NPA, or Non-Performing Asset, refers to loans or advances where the borrower fails to meet their repayment obligations. Recovering NPAs is crucial for financial institutions to maintain financial stability. Here are some common methods for recovering NPAs:
Legal Measures:
Filing a suit in civil courts or Debt Recovery Tribunals (DRTs): This is a formal legal route where the bank seeks court orders to recover the dues, including interest and penalties.
Action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), 2002: This act empowers banks to take possession of collateral offered by the borrower, such as property or equipment, to recover the dues.
Out-of-court settlements:
Negotiated settlement/compromise: This involves reaching an agreement with the borrower on a mutually acceptable repayment plan, often involving a one-time settlement amount.
Lok Adalats: These are quasi-judicial forums set up under the Legal Services Authorities Act, 1987, to facilitate quick and amicable resolution of disputes, including those related to debt recovery.
Other methods:
Sale of NPAs to Asset Reconstruction Companies (ARCs): ARCs are specialized institutions that purchase NPAs from banks at a discounted price and attempt to recover the dues through various means.
Stricter credit assessment and monitoring: Banks are increasingly adopting stricter measures to assess loan applicants’ creditworthiness and monitor existing loans to prevent defaults in the first place.
The effectiveness of each method depends on the specific circumstances of the NPA case. Banks typically adopt a multi-pronged approach, combining legal and non-legal measures to maximize the chances of recovery.
It’s important to note that NPA recovery is a complex process, and it’s advisable to consult with a financial professional for guidance on specific cases.
