Tag: Non-performing asset

The gross non-performing assets (NPAs) of banks could rise to 4.2-4.4% by March, from 4.1% as on December, Icra said. By March, the gross NPAs of state-run banks could rise to 4.8-5% of total loans in the banking system, Icra said in its baking sector update.

“Considering the current business slowdown, the stretched working capital cycles of corporates and the slow pace of economic recovery, Icra is of the view that the gross NPA percentage of the public sector banks (PSBs) would be at 4.8-5% as on March 31, 2014,” Icra said.

Gross bad loans of 40 listed Indian banks grew to Rs.2.43 trillion at the end of December, a rise of about 36% from last year. Government banks also face issues on capitalization given the advanced capital requirements under the so-called Basel-III, Icra said.”

Legal Aspects of NPA.

 There is no reason to believe that non-banking finance companies, banks and financial institutions are helpless as against the borrower.  As lenders they are all equipped with a number of legal remedies and rights for speedy recovery of amounts due from defaulting borrower.  But the banks in general and of their own volition are either ignorant or not willing to take benefit of provisions of the law or the relevant legislation for various reasons including defect in the loan documentation signed by the borrower. For example,  the erstwhile IFCI Act, 1948 which  established the very first financial institution in India and the State Financial Corporations Act, 1951 contained special provisions for speedy recovery of due from the defaulting borrower. The erstwhile IRBI Act for establishment of the Industrial Reconstruction Bank of India contained provisions for creation of charge by execution and filing mere declaration into prescribed format.  Such declaration is not required to be registered under Section 17 of the Indian Registration Act, 1908. This declaration creates  mortgage interests on immovable property and is deemed to be treated as creation of simple mortgage by the borrower and accordingly all rights and remedies available to a simple mortgage were made available to IRBI.  Some of the State Governments have passed special legislation akin to law for revenue recovery for speedy recovery of its dues by the banks as arrears of land revenue.  The provisions of Section 69 of the Transfer of Property Act, 1882 deals with powers and rights for recovery of its dues by the mortgagee by private sale and  without  intervention  of  the  courts.  Further Section 69A of the Transfer of Property Act provides for appointment of receivers and management of the property of the borrower without intervention of the courts.  Nearly 100 year-old enactment the Code of Civil Procedure, 1908 in the Order 37 Rule 40 provides for summary procedure for recovery of dues by the bank.The shares, debentures and government securities dematerialised format can now very easily be pledged by filing necessary details in the Form No W. with the Depository Participant concerned in accordance with the terms of the Depositories Act,1996.

In spite of the various statutory provisions mentioned above, it is wonder of all wonderers as to how the banks have been able to build-up mountains of NPAs. Further, very often the banks are not able to recover amounts due on a simple demand promissory note or even from the Government under the Government Guarantee.  The blame is thereafter put at the door of defective legal system, procedural delays and on the judiciary.  At times the usual care is not taken just to verify and ensure that the documents are duly signed by the authorised official of the borrower and that proper stamp duty and registration charges have been paid as per applicable law prevailing in the particular city or the State in which the documents have been executed.

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