SESSION: 2015-2016

ASSIGNMENT
ON
RECOVERY MEASURES FOR
NPAS
AND
REMEDIES AVAILABLE FOR NPAS
SUBJECT: BANK MANAGEMENT
SUBMITTED TO:

SUBMITTED BY:

Ms. RAMNEEK KAUR

JASMEET KAUR (5817)

CAMY (5818)
M.COM-IIND YEAR

INTRODUCTION

Non Performing Asset (NPA) Meaning

NPAs refer to loans which are in risk of default. Reserve Bank of India (RBI) defines NPAs as
below: An asset, including a leased asset, becomes non-performing when it ceases to generate
income for the bank.
As per guidelines issued by the RBI, banks classify an account as NPA only if the interest due
and charged on that account during any quarter is not serviced fully within 90 days from the end
of the quarter.
Basis of Classification of Non Performing Asset (NPA)
Banks are required to classify NPAs into the following 3 categories based on how long do they
remain non-performing. The three categories are Substandard Assets, Doubtful Assets and Loss
Assets.
1. Substandard Assets If an account remains as NPA for a period less than or equal to 12
months
2. Doubtful Assets An asset would be classified as doubtful if it has remained in the
substandard category for 12 months.
3. Loss Asset A loss Asset is one where loss has been identified by the banks internal or
external auditors or upon an RBI inspection.
Example- Axis Bank Classification of NPAs

STRATEGIES TO REDUCE NPA

Non-Performing assets are a drain to the banks. The banks in India are adopting various
strategies to reduce the non performing assets in their banks and they are also adopting various
methodologies by which further addition to NPA portfolio is minimized
In the real sense, in case there is a recovery in principal and installments due in respect of the
loans granted to the banks are received 100%, the question of non-performing assets do not arise.
However, there is no such ideal bank where the NPA is nil. Except banks which were originated
recently, all banks are prone to have some portion of their loans and advances as non performing
advances
The following are some strategies by which banks are trying to curtail non-performing assets to a
great extent:
1. Debt Recovery Tribunals (DRTs)
Narasimham Committee Report I (1991) recommended the setting up of Special Tribunals to
reduce the time required for settling cases. Accepting the recommendations, Debt Recovery
Tribunals (DRTs) were established. There are 22 DRTs and 5 Debt Recovery Appellate Tribunals.
This is insufficient to solve the problem all over the country (India).
2. Securitisation Act 2002
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act
2002 is popularly known as Securitisation Act. This act enables the banks to issue notices to
defaulters who have to pay the debts within 60 days. Once the notice is issued the borrower
cannot sell or dispose the assets without the consent of the lender. The Securitisation Act further
empowers the banks to take over the possession of the assets and management of the company.
The lenders can recover the dues by selling the assets or changing the management of the firm.
The Act also enables the establishment of Asset Reconstruction Companies for acquiring NPA.
According to the provisions of the Act, Asset Reconstruction Company of India Ltd. with eight
shareholders and an initial capital of Rs. 10 crores has been set up. The eight shareholders are
HDFC, HDFC Bank, IDBI, IDBI Bank, SBI, ICICI, Federal Bank and South Indian Bank.

3. Lok Adalats
Lok Adalats have been found suitable for the recovery of small loans. According to RBI
guidelines issued in 2001. They cover NPA up to Rs. 5 lakhs, both suit filed and non-suit filed
are covered. Lok Adalats avoid the legal process. The Public Sector Banks had recovered Rs. 40
Crores by September 2001.
4. Compromise Settlement
Compromise Settlement Scheme provides a simple mechanism for recovery of NPA.
Compromise Settlement Scheme is applied to advances below Rs. 10 Crores. It covers suit filed
cases and cases pending with courts and DRTs (Debt Recovery Tribunals). Cases of Willful
default and fraud were excluded.
5. Credit Information Bureau
A good information system is required to prevent loans from turning into a NPA. If a borrower is
a defaulter to one bank, this information should be available to all banks so that they may avoid
lending to him. A Credit Information Bureau can help by maintaining a data bank which can be
assessed by all lending institutions.
REASONS FOR THE EXISTENCE OF HUGE LEVEL OF NPAS IN THE INDIAN
BANKING SYSTEM (IBS):
After the nationalization of banks sector wise allocation of credit disbursements became
compulsory.
Banks were compelled to give credit to even those sectors, which were not considered to be
very profitable, keeping in mind the federal policy.
People in the agricultural sector were hardly interested in returning the loans as they were
confident that the loans with the interest would be written off by the successive governments.
The small scale industries also availed credit even though they were not sure of performing to
the extent of returning the loans.

Banks were also not in the position to press enough securities to cover the loans in calls of
timings.
Even if the assets were provided they proved to be substandard assets as the values that could be
realized were very low.
Free distribution done during loan mails (congress regime) also contributed to the heavy
increase in NPAs.
The slackness in effort by the bank authorities to collect or recover loan advances in time also
contributes to the increase in NPAs.
Lack of accountability of the officers, who sanctioned the loans led to a caste whole approach
by the officers recovering the loans.
Loans sanctioned to under servicing candidates due to pressure from the ministers and other
politicians also led to the non recovery of debts.
Poor credit appraisal system, lack of vision while sanctioning credit limits.
Lack of proper monitoring.
Reckless advances to achieve the budgetary targets.
Lack of sincere corporate culture, inadequate legal provisions on foreclosure and bankruptcy
Lack of sincere corporate culture, inadequate legal provisions on foreclosure and bankruptcy.
Change in economic policies/environment.
Lack of co-ordination between banks.
RECOVERY MEASURES FOR NPAS
Various recovery measures adopted by banks and financial institutions (FIs) for reducing the
level of NPAs. Over the years, many initiatives have been taken by the Reserve Bank of India
and the Government of India in introducing new measures in the light of the problems
experienced by banks and also in terms of universal practices. In addition, these banks and FIs

have also tried to come-out with new measures for NPA reduction Information in respect of
which each of these measures is not available at one place. Branch Managers being too busy in
their day to day work, look for a check list on recovery. All these recovery measures were
understood during the discussions with the branch managers and referring to literature on the
subject. For convenience, recovery measures can be classified into non-legal and legal measures
which are listed as under:
NON-LEGAL MEASURES
1. Reminder system
2. Visit to borrowers business premise/residence
3. Recovery camp
4. Appointment of professional agents/recovery agents
5. Rehabilitation of sick units
6. Debt Restructuring for SMEs
7. Loan compromise
8. Lokadalat or Loknayalaya
9. Circulation of List of Defaulters
10. Appropriation of subsidy or exercising the right to set-off
11. Recalling of advances
12. Write-off
13. Recovery through specialized branches
LEGAL MEASURES
1. Recovery through Judicial Process
2. Debt Recovery Tribunal

3. NATIONAL COMPANY LAW TRIBUNAL

4. CORPORATE DEBT RESTRUCTURING BODY
5. ASSET RECONSTRUCTION CORPORATION
6. COMPANY MERGERS
Each of the above measure is discussed as under:
NON-LEGAL MEASURES
1. Reminder System: This is the cheapest mode of recovery by sending reminders to the
borrowers before the loan installment falls due. Generally, response to this arrangement
particularly from honest borrowers is encouraging. But efforts need to be strengthened in
banks in sending reminders on timely basis. Enough care should be taken to prepare a
draft- letter in informal language. If possible, better quality stationery may also be used to
motivate borrowers to open the letter and read the matter with interest. With the
computerization of branches, reminders can be sent through e-mail.
2. Visit to Borrowers Business Premise/Residence: This is a more dependable measure
of recovery. In India, most of the borrowers make the installments of loan unless the
branch personnel meet them personally. But, borrowers are widely spread. Hence, visits
need to be properly planned. Involvement of staff at all levels in the bank branch is called
for costs involved in recovery need to be kept to the minimum. Frequent visits are called
for in case of hardcore borrowers. Over the years, it is observed that the number of visits
is going down due to cut in the workforce in banks due to voluntary retirement scheme
(VRS). Consequently, the recovery process is affected. Branches should maintain a
record of visits made and recovery amount collected. Regional/Zonal heads should look
into how the visits are organized at the branch during their periodical inspection.
3. Recovery Camp: In respect of agricultural advances, recovery camps should be
organized during the harvest season. To take maximum advantage, recovery camps need
to be properly planned. It is essential to take the help of outsiders, particularly, revenue
officers in the state government, local panchayat officials, regional manager in the bank,
etc. It also calls for a professional approach to give a wide publicity of the recovery camp
to be organized in the local area, mobilize as many farmers as possible and motivate the

staff to get involved in the recovery drive. In rural areas, the recovery camps should be
organized during the harvest season to recover the bank dues from farmers. During the
camp, those who are very regular in loan repayment should be honored.
4. Appointment of Professional Agents/ Recovery Agents: Banks may appoint
Professionals/Recovery Agents whose services shall be utilized to ascertain the where
about of the borrower and enforcement of securities. There is some hesitancy on the part
of public sector banks in engaging them for recovery purposes due to unpleasant
experiences in certain cases. But in the post-VRS scenario, it is suggested to seek help
from such outsourcing agencies. This should be done after examining the credentials of
the agencies. It is also essential to keep a constant vigil on their practices adopted by
these agents in recovery matters. In general, banks should refer such cases to them
wherein the recovery is not possible in the normal course.
5. Rehabilitation of Sick Companies: Sufficient write up on rehabilitation of sick units is
provided earlier. By rehabilitating a sick unit successfully, recovery of bank dues takes
place. But the success rate is very low i.e. less than 10%. However, banks should
continue to rehabilitate because the cost of rehabilitation is lower than cost of restarting a
new unit on closure of the same.
6. Debt Restructuring for SMEs: A need was felt to create a special agency to facilitate
debt restructuring because there has been some hesitancy on the part of banks and
financial institutions to implement RBI guidelines on debt restructuring. For large
corporate, Corporate Debt Restructuring (CDR) has been set up to co-ordinate the
corporate debt-restructuring programme. Certain details of CDR can be shared here. CDR
consists of Forum, Group and Cell:
While the Forum evolves broad policy-guidelines, the Group takes decisions on the
proposals recommended by the Cell. Initially, the borrower approaches his Lead Bank/FI
with a request to restructure debt, which in-turn puts up the proposal to the Cell. The
CDR covers only multiple banking accounts enjoying credit facilities exceeding Rs 20
crores (recently reduced to Rs.10 crores). In the beginning, cases of DRT, BIFR and
wilful defaults, doubtful and loss accounts and suit-filed cases were outside the purview
of the CDR. Thus, standard and sub-standard accounts were only eligible to seek CDR
shelter.
In the circular, broad guidelines have been provided relating to assessment of viability,
norms of restructuring ,procedures etc. Currently, banks are busy in formulating the

scheme. There is a big hope to recover bank dues from defaulters once the scheme is
implemented for SMEs.
7. Loan Compromise: In general, it is experienced that filing of suits and recovery of dues
of banks through the courts is a cumbersome, expensive, time consuming, and task
without any fruitful results in many cases. One of the main reasons attributed for slow
recovery of bank dues through the court is lack of proper follow-up and timely and
proper action. Hence, it would be worthwhile to think of other ways to tackle the
situation. The tradition of amicable settlement through panchyat and arbitration, leads to
think as to why bank loan disputes cannot be settled without having a recourse to the
court.
A compromise means agreeing to a borrowers request of accepting a part of outstanding
of dues in the books of the bank as full and final payment or allowing for the noncompliance of the terms of the loan, after analyzing the alternative courses of action,
genuineness and capacity to repay. It is also called as voluntary debt reduction or 260
scaling down bank dues. In this situation, where the borrowers ability/capacity is
repaying the banks dues and the banks ability to recover the same by other means are
limited; a compromise proposal can work well.
Compromise proposals can be entertained at different stages which include (a) pre
litigation stage, and (b) post litigation stage.
At the prelitigation stage, concessional measures such as reschedulement / rephasement
of unpaid loan installments, rehabilitation, etc. can be used which would allow some
breathing time and build/strengthen the repayment capacity of the borrower. However,
when such measures initiated in the account do not yield any fruitful result and the
borrower incurs heavy cash losses, it is better to go in for a compromise or scaling downs
the dues. Similarly, in other cases, where business loss has crept in due to one or other
genuine reasons and the borrower is not a willful defaulter and requests for minor
concessions, such as waiver of penal interest, concession in interest rate, etc. the
borrowers offer can be accepted for compromise.
Compromise at postlitigation/decree stage can also be entertained so that the borrowers
business or activity is uninterrupted. In order to avoid cost, labour and time involved in
litigation matters and to have better image in market, borrowers offer a lump-sum amount
and request the bank to withdraw the suits against them. At times, it becomes necessary,
in some cases, to settle outside the court through an amicable agreement and the

antecedents of the defendant are such that courts take a sympathetic view and award a
lenient decree against the defendants. Sometimes, after obtaining decree, if a third party
comes forward to purchase the assets, the bank may consider the case for compromise. It
is also possible for the bank to go in for compromise if the decreed asset would not fetch
more than the claim amount. In all cases, where suits have been already filed, whatever
compromise is to be made, must be sorted out through court in the form of a consent
decree, so that it will be binding on all dependents. If parties do not fulfil the promise,
remedy through court or Debt Recovery Tribunal will always open to the banks.
There can be two types of compromise. The Reserve Bank of India and the Government
of India worked out One Time Settlement Schemes covering loan outstanding upto Rs. 5
crores (subsequently raised to Rs. 10 crores) and Rs. 25000 respectively. In addition, each
bank is given autonomy to evolve One Time Settlement (OTS) Scheme. It is necessary to
create awareness on OTS and mobilize as many compromise proposals as possible. There
should not be any delays in arriving at compromise. Such proposals should be prepared
carefully keeping in mind the bank guidelines. Otherwise, this may become a vigilance
case. It is better to involve all staff members in mobilizing compromise proposal.
The cost-benefit analysis may be done to take into account the loss which may arise in
case compromise is accepted and the benefit which may accrue if the same is not made.
In general, it is experienced that the banks will be in an advantageous position in opting
for an amicable settlement rather than legal approach. Besides, such compromise would
avoid all legal complications and time lapses. Every branch manager has to formulate a
compromise proposal in the light of broad guidelines issued by the bank. The proposal
should contain major items which include means or capacity of the party, determination
of amount covering outstanding amount, other charges etc. efforts already made for
recovery, staff accountability, etc. The proposal recommended by the branch manager
should be referred to the sanctioning authority which examines several factors including
fulfillment of terms and conditions of sanctioning of loan compromise, any laxity in
conduct and post-disbursement supervision of the account, any act of commission or
omission on the part of staff leading to the debt proving irrecoverable, enough recovery
efforts put in, valuation of securities, interest to be charged in respect of settlement
though installment, etc.

Loan compromise should be considered as a last resort of recovery. It should be a

voluntary exercise. It calls for a professional approach in preparing the compromise
proposal for which each bank is given an autonomy by the Reserve Bank of India.
Decisions on compromise proposals should be taken by adopting a committee approach.
In this regard, banks have been advised to set up a Settlement Advisory Committee.
Though there are many schemes of compromise, success in recovery is limited due to
lack of awareness of such schemes by small farmers, small traders etc., stricter vigilance
norms, the staff being hesitant to entertain compromise cases, difficulties in fixing staff
accountability before recommending a proposal, etc. Efforts should also be made not to
encourage good borrowers to seek compromise. In any case, due to high NPAs, banks
have to depend on loan compromise as an effective measure of recovery.
8. Lok Adalat or Lok Nyayalaya: The concept of Lok Adalat was introduced in 1982 as
part of strategy of legal aid. By now, it is known for effecting mediation and counseling
between the parties and to reduce burden on the court, especially for small loans. Large
number of Lok Adalats is being organized in different parts of the country from time to
time and it has got recognition and patronage, particularly, every segment of the society.
Based on experience of several states, a Central Act known as Legal Services Authorities
Act, 1987 was passed providing legal basis for the Lok Adalats and Legal Authorities to
the compromise arrived at between the parties through such Lok Adalats. Several people
of particular localities / various social organizations are approaching Lok Adalats which
are generally presided over by two or three senior persons including retired senior civil
servants, defence personnel and judicial officers. They take up cases which are suitable
for settlement of debt for certain consideration. Parties are heard and they explain their
legal position. They are advised to reach to some settlement due to social pressure of
senior bureaucrats, judicial officers or social workers. If the compromise is arrived at, the
parties to the litigation sign a statement in presence of Lok Adalats which is expected to
be filed in the court to obtain a consent decree. Normally, if such settlement contains a
clause that, if the compromise is not adhered to by the parties, the suits pending in the
court will proceed in accordance with the law and parties will have a right to get the
decree from the court. To arrive at compromise with the party, banks may provide
remission of interest, etc. In this context, certain guidelines have been formulated by

banks in consultation with the Indian Banks Association (IBA). Accordingly, the banksuits involving claims upto Rs 5 lakhs (now raised to Rs 20 lakhs) may be brought before
the Lok Adalat. There should be decree for the interest claimed before suit. Now-a days,
even non-suit filed cases in the doubtful and loss categories can be considered for
settlement. Debt Recovery Tribunals can also organize Lok Adalats. Lok Adalats have to
finalize settlements in terms of broad guidelines on loan compromise of the bank. In
general, it is observed that banks find it difficult to collect the concerned borrowers
willing to go in for compromise on the day when the Lok Adalat meets. However, banks
should continue to put in their efforts in this regard.
9. Circulation of List of Defaulters: Currently, the RBI circulates the list of defaulters
among banks and financial institutions (FIs) which is found useful in avoiding wilful
defaulters for loan sanction. The RBI has defined a wilful defaulter for the first time. It
has provided the broad parameters for identification of wilful defaulters whose list will be
circulated among banks and FIs. Auditors of companies have to report in their certificate
about diversion of funds, if any. In addition, on January 30, 2001, Credit Information
Bureau of India Limited (CIBIL) was set up to provide critical data required by any credit
institution before arriving at credit decision. CIBIL was set up jointly by State Bank of
India, HDFC, Dun and Bradstreet and Trans Union. It will collect information from its
members and make it available to any credit institution on demand. Its success depends
upon co-operation extended by the members in supplying the required information on
timely basis.
10. Appropriation of Subsidy or Exercise of Right of Set-off: In some of the sponsored
schemes, the amount of subsidy is kept in deposit accounts of the people below the
poverty line (BPL) to be appropriated after a specified lock-in-period. In such cases,
where subsidy is available and the account is likely to become NPA, the subsidy amount
should be appropriated (keeping in view the requirements of lock-in-period) in the loan
account and necessary action should be initiated for recovery/write off of the balance
amount. Further, where liquid securities such as Fixed Deposits, LIC policies, Govt.
Securities etc. are available and borrowers are not responding to the request made by the
bank to the borrower for regularization of accounts, such securities should be encashed
after giving due notice to the borrower and guarantor.

11. Recalling of Advances: When follow up efforts do not yield any fruitful result and
circumstances so warrant that the loan amount to be realized at once and/or facility to be
terminated in the interest of the bank, a final recall notice has to be served asking the
party to adjust the irregularity in the account immediately. Wherever necessary, the party
is also informed about the banks intention to terminate the facility after the specified
time limit. As far as possible, issuing of legal notice should be restricted to once only and
in case of small advances, recall notice through an advocate may be avoided unless the
circumstances require such a course of action. Recall notice should be sent if the
borrower is a wilful defaulter, bank liability is significantly uncovered, death of the
borrower, dissolution of partnership firm, siphoning of funds, borrower refusing to renew
the credit limit, etc
12. Write off: If it is going to be unremunerative either to file suit and/or continuing the
account in the bank's books, it is advisable for the same to go in for waiverment of legal
action and/or writing off dues. By waiver of legal action, banks may take a decision not
to pursue recovery through a Court of Law. But for write off, the banks can decide to
close the account by transfer of funds from their profits to the loan account. Waiverment
of legal action is suggested when (i) the means of the borrower are negligible, (ii)
borrowers are below the poverty line, (iii) cost of recovery is higher, (iv) beneficiaries are
absconding, (v) it is difficult to obtain periodic balance confirmation of debt cum
acknowledgement of debt, and (vi) securities are already sold by the borrower.
Write off is proposed under certain circumstances such as (i) Borrowers are adjudicated as
insolvents and the bank has already realized part of the dues as a secured creditor (ii)
Revenue authorities under the State Public Recovery Act have recovered some amount and
there are no further chances of any recovery (iii) Both borrower and guarantor are
untraceable after selling their assets and (iv) Decrees remain unexecuted several times due to
reasons beyond the control of the bank.
Decisions to waive legal action or write off are taken at controlling office on
recommendation of the Branch Manager. If permission of the Credit Guarantee Fund Trust is
required, the same should also be obtained.

For write off, various factors are considered which include (i) means or capacity of the
borrower and guarantor (ii) the amount to be written off (iii) efforts of recovery already put
in and (iv) staff accountability. The write off exercise is internal and the branch staff should
keep the matter confidential. Even after write off, recovery efforts should continue and if any
amount recovered in this regard, the same may be shared with the Guarantee Corporation on
pro-rata basis. Finally, the branch managers should comply with all the bank guidelines in
respect of write off.
13. Recovery Through Specialized Branches: To deal with the matters related to tribunals,
certain expertise is required. Such expertise is also needed to effect recovery from
hardcore NPAs. In this regard, many banks have set up Recovery Branches which are
exclusively dealing with the NPAs with a total liability of Rs. 10 lakhs and above. These
branches undertake certain activities which include creation of data base of NPAs,
monitoring of the NPAs and recovery from NPAs through compromise, follow-up of the
decreed accounts etc. and additional attention to the matters related to special tribunals.
These are set up without creating any burden to the bank by using the unutilized premise
of the branch in the area which is headed by a senior executive. Officers working earlier
in rehabilitation cell in the controlling office are generally posted to these branches.
These handle suit filed accounts, recalled advances and the cases in which legal
proceedings are yet to be initiated. The number of accounts in these branches could be in
the range of 100. These keep a close contact with the advocates and court authorities.
They have also been able to finalize a few compromise proposals. Recovery from the suit
filed accounts is also affected in few cases. The overall recovery is in the range of 2 to 10
per cent of the total dues. Although the recovery percentage is presently low, the same
seems to be reasonable since these being chronically stagnant accounts. These branches
experience a few problems.
LEGAL MEASURES
1. Recovery through Judicial Process: When banks are convinced that all other non-legal
recovery measures would not bring any positive result and the documents may become
time barred, banks resort to legal action. Before taking a decision to file a suit, the banks
should ensure that there are sufficient securities available in the account and the

borrowers and guarantors are having adequate attachable assets to satisfy the decree
against them. The purpose of obtaining the decree serves the purpose only when it is
capable being executed. Enough care has to be taken at early stage of recovery through
the courts. These stages in chronological order include summon servicing, submission of
a written statement, recording the evidences, arguments, framing of issues, decision and
order. Firstly, the permission to file suit has to be obtained from the controlling office in
the bank. Thereafter, the approved advocate should be contacted by the branch manager
to file suit. Before filing the suits, banks should ensure that documents are live, securities
are properly charged to the bank, fresh financial report on borrower / guarantor is
obtained, and a complete list of witnesses is prepared. The banker should exercise the
right of set off / appropriations, if available. The plaint prepared by the advocate be
checked up thoroughly as to the correctness of facts and figures. All parties and
guarantors are to be sued. Names and addresses and securities should be stated properly
and, suit should be filed in the court of the specified jurisdiction. A notice of demand to
the borrower and the guarantor should be issued before commencing any legal action. In
respect of a suit against the government, statutory notice should be sent in accordance
with the provisions of Section 80 of CPC.
2. Debt Recovery Tribunals(DRT): In the context of recovery from NPAs DRT are
assuming great importance since efforts are on to set up & more DRT during this year
and also to strengthen them. Though the recovery through DRT is at present less than
two per cent of the claim amount, banks and Fls have to depend heavily on them. Efforts
are on to amend the recovery act to assign more powers to DRTs. More importantly, the
borrowers tendency to challenge the verdict of the Appellate Tribunals in the High court
to seek natural-justice needs to be checked, Otherwise, early recovery efforts through
DRTs would be futile. Secondly, training of presiding officers of Tribunals about the
intricacies of banking practices is very essential.

Further, the numbers of recovery

officers have to be enhanced in every DRT for effective recovery. Finally, banks and Fls
have to come forward to provide liberal help to DRTs to equip them in terms of
infrastructure, manpower, etc.

3. National Company Law Tribunal: As per the announcement made in the Budget-200102, Sick Industrial Company Act will be repealed and Board for Industrial Finance and
Reconstruction will be wound-up. As an alternative arrangement, it is proposed to set up
NCLT by amending the Companies Act 1956. In August 2001, the NCLT is expected to
consolidate the powers of BIFR, High court and Company Law Board to avoid
multiplicity of forums. In matters of rehabilitation of sick units, all concerned parties are
supposed to abide by the orders of NCLT. There shall be 10 benches, which will deal
with rehabilitation, reconstruction and winding-up of companies.

It is estimated to

complete the entire process during a period of 2-3 years as against 20-27 years presently
taken. The Tribunal will have, in addition, powers of contempt of court.
A rehabilitation and revival fund will be constituted to make interim payment of dues to
workers of a company declared sick or is under liquidation, protection of assets of sick
company and rehabilitate sick companies. While NCLT will be acting on the lines of
BIFR in the matters of rehabilitation viability of the projects will be assessed on cash test
and not in the present test of net-time limit for completing each formality relating to
rehabilitation and winding-up. Though the Bill is well drafted to ensure NCLT to become
time wise, and more effective than BIFR in respect of rehabilitation and winding-up,
doubts are raised about the implementation of the Bill taking into account the present
political economy. In any case, it is too early to comment.
4. Corporate Debt Restructuring Body: A need was felt to special agency to facilitate
debt restructuring because there has been some hesitancy on the part of Bank and
financial institution to implement RBI guidelines on debt restructuring recently three-tire
body, CDR has been set up to coordinate corporate debt restructuring program. It is yet
to be operationalized CDR consist of Forum Group and cell. While the forum evolves
broad policy guidelines, the group takes decisions on the proposals recommended by the
Cell. Initially, the borrower approaches his Lead bank/FI with a request to restructure
debt which in turn puts up the proposal to the Cell. The CDR Covers only multiple
banking accounts enjoying credit facilities exceeding Rs.20crore. Cases of DRT, BIFR
and willful defaults, doubtful and loss accounts and suit-filed cased are outside the
purview of the CDR. Thus standard and sub-standard accounts are only eligible to seek
CDR shelter. Decisions of the group are based on the super majority principle. If 75

percent of the secured creditors agree to the rehabilitation plan, it is binding on the other
banks.
The CDR is a voluntary system based on debtor- creditor agreement and inter-creditors
agreement. No banker/borrower can take recourse to any legal action during the standstill period of 90-180 days.

Lastly, CDR will observe the RBI Guideline on Debt

Restructuring issued in March 2006. While the arrangements under CDR seem to be
feasible from the debt restructuring perspective, its success depends upon the cooperation
extended by borrowers and bankers, on the one hand, and understanding among banks
and Fis, on the other. Doubts are raised about the implementation of these agreements
taking into the present working of the loan consortium arrangements.
5. Asset Reconstruction Corporation: It is proposed to set up ARCs in the private sector to
take over NPAs in the public sector banks. The RBI will be the regulator of these ATCs. The
ARC will buy NPAs of the banks and financial institutions at the pre-determined discounted value
and issue NPA redemption bonds, which carry a fixed return. ARCs are expected to be managed
by professionals to effect maximum recovery of NPA, which will help in redemption of bonds
after some time. The Finance Ministry has finalized the draft Bill to set up ARCs. Though the
proposed scheme seems to be attractive, its success will depend upon the efficiency of DRTs and
courts. Further, if ARC is going to depend on the staff deputed by weak banks, its recovery
chances are doubtful.

6. Company Mergers: Under the Companies Act, 1956, mergers are permitted. In 1977,
Sec 72-A was inserted in the Income Tax Act to offer tax incentives to healthy companies
which take over the sick companies and prepare revival plans. Response to these scheme
formalities as per the instructions of the High Court and Income Tax Department. Tax
incentives are found to be inadequate to motivate healthy companies to come forward and
take advantage of the scheme. Recovery of bank dues on company-mergers is not assured
since hardly 7.8 per cent of sick companies are successfully revived. Encouraged by the
success achieved in company mergers in developed countries, a review of the scheme
under section 72-A of IT Act is called for.
Example:
Non Performing Asset (NPA) | Public Sector Banks | Private Sector Banks

Public Sector Bank

NPAs (Q3

Private Sector Bank

NPAs (Q3

Corporation Bank
Dena Bank
Central Bank of India
Oriental Bank of Commerce
Andhra Bank
Punjab National Bank
Allahabad Bank
UCO Bank
Indian Overseas Bank
United Bank of India

FY2015)
3.27%
3.33%
3.58%
3.68%
3.70%
3.82%
3.89%
4.25%
5.52%
8.50%

Yes Bank
HDFC Bank
Ratnakar Bank
IndusInd Bank
Axis Bank
Karur Vysya Bank
Kotak Mahindra
South Indian Bank
ICICI Bank
City Union Bank

FY2015)
0.10%
0.26%
0.31%
0.32%
0.44%
0.73%
0.83%
1.04%
1.12%
1.31%

For Private sector Banks, Yes Bank is the best performer, followed by HDFC, IndusInd, and
Axis.

At

the

other

end,

for

Public

sector

Banks, United

Bank

of

India is

the worst performer followed by Indian Overseas Bank, UCO Bank, and Allahabad Bank.
Some of the other public sector banks which have significant amount of NPAs include IDBI
Bank (3.05%), SBI (2.80%), Bank of India (2.50%), Canara Bank (2.42%) and Syndicate
Bank (2.38%).
Increasing bad loans have been a concern for the RBI for many years. The NPA problem is far
graver for PSBs compared to their private sector peers.
BIBLIOGRAPHY
https://www.academia.edu/1259966/NONPERFOMING_ASSETS_at_UTI_BANK_PROJECT_REPORT_MBA_FINANCE
http://shodhganga.inflibnet.ac.in/bitstream/10603/3808/16/16_chapter%2010.pdf
http://advshah.blogspot.in/2009/10/non-performing-assets-legal-remedies.html
http://www.bankexamstoday.com/2014/02/npa-non-performing-assets-definition.html
http://shodhganga.inflibnet.ac.in/bitstream/10603/32314/14/14_chapter%207.pdf
https://www.quora.com/What-are-the-best-steps-to-reduce-NPA

http://gaurisankar.blogspot.in/2011/06/how-to-reduce-non-performing-assetsin.html
http://www.blog.sanasecurities.com/non-performing-asset-npa-in-public-sectorbanks/