NPA
# What is NPA ? What all actions bank can take on NPA Customers/Accounts ?
As per RBI Master Circular on Prudential Norms on Income Recognition, Asset Classification and provisioning pertaining to advances, any loan or an advance where interest and/or instalment or principal remains overdue for a period of more than 90 days in respect of a loan, Overdraft, cash Credit facility, bill discounting facility.
Banks further classify their NPA Accounts into
1) Substandard Assets
2) Doubtful Assets
3) Loss Assets
Substandard Asset: A Substandard Asset would be one which has remained NPA for a period of less than or equal to 12 months.
Doubtful Asset: An asset which has remained in the Substandard category for a period of 12 months.
Loss Assets: A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. In other words such an asset is considered uncollectibleand is of such little value.
If pending interest and principal are paid by the borrower in the case of accounts classified as NPA, the accounts should no longer be treated as nonperforming and may be classified as standard accounts.
The Provisioning on the outstanding NPA A/cs is as follows:
Upto 1 Year – 15%
2 Year – 25%
3 Year – 40%
More than 3 Years – 100%
Banks and Financial Institutions are empowered by various acts to initiate recovery proceedings on the NPA Accounts legally.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002, the banks and financial institutions are allowed to repossess and auction, residential, commercial, industrial properties and other moveable assets such as vehicles, construction equipment and auction them to recover loans.
The banks may also initiate recovery proceedings such as civil and criminal to recover their outstanding amounts such as initiate recovery dues by approaching Debt Recovery Tribunal, initiate Arbitration proceedings.
The banks and financial institutions can also file a case against the borrower under Sec 138 of the Negotiable Instruments Act, 1881. If the borrower is determined as a wilful defaulter, a criminal case can be initiated under the provisions of Sec 403 and 415 of the Indian Penal Code 1860.
The Banks can also write to your existing bankers intimating about the defaults and cautioning them on taking any additional exposure or continuation of credit facility.
