Mumbai to adhere to the service rules related to the appreciation of procedural law or evidence.
The detrimental impact of NPA is on the profitability of banks. On one hand, banks stop earning, and on the other hand, they also attract higher provisioning as compared to standard assets.
Statistics say that banks provide around 25 to 30 percent additional provision on incremental npa account settlement, which has a direct impact on the profitability.
NPA impacts the economy in many other ways.
NPA increases pressure on the recycling of funds. It reduces the lending ability of a bank. It contracts the money stock.
A bank is forced to lower the interest rate on deposits and levy higher interest on advances.
It causes a major setback to the business of banks.
A bank has to maintain adequate capital on its assets, which are risk weighted. It has to be done on an on-going basis.
When NPA increases, it adds to risk-weighted assets.
Increased NPA harms the bank business and profitability. Banks do not earn profits, and they are forced to curtail the dividends.
It reduces the confidence of the customers.
Thus, npa management is necessary to reduce the impact on the Indian economy.
Why was there a need for enforcing Indian Bankruptcy code in the year 2016? br>
Before 2015, the insolvency resolution in India used to take on an average of 4.3 years. It was much higher than other countries like the UK or the USA, 1 year and 1.5 years respectively.br>
The reason for the delay was due to the time taken by the legal processes and confusion because of the lack of clarity about the bankruptcy framework for npa account settlement.
The current code is applicable to individuals and companies both. It aims to provide a time-bound process to resolve insolvency cases.
The creditor or debtor may initiate the resolution process. It is administered by the insolvency professional.
The process lasts for 180 days, and it is prohibited to take any legal action against the debtor during the period.
The insolvency professional forms a committee of financial creditors that will make a decision about the future of the outstanding debt.
If the debtor goes into liquidation, the insolvency professional administers the process of liquidation.
The order of precedence is as follows:
It is more than 18 years, the National Company Law Tribunal or NCLT has been in existence. It was introduced under the framework of Companies Act 1956 but notified under Companies Act 2013.
NCLT is a quasi-judicial authority that deals with corporate disputes of civil nature. It works on the lines of the ordinary court of law. The orders formed by it can assist in rectifying something wrongly done by any corporate or resolving a situation or levying penalties.
It is not required for nclt Mumbai to adhere to the service rules related to the appreciation of procedural law or evidence.
NCLT is empowered in taking steps like canceling the registration of a company, dissolving a company, de-registering a company, and so on.
NCLT has been instrumental in resolving the case of npa in india.
NCLT is empowered to hear grievances of rejection of companies to transfer the securities or shares.
NCLT has been given the rights of provisions with respect to the deposits under the companies act.
Investigations about the disputes of npa funding in india for a company have been given to NCLT. The investigation ordered by NCT can be conducted within or outside India.
The provisions are drafted for offering or getting help from the court, other investigation agencies, or foreign agencies as the case may be.
NCLT can freeze the assets of a company so that it can be used when the company comes under scrutiny or investigation. It is also possible to order the investigation on the request of others.
To convert a public limited company into private limited company; it is required to have confirmation from NCLT.
It has the power under section 459 of the act for imposing specific restrictions or conditions and granting approvals to such conditions.
The banking sector has been hit badly due to the rising of Non-Performing Assets or NPA.
The problem is predominant in the public sector, but the private sector banks and financial institutes have also not been spared. It triggers the need for more effective npa account settlement across banks.
Here are some causes of the phenomenal rise in NPA.
The recovery tribunals have been established to control the non-performing assets. When they don’t work efficiently, banks suffer heavily. The profitability and liquidity of banks come down.
What does it mean? It means people who can repay their loans but do not repay intentionally.
These people should be identified, and adequate measures should be taken to bring down the defaulted amount as much as possible.
Giving the case to expert npa lawyers is the only solution.
How can natural disasters increase NPA? Well, it is easy to understand. When natural calamities hit, borrowers are unable to pay their loans,
Thus, banks are required to make large amounts of provisions and reduce profit margins for the management of npa funding in india.
When industrial projects are inappropriately handled, or there is a shortage of resources, industries incur big losses.
Hence, banks that finance such industries end up with a low recovery of outstanding loan settlement. It reduces liquidity and profits.
When banks do not follow the cardinal principles of lending, the loan is bound to be NPA.
By following these practices, it is possible to get rid of the problem of Non-Performing Loans.
Banks should have proper management information systems and technology in place to make real-time decisions. When these systems are not in place, there is a possibility of poor credit collection.
Every bank should analyze the strengths, weaknesses, opportunities, and threats to keep the NPA under control. Every project needs to be evaluated against parameters like profitability, long-term acceptability, and viability. These are some prominent causes of higher NPA.
Banks are essential in the economic development of any country. They mobilize savings and deploy funds to productive sectors.
Lending is the activity that finances the agricultural, commercial, and industrial sectors.
However, it is a known thing that when the banking system becomes fragile, it hampers the development of the economy and brings economic crisis if remedial actions are not taken.
In the Indian context, the banking system until the 90s was predominantly managed by the governments. Regulations and political interference were rampant, and the entry to the outside world was restricted.
The “closed” banking system was, however, “open” for those who had access to the system.
There were no standards established, and opaque balance sheets were used as tools to cover the deficiencies.
It resulted in the deterioration of the banking system for common people. The major points of concern were low profitability and the high percentage of Non-Performing Assets or npa in india.
• Banks are following a more transparent process to handle loans.
• They need to spell out the absolute figures of NPA and ratio on a quarterly basis.
• Banks introduce provisioning norms on the principle of conversion. It means a bank has to anticipate no profit but provide for the losses.
• There have been more strict norms to take security from borrowers against the money lent by them.
• The practice of ‘evergreening’ the bad loan by giving further advance to the borrower was the main reason for the high NPA ratio. The practice has been stopped after the new laws were enforced.
• Special tribunals and judiciary systems have been established to carry out npa account settlement on a fast track basis. It has brought down the delays in giving decisions for NPA disputes.
These measures help banks and financial institutions for npa management to keep it under the permissible limits.
Securitization is the process of connecting the capital markets and npa financial services markets by converting the financial assets into capital market commodities.
It reduces the intermediation and agency costs.
What is the benefit of securitization? Since it integrates two strong forces of the economy, the capital, and financial markets, the benefits are incredible.
It creates financial assets like mortgage financing companies or banks in the financial markets. These assets are conventionally refinanced on an on-balance sheet.
As mentioned earlier, its benefits are many. It converts loan relationships into capital market commodities. Hence, it increases the power of the capital market manifold.
Though some criticism has been there regarding stretched credit creation by securitization, It happens because of the shift to marketable assets from nonmarketable assets.
Some legal aid services feel that it results in borrowers sustaining longer in economic expansion. They are exposed to contractions more.
However, these impacts can be minimized by making necessary corrections and taking precautions.
Three reasons make securitization great for investors.
The impact of securitization on the cost of funding also.br>
The proposition is quite clear. To reduce the risk, the security rights of a creditor have to be strong. When securitization lowers the credit risks, it leads to lowering down the funding costs eventually. br>
It affects the npa funding in india positively.br>
Therefore, securitization plays a key role in channelizing money in the economy. It is more important to understand its importance and making the best use of it.
When you face issues with NPL or Non-performing loans, it is not just a regulatory issue, but a way to enhance profitability and keeping good health of the balance sheet.
When you manage non-performing loans, it means you will be replacing it with sound exposure Since lower earnings of NPL will substitute the rates charged on new business, the interest income will go up.
Some other benefits are lowering the capital requirement and funding costs which will be coming from the drop of NPL.
One can seek help from npa financial services for steps needed to face trouble with non-performing loans.
It would be best if you had a clear strategy to deal with the problem of Non-performing loans.
What is involved in the operational assessment? It includes the assessment of internal capabilities and resources within the bank to manage the issue.
You need assess the external environment as well to know if there are any solutions the bank has to deal with the balance sheet issues.
It would be best if you analyzed regulatory implications as well.
It is very much essential to derive a strategy for NPL so that short, medium, and long-term goals can be attained. You need to set qualitative and quantitative targets accordingly.
Consultants who offer npa funding in india can help in the assessment as well as considering the changes and other implications.
After completing the operational assessment, now it is the turn to implement the operational plan. To embed the strategy; it is required to have a proper governance structure within the bank. A structured management process enables regular reviews and independent monitoring.
Financial institutions where the percentage of NPL is more than 15% are considered to have high NPL problem. It is important to follow a clear process to achieve an optimal decision.
The solution can be a mix of ‘on-balance-sheet’ solution to an off-balance-sheet solution.
By following these practices, it is possible to get rid of the problem of Non-Performing Loans.
The Reserve Bank of India or RBI gives more flexibility and time to the banks to consider how they want to treat a defaulter account or NPA in India?
Now, the banks will have 30 days to declare an account as NPA and another six months to execute the recovery plan.
Banks that have sufficient capital to set aside can delay the implementation plan.
Lenders are required to enter into an Intercreditor Agreement or ICA within one month of the review period.
A bank can delay the resolution plan, but it has to incur steep provisioning for it. In case the window of 180 days is breached, the bank should keep additional provisioning of 20 percent of the outstanding.
In the situation of not implementing the plan within one year of the default, an additional 15 percent provision or 35 percent of outstanding is to be provided by the bank.
The revised NPA norm gives banks 30 days from default for npa recovery.
With the prudential framework for the resolution of NPA, the RBI gives enough operational freedom to banks for restructuring as per their wish. It is the freedom from the so-called ‘one-day default’ program.
Since it is sufficient to start the resolution process by lender representing 75 percent of value and 60 percent of lenders by number, the process becomes easy and straightforward.
Are you facing financial crunch and fearing to get labeled as NPA (Non-Performing Asset)? Well, there is no need to get into the pressure of banks or financial institutions.
There is no need to give them a complete walkover. There are several ways to sustain the pressures and get some time to correct the situation and bring back your business into action.
You are a defaulter and not a criminal. The bank must follow the proper process and give sufficient time to repay the dues.
Under the SARFAESI Act 2002, the bank classifies an account as NPA if the repayment is due for more than 90 days.
The lender is supposed to issue the 60-day notice to the defaulter. If the borrower doesn’t pay within the notice period, the bank may proceed for selling the asset.
Before auctioning the property to recover the dues, the bank has to issue one more notice. It specifies the fair value of the asset as assessed by internal valuers.
You have the right to object if you feel that the property is undervalued. It is also possible that you find a buyer who is ready to give a price that is higher than the value estimated by the internal valuer.
Eve during the notice period, you have the right to make the representation to the concerned officer to put forth the objection.
The officers need to reply within a week or so, with valid reasons of rejection.
As mentioned earlier, you are a financial defaulter and not a criminal. Hence, you have the right to get proper treatment.
First, you should get calls from the banks. The callers can’t humiliate, harass, or intimidate you in any case. Even there are norms for calling hours by the representative.
Violation of these rules will have severe implications if you launch a complaint against it.
Thus, there is no need to go under the pressure of banks. You have various ways of avoiding it.
Debt settlement or loan settlement programs are administered to enhance profitability. When you settle the debts, you pay less amount than what you owe.
When you begin the plan, you are already behind the debts. Therefore, the settlement company asks to save a particular amount. It also asks to stop the payments during the negotiation process.
You put yourself purposely in default. The objective of a loan settlement or debt settlement process is to save sufficient cash to pay the amount in full when the settlement amount is reached.
Once you make the payment, your account no longer remains a default account. It is considered satisfied.
Thus, it is clear that the process of debt and loan settlement is quite simple and easy. The only thing you need is to go in a structured and systematic manner.
f you study the report published by IMF in 2006, then it reveals that the public sector banks have settled around one-third of the NPA cases for which notices were issued under the SARFAESI Act 2002.
Around 33000+ cases where notices were issued by the subsidiaries of the State Bank of India and other 20 nationalized banks, around 10000+ cases were settled.
Though the success rate looks impressive in terms of the number of cases, it is not that impressive in value. The total amount recovered is 500 crore, which is quite less compared to the total outstanding amount of 12000 crore rupees.
The total recovery of SBI and its subsidiary banks was 80 crores as against the total loan outstanding amount of 4700 crores.
Punjab National Bank sent 3000 notices worth 700 crores and recovered around 40 crores.
Canara Bank issued 1000 notices for 350 crores rupees and recovered 35 crores.
Indeed, the success rate in value is not very significant; the long-term impacts of the act are there.
First is, banks have become confident that they will be able to recover the money in the future. Also, defaulters have realized that it will not be possible to defy the notices sent by banks in the future.
Thus, the act has undoubtedly brought a good impact on the NPA cases. It is sure that with the act becomes further stringent in the coming years, the amount of recovery will also increase proportionately.
What is NPA or Non-Performing Asset? As per the definition of RBI, assets on which the instalment of principle, interest or both remain overdue for more than 90 days are classified as NPA.
Banks and financial services get adversely affected if the number of NPA cases goes high. Sometimes, it becomes mandatory to use legal aid services to facilitate faster recovery.
When the fundamentals are not correct, the problem becomes chronic. It destabilizes the confidence of investors and depositors.
Higher NPA forces a bank to reduce the rate of interest so that it can increase the profit margin. Once a bank goes into losses, and it doesn’t take steps to correct the problem quickly, it is almost impossible to survive.
It is the reason NPA has to be kept under control, whether you are a bank or financial institution.
In the past few decades, the credit growth to the industrial sector in India was far higher than the GDP growth. It resulted in a higher proportion of the NPA in industrial sector as compared to other sectors.
Due to that, banks were reluctant to finance the industrial sector, which hampered the growth.
The credit to the MSME sector (Micro, Small, Medium Enterprise) was reduced considerably.
As other factors also hampered the growth, the overall impact was devastating. Though efforts were made to correct the situation by encouraging npa funding in india, the economy has got a setback due to a higher NPA percentage.
It is important that the banking sector remains strong if a country wants to remain economically healthy. In fact, it is a significant prerequisite.
When the NPA percentage goes high, first of all, the banking sector becomes fragile. Obviously, it is not a good sign.
In a country like India, the infrastructure sector accounted for the biggest share of NPA. Banks and financial institutions are not ready to fund it. Infrastructure projects got jeopardized without money. It caused further damage to economic stability.
Another sector that got a great hit was the food processing sector.
Since the impact is enormous, every economy should take proactive measures to reduce it.
Banks and financial institutions issue loans to clients with an expectation of receiving installments regularly.
It is good for both lenders and borrowers. However, at times, there are situations when lenders do not repay the loan. Either they pay intermittently or become defaulters
To facilitate the banks and financial institutions in dealing with such cases, the government of India established Debt Recovery Tribunal or DRT after the passing of the Recovery of Debts due to Banks and Financial Institutions Act (RDDBFI), 1993
These legal aid services have been quite helpful in the past. With the establishment of DRT, it became easy to recover loaned money from the customers.
The petitions against orders passed through DRT are presented before the DRAT or Debts Recovery Appellate Tribunal (DRAT).
Five such appellate tribunals and 32 debt recovery tribunals in 23 places exist all across the country.
The primary goal is, of course, to recover the money from borrowers, which they owe to the lenders.
The tribunal settles down the cases of recovery from NPA as confirmed by the lender under the guidelines of the RBI.
There is a recovery officer who guides to execute the recovery certificate passed through the presiding officers.
According to npa lawyers, the DRT must follow the legal process by emphasizing quick disposal of the cases and fast execution.
As far as the applicability of the act is concerned, it is applicable in the whole country.
Also, it is applicable where the due amount is below 10,00,000.
The act is applicable when the lender files the original application for recovery.
The central government can establish more than one tribunal to carry out the jurisdiction under this act. The government can also stipulate the area where the tribunal may carry out the jurisdiction.
When you run a business, chances are you would have borrowed money from banks or financial institutions.
When you have a loan, it is crucial not to default its repayment.
It is qualified as an NPA or Non-Performing Asset based on two delinquency norms- 90 days and 120 days.
If you are facing trouble in loan settlement, insolvency and bankruptcy code. Then, don’t worry! We have solution for npa management.
How will you avoid defaulting your business loan and going into the NPA category?
Why is there a signific increase in NPA during recent years?
Some of the driving forces were external such as the reduction in global commodity prices that resulted in a slower pace of exports. Some are intrinsic to the banking sector in our country.
The majority of the NPA loans were originated in the mid-2000s because the economy was flourishing, and the outlook about the business was very positive.
The loans were available effortlessly. Hence, business houses were more dependent on external borrowings instead of internal promoter equity. When the projects underperformed, borrowers lost their paying capability. On top of their defaulted loan, new loans were given to pay off the interest.
These loans were considered as Non-Performing Asset at a later date.
When the volume was small, there was no big problem. However, it became severe when it increased phenomenally.
If you are a business owner who has taken a business loan, then there should be some measures taken to avoid getting into the NPA category.
In the era of communication, it is unacceptable to miss a loan repayment date for the insufficient fund. Though it doesn’t take you directly into the defaulter category, if you miss it once, it eventually leads there when it becomes a recurring phenomenon.
The account should contain enough balance to make sure you don’t land into the defaulter category. If you don’t pay within 90 days of the due date, there is a risk of getting into that.
Hence, always maintain balance in the account if you have given the mandate for automatic deduction.
Let the lender know if you are missing a repayment date. Instead of not informing and hoping that you don’t default, it is better to inform the lender in advance.
You can reschedule the debt if possible.
By following these steps, one can save the loan from being defaulted.
Before going into the details of NPA impacting the economy in India, let’s understand the definition of NPA or Non-Performing Asset given by the Reserve Bank of India (RBI).
As per the definition, an asset that stops to generate income for the bank is marked as Non-Performing Asset.
As far as statistics are concerned, then the public sector banks have the non-performing assets valued at more than 400,000 crores or 61.5 Billion USD.
It is almost 90 percent of the total NPA in India. The private sector banks account for the remaining 10 percent.
The global and Indian economies were booming between 2004 and 2009.
Hence, Indian firms borrowed furiously to reap growth opportunities. Hence, commercial credit was almost doubled during this period.
The investment was made in every sector-telecommunication, power, steel, and aviation. Everyone speculated 9% or more growth. Banks were lending extensively, hoping to get good returns in terms of interests.
However, the financial crisis started in the year 2008. The profits dropped, and the government banned many projects.
Due to the excessive delay in environmental permits, the infrastructural sector got the most setback. It resulted in a shortage of supply and volatility in prices of raw material.
Npa consultant” a team of Npa activist has stated the post affects of the Nclt law. He states that the MSME's are not able to gain the benefits of the drt mumbai and nclt mumbai.
Thus, the damage is severe. It takes a lot of time for the economy to come out of the crisis. Not only the institutional borrowers, but individual borrowers, also feel insecure about it.
The negative impact is extensive.
There has been a lot of noise in India about the NPA crisis.
The reports of March 2018 say that the public sector banks accounted for around 86 percent of the total NPA, whereas the private sector banks shared the remaining chunk.
The ratio of the gross NPA to advance was 15% in public sector banks. Indeed, it is a crisis. Since the last ten years, the increase in the NPA has been staggering.
When did the problem start, and what were the triggering elements for it?
Economic experts put the responsibility of it partly on the credit boom that happened during the year 2004 to 2009.
Since the economy was on a rising track, nobody thought even for a second to give credits to the industries. Investments were being made, and all sectors were flourishing.
However, things began to go wrong in the early days of 2007-2008 when there were global financial crisis and further slowdown in the year 2011-12.
When the rupee depreciated, companies had to borrow higher amounts in foreign currency. Tightened banking norms in 2014-15 marked a watershed.
Npa consultant” a team of Npa activist has stated the post affects of the Nclt law. He states that the MSME's are not able to gain the benefits of the drt mumbai and nclt mumbai.
Public ownership of banks was not up to the mark. Incompetence and corruption are the two shortcomings that resulted in the poor appraisal of credit risk.
Incidentally, the Gross NPA/Gross Advance Ratio was almost similar across public and private sector banks. Thus, it was not the public sector banks the culprits.
The explanation lies elsewhere.
The iron and steel, mining, infrastructure, aviation, and textiles were the five sectors that have the maximum exposure.
For example, PSBs had higher exposure to the five most affected sectors — mining, iron and steel, textiles, infrastructure and aviation (30% advances and 53% of stressed advances).
Roughly, the 85 percent of advances accounted by PSBs were from these sectors. The financial crisis and land acquisition and environmental issues delayed the infrastructure projects.
Adverse court judgments paralyzed the telecom and mining sectors. The steel sector got the massive hit by the huge dumping from China.
Everyone needs money. From industrialist to builder and entrepreneur to farmer; the best and the simplest way to arrange money is lending it from financial institutions.
When the receiver and the lender enter into a transaction where the money is given with an agreement of paying it back along with interest, it is called a loan.
Organizations and people may adopt any method for this. They may take a loan from banks, credit societies, non-banking financial institutes, and even individuals to fulfill their business needs.
When two parties get into the contract, they are forced to comply with the rules and regulations that make it binding on them.
If the borrower fails to repay and becomes a defaulter, then the lender has the rights to use legal actions.
The blog talks about the legal actions the financial institution can take in case the debtor defaults in paying the loan amount.
Speedy recovery of loan is essential for health functioning of a financial institution.
Another important aspect that needs consideration is the NCLT or National Company Law Tribunal that came into existence in 2002 under the framework of Companies Act, 1956 in India. However, it took almost a decade to get the constitutional validity due to several reasons. Ultimately it got notified under the Companies Act 2013.
NCLT is a quasi-judicial authority incorporated so that the corporate disputes of civil nature can be dealt well. However, there is a difference in the functions and powers of it as compared to the Companies Act.
Though the Supreme Court preserved the constitutional validity of NCLT, it rendered specific provisions as violation of the constitutional principles. Just like the normal Court of Law, the NCLT also obliged to deal the things fairly and without any bias. Also, it has to determine the facts of each case in accordance with principles of natural justice.
It offers conclusions in the form of orders. It assists in resolving a scenario, rectifies something done wrongly, and levies penalties and costs. It may alter the rights, obligations, privileges and duties of the concerned parties.
Hence, it is important that the lenders keep a close watch on it and take necessary actions timely before the loan becomes an NPA. The lesser is the percentage of loans converting into NPA, the better it is for a financial institution.
Though the law gives various ways to recover the loan, it is better that the situation doesn’t occur. As they say, “prevention is better than cure.”
ndia has emerged as one of the strongest economies in the past three decades. The overall growth has been outstanding. The Micro, Small and Medium sector or MSME is amongst the top contributors in the economic development.
However, it is also a truth that the increased number of NPA (Nonperforming Assets) in the sector is quite high.
It is a reason to worry because it causes harm to not only the balance sheet of the finance company or lender, but also a negative thing to the economy.
To overcome the situation and to make the laws stringent, a comprehensive insolvency and bankruptcy code has been formulated by the government.
The code aims at giving powers to the creditor when the debtor does a default. At the same time, it ensures that the business is saved during the debt settlement process.
Thus, the lender doesn’t end up with a loss, and the business is also not compromised.
When a case gets escalated to the company law tribunal, it follows a time-bound and systematic procedure for insolvency resolution and liquidation.
Thus, there is a significant improvement in the debt recovery rate and the revival of industries.
When a bankruptcy lawyer takes the case of a business that has become NPA, he studies it in light of the new code.
The insolvency professional deals with the commercial aspects such as:
A resolution plan is prepared so that the burden on the judiciary process is reduced. Thus, the delay is avoided.
When the default happens, the control moves to the creditor. There are strict guidelines to complete the things in a time-bound manner.
Experts say that when the case is resolved in a finite timeframe, the chances of saving the business from liquidation increase.
Whether it is an NPA consultant or lawyer, everyone works towards protecting the company from liquidation. Enough time is given to resolve the problems.
When the NPA consultant takes the control, he proposes different options based on the specific scenario.
It depends on the decision of the business owner, which path to be followed. The rules and regulations, laws and provisions are balanced and unbiased.
By choosing the right path and strategy, the business can come out from the troublesome situation.
Everybody launches the business with great enthusiasm. The objective is to become a successful entrepreneur. However, situations don’t turn favorable always.
At times, it happens that the business doesn’t perform in the way it is expected to. The business owner can’t even pay interest on principal on loan and become an NPA (Non Performing Asset).
Well, it is not a situation that one should feel shameful about. You always run the business with the utmost sincerity. The circumstances become unfavorable; that’s it. The task of npa recovery is difficult for financial institutions and borrowing agencies; there is no doubt about it.
Is it the end of the business? Will the lender take serious actions and push you towards bankruptcy? Not always. When the borrower lends money, he knows that this situation may happen.
The lender takes several precautions where the money can be recovered without getting a hit.
For you also, there are many helping hands like NPA consultant. He knows the tricks of npa management.
He is a person who knows the ways of dealing with this troublesome situation. After reading about your case, he can come out with a few practical solutions.
Since the government is also concerned about the increasing cases of businesses turning into npa in india. NPAs, there have been several changes and improvements happened in the laws and regulations, and npa resolution.
In India, where micro, small and medium enterprises contribute 8 percent of the GDP, it is essential to control the NPA percentage as much as possible.
When a large number of MSME are unable to pay the loans and become NPA, it is a dent to the economy as well.
Instead of hurriedly liquifying the assets of the borrower, an NPA consultant finds an amicable and workable solution that benefits both the borrower and the bank. He assists you in achieving a turnaround from the financial crisis and guides on the methods and ways to counter the situation.
The methods adopted by the NPA consultant are well within the permissible laws. He can give a new lease of life to the NPA company by restructuring the business.
With the help of these well-articulated means, your business can sail through the turbulent time and make progress. Once the crisis is over, it can reach new heights of growth.
The problem of NPA or as acronym-ed Non performing asset is becoming a major loan settlement threat to Indian economy and it's mainly on the MSME side. When it comes to a situation relating to NPA; MSME owners get really petrified as in when compared to large corporates sector.
Here are a few possible solutions:
On September 28, 2018 our finance minister Mr. Arun Jaitley launched a new portal to fast-track the loan process. The loans can be approved within 59 minutes with an amount of 1 crore for the MSME sector. The business only needs to submit GST and income tax details without the entrepreneur have to visit the banking branch.
- Now most of the entrepreneurs have a common mindset that whenever bank grants loan to them. They have granted some favours on the MSME entrepreneurs without making
them realise the rate of interest charged on them is pretty much higher rate when compared to other corporate's. The amount of collateral's kept for providing loan is also pretty
With such a huge amount of loan the common MSME entrepreneur rather than focusing on the business keeps getting distracted by pressure inferred to them by the banks.
Forgetting the primitive ideology that the bank is for the business and not the other way round.
- This problem can be solved only when the entrepreneur will focus on his business, rather than focusing on the repayment of installment for the loan. There are many legal ways to buy time to delay and Dr. Viswaas Paanse has helped many MSME owners for the same. He says, “ Focus on the business and the leave the bank problems on the experts”.
- He is an Ex banker man holding a PH.D degree from United Kingdom (U.K) and many more degrees aside from that. Having 2 decades of experience in NPA. Dr. Paanse is a thorough professional when it comes into dealing with NPA and have helped in revival of many sick MSME with his experience and qualified team members.
We know how humiliating it is to get calls from recovery agencies. Yes, it is perhaps the most embarrassing and frustrating moment. Nobody understands that you did not take the loan to become a defaulter. Your intentions were pure and pious.
However, the financial institutions and recovery agencies don't work based on emotions. For them, the contract papers and your credit ratings are more important than your financial condition.
Hence, they try to disgust, pressurize and harass up to such extent that you start thinking negative about everything.
Don’t lose your patience and don’t take hasty steps that make the things further complicated.
We understand that the bankers and financial institutions survive on the interests earned by them; it doesn’t mean they should leave aside the basic business norms.
It is a fact that financial institutions are becoming more and more coercive. They don’t bother about anything.
As a result, we see thousands of small and large businesses putting down their shutters and being uprooted.
What is the reason? It is because they fail to pay their loans. Even if they default for a few months, recovery agencies take charge.
Don't let it happen to you. Don't pay until we call you. We will help you in planning the repayment and adjusting financial priorities. We give a comprehensive guidance on NPA finance and alternate finance.
We deal with the legal issues, DRT and SARFAESI issues. Our experts look the possibilities of saving assets mortgaged by the finance company. We derive amicable settlements.
Well, there is no fixed solution for it. Rather, it is a situation where one size doesn’t fit all. Our approach is to find out what went wrong and how to correct it as fast as possible?
Mumbai | National Company Law Tribunal (NCLT) established under the Insolvency and Bankruptcy Code 2016 (IBC), which was initiated by the Narendra Modi Government with the main object of “Doing business with ease” has hardly served MSME sector, as the proprietary concerns and partnership firms are still outside the purview of the NCLT. In fact, the NCLT was set up by the Union government under IBC to help the NPA accounts to resolve their problems and restructure the business while maintaining the employment. However, presently it is useful only to the corporates.
MSME sector which is mainly in the form of proprietary and partnership forms are being neglected, alleged Dr. Visswas Paanse, Ex-banker and NPA activist. Talking to reporters Dr. Visswas said the small and medium entrepreneurs other than corporates who are NPA’s were not getting any opportunity to revive their business under The Board for Industrial and Financial Reconstruction (BIFR) and now under IBC as well. Even at present the corporates which are applying to NCLT, either under section 7, 9, or 10 are not getting dates for 3-4 months. According to law they should get an opportunity to be heard within 15 days. The corporates are thus deprived of taking advantage of this new law and banks are getting undue upperhand for destroying the existing businesses. In fact, the IBC is meant for revival of business but such delay is helping banks unduly, use this time for coercive recoveries. The Process of resolution under IBC has to be completed within 6 months, from the date of admission which may be extended to another 3 months but presently even this 9 months are not enough and are always deferred for more than 9 months. Now it is interpreted as the time limits under IBC are directory and not mandatory.
This is not with the spirit of IBC, says Dr. Visswas As of now, NCLT is flooded with insolvency cases of big corporate houses including Essar Steels, Bhushan Steel and Bhushan Power and Uttam Galva etc and the existing infrastructures of NCLT are being overburdened. The NCLT also gives the priority to big and known corporates as big debt are involved in it and the small and medium entrepreneurs are being neglected without any reasons. The recent judgment of Supreme Court whereby personal properties mortgaged by the promoters to obtain the corporate loans have been kept outside the provisions of IBC is against the spirit of IBC. When the corporate loans are based on these collateral securities why should they be kept outside the purview of IBC, Government should take note of it and make the suitable amendment in the Code, demands Dr. Visswas. This is also detrimental for arriving at practical resolution of borrowers, as the physical possession of the personal mortgaged properties are taken by the bank and used exclusively for their own recovery purpose. About the appointment of the Resolution Professional (RP), Dr. Visswas argues that the banks and financial institutions appoints only their selected Panel members as RP and remove the IRPs appointed under section 7 or 9 by other creditors or by the borrowers under section 10. It shows the banks have no trust on the RPs or IRPs which are appointed by others. “Isn’t it against the basic framework of IBC and doubting the integrity of RP or IRP as professionals? “- questions Dr. Visswas. The provisions should be made unless there is a prima facie evidence that an IRP is behaving partially he should not be removed. Any empanelment of RPs or IRPs by the banks or institutions either officially or unofficially should be banned as they are supposed to be impartial
Well, for most of us now it is clear that the banks are there to recover their money at any cost pulling out different maneuvers. Small businessman's are really petrified with the chunk of loan they have on their shoulders. Their one of the biggest reasons to panic, as it is a matter of existence which may even lead to declaration of bankruptcy and ultimately liquidation of company.
MSME's are really under the impressions of the banks; not because that they are guilty but they are unaware of certain laws such as NCLT as acronymed (National Company Law Tribunal) and DRT (Debt recovery Tribunal) built to protect them. However, most of the experts do not stand by this laws as it requires a huge haircut which may even be at 90%. Which is nothing but a heavy pinch to pocket of the public.
However NCLT sheer focus is on the survival of the company. As it's a clear indication that the survival of the company will in turn pay off the debts as in such borrowed by them.
The law is not really old; as it was established during late 2016. However, it's effects clearly states that, since the law came into being 2434 fresh cases have been filed under NCLT and 2304 cases are for seeking winding up of companies have been shifted to High court. Out of these cases, 2750 cases have been disposed off and 1988 cases were under review during December, 2017. According to a revert at the Lok Sabha by minister of the state for finance, Shiv Pratap Shukla.
NPA consultants is a team of thorough professionals, under the leadership of Dr. Vishwas Paanse, an exquisite personality and experienced name in the market makes it sure that every client who enters through the doors must get properly enlightened about their rights and get the proper resolution for the malpractices regarding N.P.A procedures.
Who are the most significant contributors to the NPA for the loans issued by the banks? If you think they are the retail customers, then your assumption is wrong. The corporate and industry loans are the biggest defaulters.
Out of the total credit to the industry sector, corporate and industrial loans generate 75 percent of the total NPA whereas retail loans generate only 4 percent NPA.
In hard statistics, 4.70 lakh crore worth of NPA are there out of the gross 6.42 lakh crore belongs to corporate institutions.
It means out of 100 rupees given as a loan, 35 to 45 turned into NPA. The figures are terrifying.
The statistics reveal some interesting facts
Amongst the top Gross NPA ratio declared so far, Indian Overseas Bank and IDBI Bank show in the range of 40 to 45 percent whereas Allahabad Bank and Bank of Maharashtra closed in the range of 35 to 40 percent.
Large corporate accounts contribute to the bigger chunk of NPAs. In the two years 2015 to 2017, the gross NPA under the industry-large category of the scheduled commercial bank increased almost five times.
Banks like HDFC that predominantly focuses on retail lending shows the gross NPA in the range of 0.74 percent only whereas Yes Bank shows 3.28 percent. Yes Bank predominantly focuses on corporate customers.
Hence, a separate strategy is proposed to gear the smaller banks so that they lend primarily to retail. It will be done by swapping assets and curtailing the unprofitable branches.
Admittedly, all these steps will help in controlling the situation.
Reasons behind high NPA in corporate loans
What are several reasons behind the high ratio of corporate loans going in the category of NPA? Failure of business due to some reason, incorrect risk assumption are the reasons.
In the PSBs, the exposure of corporate loan is almost 50 percent whereas the retail exposure is 15 percent.
Several loan categories fall in the retail loans; personal loans, car loans, and home loans. Loan to the agriculture and car loan also fall into the category. The payment track record is good in these loans.
It is the reason; smaller banks have been instructed to reduce the corporate loan exposure to below 40 percent by the end of the fiscal year 2018-2019.
Also, the corporate loan exposure shouldn’t cross beyond 25 percent of the risk-weighted assets. The banks should focus more on retail lending than institutional lending.
The classification of an asset as a Non-Performing Asset or NPA is done in accordance with the guidelines issued by the Reserve Bank of India under the Banking Regulation Act 1949 or any specific guidelines of a financial sector regulator issued under some other law for a temporary duration.
At least one year has lapsed from the date of commencement of the corporate till the date of such classification of the insolvency resolution process of the corporate debtor.
When a person pays all the overdue amount along with interest and any other charges if applicable, he is eligible to submit a resolution plan. It is important that the payment should be made before submitting the resolution plan.
Nothing applies to the resolution applicant if he is a financial entity and not the corporate debtor.
The directors or promoters of the company are not eligible to submit a resolution plan when the debtor is classified as NPA and more than 12 months have been passed after the classification.
In the latest amendment, there is an exemption given for the clause c and h of section 29A of this code. It says that the code is inapplicable to the resolution applicant as far as the insolvency resolution process is concerned; regardless of it is micro. Small or medium enterprise.
The proposed Micro, Small and Medium Enterprises Development (Amendment) Bill, 2015 classifies the enterprises based on their annual turnover. It says that
Since the amendment hasn’t been approved by the Lok Sabha yet, as of now the extant classification and definition of the enterprise under the MSMED Act 2006 must be referred.
Experts say that for an enterprise that is engaged in the work of rendering or providing services, the classification based on cost is as follows:
The government of India has taken several steps to make the MSME sector exciting and vibrant. The policies are formulated to help the MSME units in launching the business successfully.
Not only that, the policies help the units to sustain in the long-term.
However, every business can’t run successfully for a long time. Due to distinct reasons, it stumbles and falls.
The units fall sick and sink ultimately. The reasons of sickness could be many.
Sometimes, it becomes sick because of internal causes such that planning, implementation, and production.
Sometimes, it happens because of uncontrollable external reasons such that infrastructural and financial bottlenecks, marketing constraints, etc.
A sick MSME unit affects not only the owners but puts a negative impact on national resources. It also becomes a cause of unrest sometimes.
Reviving a sick MSME It requires a detailed process to revive a sick MSME unit. Though it is quite a complex process, here is a list of important steps.
After that, an application is submitted to the CAP. It includes the following things:
When the committee receives an application for CAP from the lenders or bank, it should send a notification to the MSME.
The information that is needed from the MSME is:
The MSME should respond within two weeks of submission. If it is not done, then the committee takes one-sided decision.
The commit takes a decision to adopt under the CAP and tell the enterprise about it.
The implementation of the plan should be completed within the following timelines:It is a brief description of the procedure. Actual procedure may vary on a case to case basis.
If at all it is decided to recover CAP, the recovery measure is initiate as early as possible. The account is transferred to SAM team. It is a brief description of the procedure. Actual procedure may vary on a case to case basis.
Mr. V. Ramakrishnan had given personal guarantee to a corporate debtor with the Appellant-State Bank of India. He is considered as the personal guarantor by the State Bank of India under the subsection (22) of the section 5. As he is the personal guarantor the bank invoked its right to recover an amount of Rs. 61, 13, 28, 785.48/- under the Securitization and reconstruction of financial assets (SARFAESI ACT, 2002) and enforcement of security interest act, 2002 in 4th August, 2015. The corporate debtor challenged the note before the high court of Madras and was dismissed on 17th November. Possession note was issued by the State Bank of India on 18th November, 2016. The corporate debtor invoked I&B code and interim resolution professional was appointed by issuing Moratorium period. But the State Bank of India continued to take the essential measures under SARFAESI Act, 2002. The corporate debtor filed an application for stay at the Adjudicating Authority, Chennai and was successful to get the stay until the Moratorium period is completed. The I&B code of 2016 has been classified into three parts
The second point that is “Insolvency resolution and liquidation for corporate persons” states that the liquidation proceedings and insolvency resolution must be imposed only on corporate persons but not on any individual even if it is personal guarantor also the law is not applicable for him. Subsection 8 of the section 5 in the I&B code states that, even if the money wasn’t paid to the bank in time and has been disbursed making it a financial debt, the bank cannot impose any insolvency or liquidation proceeding against the personal guarantor as stated in the 2nd part of I&B code.
The part 3 of the I&B code gives a clear picture about the insolvency resolution and bankruptcy for the individuals and partnership firms. If a case has been filed against the corporate debtor and another case must be filed against the personal guarantor and make him involve in the case, then it is mandatory to file the same Adjudicating Authority hearing the insolvency resolution process or the liquidation process under the subsections 2 & 3 where the insolvency resolution process or bankruptcy process is proceeded for the personal guarantor. This gives a provision for the financial creditors like State Bank of India to proceed against the personal guarantor and invoke their right to claim the possessions of the personal guarantor. Approval of resolution plan which means the Adjudicating Authority is satisfied with the details provided by the corporate debtor, then the resolution act is imposed on the debtor, stakeholders, personal guarantors and the employees of the debtor. The Approval of resolution not only gives the Adjudicating Authority to impose the act on only debtors but it also states that the employees of the debtors are also considered. The “Moratorium” is for both corporate debtor and personal guarantor and thus the banks cannot interfere in the issue till 18th September, 2017.
The problem of NPA or Non Performing Assets becomes a major threat to the Indian economy. The way it sets an alarming precedent, the banks must find better and effective ways of recovery than relying on IBC or SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest).
If we look at the world ranking, then the situation in India is nothing less than terrible. The country ranks third amongst the big economies affected by bad loans.
The NPAs accumulated by Indian lenders is far higher than the top economies like the UK, the USA, Japan, and China.
Referring to the hard figures; the 2017 statistics indicate that the NPA of Indian banks was as high as 40 lakh crores.
In spite of the red flag issued by the RBI and the government and solutions like IBC implemented in 2016 (which was supposed to be a game-changer); the situation hasn’t changed much.
Faster recovery of bad loans is still a dream.
The government is reinstating section 396 with a hope of making the situation better. It is considered a superior recovery tool as compared to IBC and SARFAESI.
How will the situation change now?
Now, a defaulting company can be merged with other healthy company of the same group so that the assets can be used for settling down the debts.
Of course, the other company should be financially healthy to take this additional liability.
Experts say that this route is more effective and convenient as compared to IBC. There, the NCLT (National Company Law Tribunal) and DRT (Debts Recovery Tribunal) proceedings require a substantial haircut by the banks; which is, in turn a loss of the public money.
Voices against the concept
Not everyone is supporting the concepts. Some economists and finance lawyers feel that it is against the fundamental concept of an independent limited company.
Not everyone is supporting the concepts. Some economists and finance lawyers feel that it is against the fundamental concept of an independent limited company.
When two companies are merged just for the sake of recovering debts of the defaulter company, the rights of shareholders of the healthy company are not protected.
They have to take hit in spite of performing well which is not justified at all.
Experts feel that if it happens frequently, then people will hesitate in investing money.
The new reforms are getting implemented to improve the NPA ratio. However, it is essential to check all the aspects beforehand.
Against the decision taken by the government to bar the companies that failed to file the annual returns or financial statements in the MCA21 online registry for consecutive three years from accessing the online registry, several cases were filed before several courts.
As a result, a need has been arisen to give the defaulters another chance to make the default good. The government has introduced a new scheme called as Condonation of Delay Scheme, 2018 which will be active for three months duration starting from 1st January 2018 to 31st March 2018.
During this period, all defaulting companies will be given a chance to file the overdue documents that are due for filing up to the 30th June 2017.
The companies that have been removed from the list of defaulters under the section 248(5) of the act will be excluded from the list. The same is applicable to the companies that have been struck off from the list.
Procedure to be followed
According to the notification issued by the Government of India, the following procedure will be followed:
The Condonation of Delay Scheme 2018 brings a good opportunity the defaulter companies. As such, there is no declaration about the possibility of extending the same. Hence, nobody should miss it.
India had many reasons to celebrate recently. Other than the Moody’s rating, India demonstrated a sensational drift in the Ease of Business rating by jumping 30 spots to secure a seat amongst the top-100 nations.
It is the biggest leap so far by our country and a special achievement indeed. Not only because it is the first time we have done this but also because there have been many questions raised by the economists, politicians, and business community post demonetization and GST.
The report clarifies all the doubts about the international acceptance of these decisions. Since the rating is given by World Bank, there is absolutely no reason to question it.
The index uses 10 specific parameters to evaluate 190 countries. India has shown improvement in six out of ten indicators which is quite impressive.
From all standards; it is a remarkable achievement. No wonder it gets praise worldwide.
How is it significant for SMEs?
It is a big motivating factor indeed for those who want to launch a new business. Especially, Small and Medium Enterprises (SMEs) face more hurdles while getting necessary approvals to start the business.
Big corporate houses have a closer relationship with the political parties and bureaucracy as compared to SMEs. Hence, they get permits, no objection certificates or other approvals more easily.
However, when the Ease of Business ranking says that India has improved a lot, then we can assume that the path is smoother and clearer for small entrepreneurs.
The report says that India is one of the few economies that have improved because of the structural reforms.
We must remember that the rating doesn’t consider GST because it was not implemented when the data was gathered by World Bank.
Experts feel that the next year’s ranking may improve further because GST is amongst the best reforms that happened in India post-independence.
SME owners are more than happy to see the improvement
For those who own SME business or aspire to be a successful entrepreneur, it is an enthusiastic moment. After the initial setback and aftermaths of demonetization, SMEs can expect a great time now.
As the government assures that the reforms will continue in the coming years, India is certainly going to be a business-friendly country.
The rating is the result of efforts taken by the government in the past few years. It will stop the criticism and doubts about the economic reforms and changes.
Best NPA consultant in India
The NPA (Non Performing Assets) is a loan or advance given by the bank for which the interest or principal payment that remained overdue for a certain period. NPA (Non Performing Assets) is one of the most talked about topic and it is a major concern mainly for the banking industry. There have been a lot of measures taken and implemented in order to keep the control and reduce the increase in the number of the NPAs.
Carrying the non-performing assets on the balance sheet places a burden on lenders. The non-payment of the interest or principal amount reduces the cash flow, which can disturb the budget and decrease earnings of the lender. Also, to compensate the losses the banks may charge higher interest rates on some products. The NPA settlement challenging and it is a major problem for the banking sector. The rise in the NPA results from several factors that include-
The RBI (Reserve Bank of India) has restructured the standard provisioning and laid certain stringent regulations to control the further increase in the NPA in India. The financial industry professionals consider that these guidelines will to some extent will help manage help resolve the matters related to NPA effectively.
While the Banks and the Financial Institutions have been vested with the stringent powers for recovery of their dues the safeguard needs to be provided to the borrowers in order to protect their rights and wrongful use of such powers that vest the DRT with the authority. Apart for the large corporate, The SMEs are important for the economy. They not only help in generating employment but also are the major contributor to the economic growth. It is imperative to provide them support to help them flourish. When an SME falls to make payment and falls under the category of NPA the bank consider to resolve the matter in the fastest manner by going to the (DRT) Debt Recovery Tribunal and SARFAESI Act proceedings to recover the debt.
However, the banks must not take the undue advantage of such powers and take a visionless approach to deal with NPA. The unfair practice must not be encouraged and besides, they must follow a valid approach offering the borrowers a chance to reason as there are circumstances in business with leads to problems which cannot be resolved in a short duration of 90 days. A well considered complete opinion from professional might be of immense help in dealing with the complex NPA matters.
If there is any problem related to the NPA (Non Performing Assets) for any business then it is better to avail the service of a professional NPA consultant in India. These companies have the expertise and can help solve the intricate issues related to the NPA in a proficient manner. These companies have professionals who have vast experience in the financial industry and with their top-notch negotiation and expertise will help manage the NPA and will also add value to the business.
There are many companies that offer high-end solutions mainly related to NPA. These companies are committed to providing state-of-the-art solutions to our clients. They are backed by a team of professionals who are and seasoned financial professionals and experienced NPA Consultants having vast experience in the financial services. They are expert in the area of expertise and offer comprehensive solutions to their clients.
By browsing the web you may come across many companies offering the services in this area but only a few are competent to provide quality service and solutions. Therefore, before availing the service of any company randomly one must do a petite research and hire a reputed and experienced company.
Experience Financial Consultants in Mumbai
The stability in the banking Industry is imperative for the economy. One of the major problems that defy the stability of the banking system is the Non Performing Assets (NPAs). There has a lot of progression seen in the banking system but the NPA settlement remains the biggest challenges. The NPA is a loan or advance for which the payment has not been made for a period of 90 days.
It is a biggest risk to the banks when their customers stop making payments that badly affects the banks account books and reduce the cash flow for lenders which result to potential loss in their income, affects competitive position of the bank, result to increase in the interest rates, and as well reduce the available capital to provide subsequent loans to other customers.
With the increase in the levels of the non performing assets in the financial sectors, there are certain stringent rules and regulations laid down by the governing authority to have a control over the increase in the number of NPA in India.
The DRT (Debt Recovery Tribunals) and SARFAESI Act helps the banks and financial institutions to recover the dues after issuing the notice to the borrowers who fail to repay the interest or principal amount and appoint a person to manage the NPA concern.
However, there have been certain controversies related to the NPA recovery where banks have been alleged to be engaged in coercive practice for recovery. However, with the restructures provisions and regulations it has made the banks to reduce the chances of increase in NPA and recover the money from borrowers in a longer time period.
The SMEs are one of the major contributors to the growth of the Indian Economy. In case an SME falls under the category of NPA then the banks directly opt to recover the amount through the DRT or SARFAESI where the borrower may not be in a position to get any relief from the debt recovery. Sometimes the businesses face the problems that can be cured within a short span of time. However, there some business circumstances that affect the business efficiency and need more time for recovery and get the business back on the track. However, if the SMEs are not supported then it will kill them which ultimately will have the impact on the SMEs productivity levels and also will kill the employment opportunities. Taking a visionless approach towards NPA will hamper the SME industry growth. Therefore, there is the need to find the robust solution for dealing with the situation and giving a fair chance to help then stand the SMEs stand again and contribute to the economic growth.
There are many companies offer their services that make the every aspect of the NPA simple and help resolve the issues related to the NPAs effectively. These companies have proficient financial consultants in Mumbai who have vast experience in the finance industry and are aware of the dealing with the intricate NPA matters in a proficient manner. They analyze each and every aspect thoroughly and offer high-end solutions to help deal with NPA. They offer solutions by strictly following the regulations and also help in recovering NPA in a rightful manner.
By searching the web one can find many companies but there are only a few companies capable to provide reliable service. For that reason, before hiring any company randomly it is crucial to do a little research and hire an experienced company that has relevant experience in the industry and offers quality solutions.
We have heard a lot about the insolvency and bankruptcy code bill passed in the parliament, but very few people know about it at length. There is a lot of confusion and misunderstandings about it.
Some people feel that it is very much necessary and important whereas many people consider it just another code which has hardly any significance on the ground.
Well, one thing is pretty sure. The implementation of this code will ensure that the cases like Vijay Mallya will not be repeated in future if we implement the bankruptcy and insolvency act properly.
People will not have room to make huge frauds and simply fly away without paying a penny. They will be liable and responsible for the people they deal with and their money.
The government knows that the big fraudsters make use of the loop hole and fly away. Hence, the code tries to bridge all the gaps and make it foolproof.
It will save the banks from the so-called “bad loan crisis”
Though people feel that the banks are solely responsible for their own problems, it is not a right assumption. Banks are bound to the norms, rules, and regulations. If a person takes a loan by submitting all legal papers, then they have no reason to deny it.
Moreover, there are many limitations in recovering the default loan amounts. With the proposed code, many benefits are expected.
From speedy winding up of insolvent companies to the redeployment of capital productivity and the reduction in defaulters to lowering down npa in india; the list of benefits is pretty long.
What does bankruptcy mean?
Fundamentally, bankruptcy is the stage when a company is not able to repay its debts to the creditors. Because of the proposed law, a debtor will be called bankrupt when he will be adjudged by an adjudicating authority.
A bankruptcy order will be passed by the authority. Typically, it will be nclt Mumbai (National Company Law Tribunal Mumbai) for limited liability partnerships and listed companies.
For partnership firms and individuals, the authority will be drt Mumbai (Debt Recovery Tribunal).
IBC is the need of the day
We have seen many hiccups and shake-ups in the banking industry recently. It is not an exaggeration if we say that the banking industry is in a state of deep crisis.
Stressed assets are increasing at an alarming speed, and bad debts are piling up. In such situation, IBC proves to be a sigh of relief.
Is resolution under IBC is not very effective? Well, experts have multiple opinions about it. While some experts feel that existing management will continue to play a significant role even after giving control to resolution professionals, some feel that the introduction of the new code will effectively rectify the problems of non performing asset.
As far as the procedure is concerned, once the IBC process is initiated, the control shifts to insolvency professionals from the existing management. However, on all practical grounds, the day-to-day operations are in very much control of the management.
Since the resolution timelines are very strict, some companies may go in the state of liquidation, and there is a negative effect on the banks. It happens more prominently in cases where collateral is relatively lesser.
RBI announces plans to resolve troubled loans
RBI or The Reserve Bank of India recently took a bold step by announcing plans so that the troubled loan cases pending with company law tribunal and other courts can be resolved up to a large extent.
It is said that the 12 cases of large borrowers contribute to almost one-fourth of the non-performing assets or NPA.
Out of these accounts, the majority belong to the power, steel, and other infrastructure sectors. Engineering projects, construction projects, procurement companies are to name a few.
As there will be meaningful resolutions under the IBC plan, it will create a good rapport, and the load on national company law appellate tribunal will greatly reduce.
RBI has instructed the banks to review the cases well and do npa management properly. A timeline of six months has been given to the companies.
After the action plan announced by the RBI, the NPA ordinance was passed last month. According to it, the central bank gets a further authority to intervene in the existing clauses of NPA resolution.
Since the timeline is six months which can’t be extended beyond 90 days further, the resolution can be expected fast. The company will be liquidated after it, and the resolution process will help in recoveries of defaulted loans.
As the asset quality of lenders comes down day by day, RBI and other authorities are supposed to follow a new set of reforms to correct the situation.
A specialist, debit-relief consultancy firm, has the potential of offering an immediate relief to you and your company from the issues of personal or corporate debts. They can structure a specific tailor-made plan that suffices the needs of a particular business.
Consultancy firms work with a partnership approach and not just an external agency. Hence, appointing a seasoned nclt Mumbai means building a long-lasting relationship. They carry a rich experience of high-level debt negotiations.
Clients get value-addition and solutions that proven and effective from a result-oriented organization. Great results are guaranteed.
Whether your business is small, big or large, it is always beneficial hiring NPA consultant.
How does it help?
A non performing asset consultant offers a multi-specialty group of experts. They know all aspects of the subject and from individual loans to corporate debts, and from legal consultancy to national company law appellate tribunal; nothing is a challenging task for them.
Bringing a table of strategic solutions is not at all an issue for them. Your troubled business gets a positive thrust, and it comes out from bouncy terrains.
You get suggstions about the large debt values and the specialist external consultants help in understanding the CDRA (Corporate Debt Restructuring Arrangement).
When you are in the midst of stressed loan problem or your loan has been declared as NPA (Non Performing Asset) by the enterprise you borrowed from; it is always better seeking help from an expert.
Who are all there in the consultant team?
Usually, the team contains senior executives from private or public sector banks. There are chartered accountants and financial consultants. There are management and engineering graduates from the best business schools.
Not only financial advisors but there are legal consultants also who can help you in dealing with company law tribunal also.
Consultants assist you on several issues such as sticky and irregular accounts. They can also help in suit, filed accounts and bad loans. They can also tackle issues of card loans and NPA.
You get help in rescheduling and restructuring the accounts. The team of experts takes care of complex proposals and debt restructuring cases which involve banking, legal and financial expertise.
Approach a consultant before it is too late. When you meet a consultant in-time, there is a high probability of getting complete resolution from the problems of Non Performing Assets.
Timely intervention is always better when you are facing issues of NPA.
NCLT or National Company Lat Tribunal was the recent news headline sensation as the Reserve Bank of India or RBI listed several big Non Performing Assets or NPA accounts and started the insolvency procedure.
It is certainly an additional responsibility on the shoulders of NCLT, but with the increases in the infrastructure, it will be able to handle it without any difficulty.
Sticky debts or stressed accounts, whatever you call them; they are undoubtedly burden on the financial institutes. Though they are the reality of life, it is always better to keep the magnitude as low as possible.
NCLT speeds up the npa account settlement process and helps the bankers in managing the financial health better.
As far as this is concerned, financial institution has to file an application with the tribunal. It has to mention all the facts about the case.
After looking into the facts and getting fully satisfied with it, NCLT accepts and admits the case and appoints an interim insolvency professional.
As per the rule, there are 180 days required for completing corporate insolvency process. In the scenario of it not completing in the stipulated time, an extension of 90 days can be given.
No further extension is granted in any case.
Typically, in the case of loan settlement of more than 1 Lakh rupees, a debtor or creditor has to make an application to NCLT.
Every detail of the default has to be submitted, and appropriate evidence has to be given to the tribunal. On satisfaction of the evidence, the tribunal issues an application admission receipt.
The appointment of interim insolvency professional is for one month. Within the period of one month, the promoters of the company go out, and the board of the directors gets suspended.
The resolution professional takes over the company, and he becomes the de facto Managing Director of the company. It is his responsibility to announce the same to the public and invite their claims of recovery.
He also makes a list of all the claimants, and a COC (Committee of Creditors) is formed. The COC has all the authority of deciding about the continuation of the interim professional or to get a new one.
NCLT makes the recovery of sticky debts efficient and effective. Since all these tasks are supposed to be carried out within one month, the speed of npa loan takeover is incredibly fast.
There was a big round of applause and cheerful welcome to the insolvency and bankruptcy code passed by the parliament last year. Yes, it was seen as an effective tool to overhaul the existing system that deals with cases of an individual, corporate, partnership firm or big corporate house facing the problem of bankruptcy.
The recent code brings several useful and effective reforms that focus on resolving the creditor driven insolvency by paying attention to the right things.
As of now, there are several laws that deal with the cases of financial failure. Some of the clauses and sub-clauses clash with each other while resolving the insolvency cases of individuals and companies.
The current structure doesn’t help lenders in the effective and timely recovery of defaulted assets. It puts a tremendous load on the credit system as a whole. The existing setup doesn’t permit restructuring of the default assets either.
Hence, there was a need felt by financial experts to improve the insolvency and bankruptcy regime completely. It will not only improve the business environment but remove the distress in the credit markets.
It was the triggering point of introducing an improved and efficient version of bankruptcy and insolvency act.
It is still evolving
The newly implemented code takes care of liquidation process and streamlines the operational hassles. There have been several interpretations of the code and still lawyers and legal experts and in the process of deriving the inherent meaning of it. The aim is to make the interpretation comprehensive.
Some of the so-called ‘conflicting interpretations’ that may lead to a dispute have been identified by experts. Work is going on to correct the same. The fundamental objective is to make it simple to a bankruptcy lawyer while dealing with the disputes.
As there is further clarity comes about the several clauses and terms, it becomes more and more simple and clear.
What are the provisions?
The following conditions should be fulfilled:
The code empowers the tribunal to reject or accept the insolvency application raised by the creditor based on certain criteria.
Non performing asset (NPA) and bad loans are two major problems in front of the banking industry in India from ages. There have been several measures implemented to keep it under control, but hardly any effect has been visible.
Still, npa account settlement is a major bottleneck in the financial world. Recently, an ordinance was passed to amend the Banking Regulation Act so that RBI gets further empowerment to manage the same.
What are the new amendments?
As mentioned earlier, npa in india has been a pain point; experts always felt the need of having stringent regulations to control it.
In the latest amendment, the central bank gets entitlement to issue directions to a banking company to initiate the process of insolvency resolution if the default falls under the provisions of IBC (Insolvency and Bankruptcy Code).
Also, the central bank is supposed to issue guidelines and directions to the banking companies on a timely basis to resolve the stressed assets.
Experts feel that these guidelines will greatly help in npa management. Banks will be able to save money from going into bad debts.
NPA figures are dropping, but still a lot to be done
Though NPA statistics shows that the trend is declining, still a long way to go as far as complete npa resolution is concerned. It is still one of the major issues prevailing in the Indian Financial scenario.
If you are facing the problem of your business going in the state of NPA, then it is a high time to call the best npa consultant in Mumbai. Yes, it is a complex issue, and you can’t cope up with it unless there is somebody expert to help.
As banks are forced to take large haircuts in view of the increasing stressed assets, they look forward hiring seasoned financial consultants in Mumbai. These consultants know the ways and means of keeping the nonperforming assets within the permissible limits.
As bad debt and NPA brings down, banks and financial institutions can improve their financial strength. It is good from the perspective of client and banks both.
If you feel the need of assigning a seasoned NPA consultant, then make sure you hire the best. Experience makes a remarkable difference since it is a specialized niche.
A robust banking sector is the backbone of the economy, thus failure of the banking sector may result in an adverse impact on other sectors. Non-performing assets are one of the major concerns for banks in India. Higherthe level of NPAs, it suggests more likelihood of credit defaults that affect the productivity and net-worth of banks.
One of the main causes of NPAs into banking sector is the directed loans system under which commercial banks are required a prescribed percentage of their credit (40%) to priority sectors.
There are several reasons for an account becoming NPA.
Hence providing loans to eligible borrowers, feasible economic activity, providing adequate finance and timely disbursement, utilization of funds for the right purpose, servicing the loans in time are absolutely necessary pre conditions for preventing or minimizing the incidence of new NPAs.
‘Verbal assurances means no commitment’, this applies to the way banks deal with borrowers. As a customer, you must have observed it many times, whenever we want to request bank to get something like postponing the installment date, restructuring the installment amount etc.; bank expects it in written format. However, while replying or reverting to the same, in spite of expressing it in written format; they make the verbal commitments, which cannot be considered under communication records for future usage. Lack of written records can land the borrower in trouble.
You should never blindly trust the bankers oral assurances as it cannot be used as a proof to justify your side. In lot of cases, SMEs got into the trap of NPA because of trusting on the verbal commitments of the Bank and following it blindly.
Dr Visswas advices to keep communication in writing & demand replies thereof in writing !!
The banking industry follows a traditional pattern of business, which majorly involves acceptance of deposits and channelizing these deposits into lending activities. The credit banks receive from the depositors, have to be repaid to them by the bank, which are called as ‘Liabilities’, whereas the loan given by the banks to the borrowers are to be taken back from them, which are termed as banks’ ‘Assets’. Hence, loans and advances given by the bank are banks’ assets.
According to the traditional banking business of lending finance using deposits of customers, banks hold the risk of default by the borrower in the repayment of either interest or principal amount. In banking terms, it is known as ‘Credit Risk’ and accounts where payments of interest or/and repayment of principal are not coming, are declared as ‘NON-PERFORMING ASSETS’. An asset means a leased asset that becomes non-performing when it stops to make revenue for the bank.
As per norms of Reserve Bank Of India, an account is classified as NPA, based on the retrieval of interest and installments on loans and advances and other aspects. The newly updated RBI norms to label the account as NPA follow RBI guidelines as mentioned below:
SMEs opt to take a loan from the bank to see their dream of creating a business come true, however, due to certain factors the business may not be in a healthy state thereby rendering difficulty in servicing the loan which eventually leads into Non-Performing Asset account.
However, being labeled as NPA doesn’t mean a full-stop to your business; it is just a temporary phase where your business is on the backfoot. NPA Consultants Pvt. Ltd supports the SMEs to come over the risk of being NPA and guides to develop the business thoughtfully!
We have discussed in our previous blog, about how Banks harass the NPAs for recovery, instead of extending them the required support to regain the lost position. Banks fail to understand that an NPA who is lending his/her residential property as collateral to them, is a genuine borrower & does not intend to cheat the bank.
Banks, instead of reciprocating the intention, try to make the NPAs homeless, diverting their intentions from regaining incurred losses in business. Banks are aware that a residential property is the pressing point for an NPA and will be the last straw on the already burdened NPA. Hence NPA will go to a great length to protect it!
Banks try to acquire the residential property & still charge the interest till it’s sold out. Considering the market value of the acquired property, banks don’t adjust the dues against the recovered amount & obtain credits in excess of the loan amount. There is still a blind eye towards this from the authorities and needs to be addressed on a priority. As a result, many NPA‘s are still facing the brunt.
Here, we suggest that Banks can come up with ‘’Symbolic Possession‘’ for NPA, i.e. making them tenants instead of seizing their property & recovering their credit advances. Nothing can be as appalling as being homeless.
The ‘’Symbolic Possession ‘’ will help the NPA and give a mental satisfaction that they have their last hope alive. Banks can keep them as tenants. The implementation will facilitate the NPAs to focus more on their businesses; will give them with an opportunity to repay their credits to the banks. This will create a Win Win situation for the bank and NPA.
Banks generally tend to think of NPAs as unworkable units and thus try to close the account permanently by taking terminal measures.
It’s high time for banks to shed their traditional mindset. They must realize that NPAs are not unworkable units & should consider a fair chance for them. NPA’s are certainly not willful defaulters & they most certainly want to run their business units & repay the credits to the banks. Banks undertaking extreme measures & compelling the NPA’s to liquidate their assets cannot be considered virtuous under any circumstances.
There are situations at times where NPA’s are required to put their residential properties as collateral to the Banks. Once an account is tagged as NPA, the properties are confiscated & are forcefully sold or auctioned to recover the dues. And the properties are sold as Distress Sell, though the real estate prices are always in an ascending manner. The NPA is thus made to suffer a financial loss. It would be right & just to state that Banks are brutally shaking the confidence of the NPA & making them victimized.
To throw some light on this, we will see an example of an NPA who has undergone a similar situation.
A company who was maintaining a healthy account with a bank for a considerable period of time & had taken a loan of a certain amount. It managed to repay more than 40% of it on a timely basis, but unfortunately faced a downturn in its business & was unable to do so for a certain period. The company owners had pledged their residential property as collateral to the bank where the bank tried to confiscate the property & recover the credits. We made a move by filing a case against the bank & succeeded in having a stay against the bank from executing such an action.
The above example in itself testifies that Banks should reconsider the extreme actions & support the NPA’s with Rehabilitation Banks & Management Agreement Contracts as mentioned in the previous blogs. NPA Consultants help in NPA Recovery and loan settlement. Contact us for more details
In the last blog, we disused the remedies for easing the plight of NPAs by proposing rehabilitation banks. In this blog, we will discuss another solution ’ Management Agreement Contracts’.
Management Agreement Contracts will enable NPAs to turn around and bring them in a sound position, enable them to repay the credit advances & take charge of their business.
Through this, large companies who don’t have any conflicting product lines with NPA, but have businesses that complement each other, can enter into a management agreement contract with NPAs. In such a case, NPAs will be reasonably guarded against the bank action subject to certain precautions to be taken.
This arrangement will arrest the deterioration of NPAs, who contribute significantly in the economic growth of the country. The banks in such case will be unable to take any actions in terms of compelling the NPA to shut their units or liquidate their assets to repay the credits. It’s time that we boost the SME sector in a real sense & assure them a win win situation by avoiding their downfall.
In a previous blog, we discussed about the reasons behind the upsurge in the numbers of SMEs getting the tag of ‘Non-Performing Asset’ by the banks. A lot of enthusiastic and passionate young entrepreneur start living up their dream of building a SME business; however, unfortunately it breaks down due to varied reasons and takes one into the darkness of depression. A washout of a business not only stresses the aspiring entrepreneur, but it also diminishes the opportunities of a developing nation to form a strong economic power. A vision of an entrepreneur is the future of a nation, hence, it is a need of an hour that financial sector should standup to support and encourage the prospective entrepreneur.
While, providing economical backup to SMEs, banks keep a sharp eye on the borrower’s accounts. They take preventive and corrective measures to avoid the possibilities of prospective accounts turning into NPAs. Majority of banks follow some strategic plans to control and tackle these cases. Banks may allocate a time limit for overdue accounts to payback the outstanding due - well before the borrower’s account becomes NPA. Banks take into account below mentioned descriptive aspects, while observing borrower’s accounts, even though the accounts are functioning well. So, let’s take a look, on what basis banks judge the potency of accounts and how SMEs can deal with it by keeping their accounts operational & healthy.
These and many other parameters decide the future approach of bankers towards the accounts. In the upcoming series of blogs, we will discuss further about, on what grounds banks term an account as ‘NON-PERFORMING ASSET’! So keep following us and keep your entrepreneurial spirit on!
Bank Is Not The Only Way To Finance Your Capital Requirements!
“To become a successful Entrepreneur, stop bothering about being NPA”
NPA is a tag that highlights you as a default borrower in the crowd of thousands of bank account holders. Trust us; you can surely get rid of this tag just by focusing on the growth of your business. A strong business will never trouble you with external risks; it will actually help you to deal with them.
No account becomes NPA overnight, a constant sickness of an account leads to being an NPA. In our last blog “How A Bank Terms An Account Non-Performing Asset (NPA)” we focused on various aspects which banks consider, while observing the flow of money in the account and accordingly take steps to avoid the possibilities of having a default account. There are some more insights that need to be taken care of by assertive SMEs like you, who wish to skip the tag of NPA. So, let’s go through it –
Decline in sales, net losses, erosion of net worth. In short, bad financial performance
The money cycle of an account shows the real picture of a business. Therefore, if there is a decline in sales, erosion in net worth, net losses that means your business is incapable to repay the money. Hence, it is advisable that the borrower should try to maintain the flow of money and work towards the growth of business.
Incomplete documentations in terms of registration of charge/creation/mortgage etc.
Incomplete documentations might push banks to take your account under scrutiny and raise questions about it. While dealing with a bank or any other financial institution, it is mandatory to do necessary documentation and keep a track of it.
Timeliness and competence of response
Delay in the response might force banks to be a bit suspicious about your account. Stay in contact with bank officials, this will help to build the trust of a banker on the account holder. Hence, instead of hiding from the bank, respond them adequately and represent your business in a positive manner.
These are some of the aspects, which indicate banks about the probabilities of an account becoming NPA. Unfortunately, even after following banking rules, due to bad time in business, a lot of SMEs can’t pay the dues because of which they end up being NPA. Such SMEs are pressurized to pay the repay the loan, without bothering about SME’s plight of survival .
Hence, it’s a strong advice from NPA Consultants that “SMEs should not work for the bank to pay back their dues, but they should work for their business to develop and increase their revenue in order to service the loan”
In an old era, there were a handful of companies in India, which used to manufacture goods, daily use products, clothes, toys etc., for Indian consumers. However, foreign products entered and created a space in Indian Market with the support of British troop and captured it. As a result, Indian product manufacturing companies lost their grip from the market and got vanished from the market.
However, in the 21st century, the governance of Modi Sarkar came up with a motivational campaign called “Make In India’ to wake up those Indian manufacturing companies and started encouraging them to manufacture products in India. This new revolutionary step has spread positive waves in the Indian economical sector. It has shown a new hope for Indian entrepreneurs to rise.
Along with well-established businesses, this new initiative of ‘Make In India’ is also proving supportive to enthusiastic SMEs to come up with their unique business ideas and strengthen economic share of our country. Making India is a manufacturing hub for MNCs; thereby it is creating more opportunities for Indian SMEs.
Overall, MSMEs has played a major role in the throughout success of ‘Make In India and it has been profoundly described by Dr. Visswas Panse, NPA Consultant in their recent interview with a newspaper.
Check out the enlightening views of Dr. Visswas in the below newspaper cut out –
Making India a manufacturing hub for MNCs, thereby creating more opportunities for Indian SMEs
While approaching to banks or financial institutions for a loan, the borrower first gets introduced to the loan payment rules and regulations. Whenever, it comes to any financial or money deal, organizations put a list of rules and regulations to be followed to avoid future slip-up. However, while expecting from borrower to follow loan payment rules, Banks completely ignore the rules to be followed by them. Due to which ultimately, the borrower comes under the pressure of loan payment rules and become NPA.
Reserve Bank Of India has set some national loan recovery rules for Indian Banks & Financial Institutes, which they have to follow while dealing with borrowers for loan recovery. However, it seems in a hurry of getting due loans recovered, the banks are completely overlooking the basic rules of the whole loan game.
For example, if you are an entrepreneur of your respective business, you have taken a loan from a bank, due to some financial trouble; you couldn’t pay the bank since last three months as a result under SARFAESI act bank has put you into the defaulter list and sent you recovery notice. In such situations, due to lack of knowledge about the banking rules and act, majority of entrepreneurs get scared or come under the pressure of repayment. However, the way banks can send you recovery notice under SARFAESI act and ask for immediate payment, under the same act you as a borrower can raise objections to the recovery notice and it is mandatory for banks to respond to these objections in 14 days. In majority of cases, banks don’t convey this rule to borrowers to save their side.
While dealing with borrowers, banks just overlook the rules allocated to them and pressurize the SMEs to pay back the loan amount in restricted duration. Hence, NPA Consultant Pvt. Ltd suggests SMEs to have knowledge about banking acts and rules issued by RBI and make sure banks are following them. Don’t get misguided by banks, be informed and save your business.
“NPA Consultants Pvt. Ltd. –You’re Guide In Crisis”
In our last post ‘The Role of MSMEs in the Success Of ‘MAKE IN INDIA’, we discussed about the importance of MSMEs in the success of ‘Make In India’ scheme. However, it seems that Modi Government’s Make in India is going to fail due to the negligence of Government and RBI towards SMEs and NPA issue. The Industrial experts have forecasted that if Modi government will not be able to resolve the NPA issue of MSMEs, their Make in India campaign will surely fail.
With the pan India campaign ‘Make In India’ Government has tried to create an impression of building up India by encouraging Indian people to start up their own business and be an entrepreneur. However, while being encouraging, the Government is overlooking the hurdles faced by the existing SMEs, who are feeling helpless due to the lack of support from RBI and Government. According to Dr. Visswas, the ex-banker and advisor at NPA Consultancy, Government and RBI could not find a satisfactory solution on the issue of Non-performing asset, which is ultimately damaging national economy. Due to lack of support from banks, investment companies and corporates, a lot of SMEs are unwillingly shutting down their businesses.
The sickness of market, unavailability of bank loans, lack of machinery, inefficient market moves and many more…SMEs are going through a lot of difficulties while building up their businesses. At a recent seminar Dr. Visswas said, while doing hurry in recovering the loans, banks are completely ignoring the basic rules and principles set by RBI. He added, because of the lack of awareness about the RBI rules and regulations, lot of SMEs are going through the unbearable recovery pressure of banks. He suggests, banks should give SMEs extra time to build up their lost confidence and come up with strongly built up business.
‘MAKE IN INDIA’ campaign, after reading out the name, it seems like it’s a campaign about building up India by encouraging home-ground businesses. However, unfortunately the real picture in different. Even though the campaign is about India, small and medium scale industries has not been considered. The flagship program doesn’t have a place for country’s own establishments, due to which the SMEs are feeling left out. In a recent coverage done by renowned business publication stated that “Make in India program did not highlight the contribution of small & medium enterprises in building the country’s manufacturing ability.”
Even after contributing the most in country’s total GDP, SMEs has been kept away from the flagship campaign, initiated for the development of India. A lot of issues of SME sector are lost in the noise of government. In spite of being a backbone of the country’s economy, still small and medium scale enterprises did not find sufficient weightage in the Government’s big-ticket schemes. Government often comes up with some or other schemes, but not all the SMEs can take a benefit of it due to the eligibility criteria or unsuitable scheme structure.
The way SMEs are dependent on Banks for Financial support; similarly they are dependent on Government for strong and encouraging home ground support. With Make In India, if the Indian Government desires to transform India into a global manufacturing hub, first they need to focus on the hurdles SMEs are facing while running their business, offer fruitful opportunities to grow, and increase employment. Because when Indian Industrial sector will flourish, stand out as a strong sector, and attract International industries, it will automatically become a global manufacturing target.
SME’s have been the neglected arm of the Indian economy, an economy obsessed with the industrial giants tends to overlook the contributing aspects of the SME’s. When it comes to the Indian context, SMEs generate more than 55% of industrial value added year on year and 90% of total establishments of India, but we never see this sector in any of the glitzy magazines or the financial sections of any of the newspapers.
SME the growth engine
Large companies tend to outsource their requirements to SMEs as it is cheaper, efficient and quick. Most SMEs are specialized for some goods or services that the large companies are looking for. Growth of large industries depends on how SMEs do successfully in the trade and business.
SMEs & Make in India vision
The Make in India vision serves for the challenges faced by the Indian economy. In this scenario, SME’s play a pivotal role. They have been recognized as an important strategic sector for generating economic growth and an innovative mechanism leading to reduce the unemployment, inequality and poverty. With the rapid migration happening of people moving from country side to metro cities SMEs are the major employment generating tool having prime potential to absorb new workforce.
Thus, for the Make In India vision to reach the destination of accomplishment, we cannot afford to ignore the potential of SME’s with their evident productive contributions. Government needs to wake up to this reality and facilitate creation of even policy and business environment for SMEs.