What is NPA ? : Its History with Banks and Laws

NPA or Non Performing Assets is a term associated with loans. When an asset or loan no longer generates any income for the bank it is referred to as NPA.

Before conversion into NPA the lender gives the borrower a certain time period for repayment of loan or for payment of interest dues. After completion of that period the asset is termed as an NPA.

Now into NPA there is an entire list of categories. They are :

• Standard Assets
• Sub-standard Assets
• Doubtful Assets
• Loss Assets

Standard Assets – These assets have a normal risk level associated with them. They are having a past time period of 90 – 120 days.

Sub-Standard Assets – These assets are having a past time period of more than 12 months. They are having a slightly more risk level than standard assets. The banks usually provide a cut for the borrowers on the amount on basis of the slightly higher risk level and blocking their conversion into doubtful or loss assets.

Doubtful Assets – They have a past time period of more than 18 months. Banks have a higher risk associated with this asset class. The repayment from such lenders is highly doubtful. This class affects the bank’s risk profile a lot.

Loss Assets – The banks have accepted that such loans will never be repaid and hence places such loans under this asset class. Such loans are written off completely as bad debts.

BANKS AND NPA’S

Banks have a long term standing relationship with NPA’s. Recently due to various scams many banks have suffered huge losses in terms of capital and credibility. The NPA’s accounted for by banks have 79% of corporate bad debts. i.e. Corporate houses account for 79% of the net NPA’s in the banking sector.

In 2017 alone the NPA’s by PSU’s were almost 7.5 lakh crore Rs. The NPA’s with private banks were 1.2 lakh crore Rs.

Among the PSU’s the NPA holding by various banks is as follows :

BANKS	NPA (in crore Rs.)
SBI	1,80,000
PNB	58,000
Bank of India	49,500
Bank of Baroda	46,400
Canara Bank	40,000
Union Bank of India	38,950

Among the private the NPA holding by various banks is as follows :

BANKS	NPA (in Crore Rs.)
ICICI	44,300
Axis	22,150
HDFC	7650
J&K	5990

For recovery of such NPA’s DRT have been created. They are Debt Recovery Tribunals. Previously there were 33 of them in 2016-17 but today the number has increased to 39 and DRAT (debt recovery appellate tribunals) are 5 in total.

Laws

There are a lot of laws passed for giving banks relief against such NPA’s.

• RDDBFI Act, 1993.
• RDB Act, 1993.
• SARFAESI Act, 2002.

RDDBFI Act, 1993

The aim is to resolve the issues of debt soon. The act gives quick redressal procedure to lenders and borrowers. Under this act Original Applications are filled out and appeals are made in DRATs. The full form is Recovery of debts due to banks and financial institutions.

RDB Act, 1993

It safeguards the banks and financial institutions against the loss of loans. Under this act DRTs are given complete jurisdiction and DRATs are given appellate jurisdiction for making appeals and solving issues relating to insolvency, bankruptcy and recovery of debts. This act is applicable on those cases who have a loss value of 20 lakh Rs. or more. The full form is Recovery of Debts and Bankruptcy.

SARFAESI Act, 2002

It provides the banks and financial institutions with the access of recovery through secured debts of the borrower without any intervention from court. The full form of is Securitisation and Recovery of Financial Assets & Enforcement of Security Interest. For this securitisation appeals have to be filed by the lenders to DRTs. It aims to provide a database of the interests on property rights and its connected matters. At the first stage the court does not intervene in the middle of the procedures undertaken. Borrowers can file complaints against their actions for enforcement under DRTs and The act is applicable on all cases where the debt amount is more than 1 lakh and the recovery of more than 20% is pending. The act is not related to any cases related to agricultural land and related business.

Also RBI has taken various steps to protect the banks from risk of NPA’s and to avoid over risking their portfolio (hence saving the money of common people). The recent scams to be taken into notice are PNB bank scam, PMC bank scam and Yes bank scam.