Its now very known that the banks and financial institutions
in India face the problem of increase of Non performing asset and the issue is
becoming more and more incontrollable. In order to bring the condition under
control, many steps have been taken. Between all other steps most important one
was the overview of Securitizations and Rebuilding of Financial Assets and Application
of Security Interest Act, 2002 by Parliament, which was an important step near
removal or discount of Non performing asset.
One of the most important and main parts played by banking
sector is that of lending business. It is usually invigorated because it has
the effect of funds being moved from the system to productive purposes, which
also results into economic growth. As there are aces and scams of everything,
the same remains with lending business that carries credit risk, which rises
from the failure of nonpayer to achieve its votive responsibilities both during
the course of a deal or on a future duty.
An asset is classified as Non performing asset (NPA) if
payments in the form of principal and interest are not paid by the borrower for
a period of 180 days, But with effect from March 2004, evasion status would be
given to a borrower if fees are not paid for 90 days. If any advance or credit
skill granted by bank to a debtor becomes non performing, then the bank will
have to treat all the advances/credit services fixed to that borrower as non
performing without having any regard to the fact that there may silent exist
certain advances / credit facilities having performing status.
Even so, with the introduction of securitization Act, 2002
banks can now issue notices to their defaulters to repay their dues or else
make defaulters face hard and tough actions under the aforementioned Act. This
allows banks to get rid of sticky loans thereby improving their bottom lines.
The preparation of Asset Rebuilding Companies under this Act has also helped in
disposal of debt-ridden assets in a very smooth manner. The most effective way
of eradicating Non performing asset from the books of the weak banks would be
to move these out to a different agency which will buy the loans and make its
own efforts for their recovery. The ARC's processes will be profit oriented and
its aim will be to recover from the learned assets Non performing asset more
than the price paid for it. These corporations will be registered with the RBI
with a minimum capital base of two cores.
The Non performing asset level of our banks is way high than
international standards. One cannot ignore the fact that a part of the
lessening in Non performing asset is due to the script off bad loans by banks.
Indian banks should take care to confirm that they give loans to credit routine
customers. In this context the dictate "preclusion is always better than
therapy" acts as the golden rule to reduce Non performing asset.
