The banking industry is growing in leaps and bounds, and so is the complexity associated with it. Among the many concerns, credit monitoring and NPA recovery is the one that is taking away peace from the financial institutions lately. The asset quality in banks, especially the Public Sector Banks (PSUs) is constantly deteriorating and thus causing an intolerable stress to the banking sector, regulators, and the Indian economy.
Cited under is the data of NPAs recovered as compared to Total NPAs during the years 2013 to 2016. The statistics show a declining trend in NPA recovery over the years.
1. Lok Adalats
Lok Adalats deal with NPAs that fall under ‘doubtful’ or ‘loss’ categories and cover small loan amounts till ₹ 5 lakhs. As per the RBI guidelines (2001), both suit filed and non-suit filed cases can be dealt in Lok Adalats. Though it is not a legal procedure, it is highly effective in settling disputes for small loans.
2. SARFAESI Act, 2002
The SARFAESI Act empowers the lending bank to issue demand notice to the borrower along with his/her guarantors for defaults of ₹ 1 lakh or above. Post issuance of notice through this act, the borrower has to repay the dues (in full) within 60 days. Also, the borrower can no longer dispose the assets or sell them without the lender’s consent. It enables banks to recover NPAs through alternatives such as Asset Reconstruction, Enforcement of Security and Securitisation without the intervention of court.
3.Debt Recovery Tribunals
Debt Recovery Tribunals are special courts that solely focus on NPA recovery of more than ₹ 10 lakhs. DRTs were set up to speed up the disputes between lenders and borrowers as compared to ordinary courts, which would otherwise take several years to give the verdict.
Compromise Settlement or the One-time Settlement Schemes are instances where the borrowers agree to pay the due loan amounts to the banks or other financial institutions. On the other hand, banks compromise on the total due amount and agree to accept a lower than due amount, in full and at a single time. It is observed as a loss to banks in the form of write off/waiver of dues partially, on a one-time basis.
5. Credit Information Bureau
Credit Information Bureau is the latest tool for NPA recovery where third-party agencies help banks with information about customers to understand their financial conditions, repayment capacity, will to repay and more such factors. These agencies keep a track of defaulters and even the accounts that are prone to becoming delinquent, and share these reports/data with the banks to enable them in making better lending decisions.
There are more NPA recovery tools that are used by financial institutions across the country. And, in view of the sincere efforts being implemented by the government of India to address the rising NPA levels, we may expect more advanced tools to be introduced in future for productive recovery of bad loans.