Controlling

Non-Performing Assets (NPAs)

All your bank must know!

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Introduction
The Non-performing Assets have been harrowing Indian banking system for a long
time now, so much so that it is impacting the GDP and overall economy of the
country.

Earlier this year, it was predicted that the NPA levels will surge close to
10.5% in March 2018.

Banks, regulatory bodies and the government of India together have been trying to
control the mounting numbers of NPA through several means such as:

SARFAESI Act, 2002 Debt Recovery Tribunals (DRTs)

Asset Reconstruction
And others…
Companies (ARCs)
 NPA recovery remains a big challenge
It is witnessed that over the years, NPA recovery has been going down in spite of stricter laws and better recovery methods in place.

THE DROP IN NPA RECOVERY OVER THE YEARS

248,200

221,400
173,800 Recovered NPAs (In %)

Recovered NPAs (In crores)

105,700

Total NPAs (In crores)

32,000

30,800
23,300

22,800
22.00%

18.40%

12.40%

10%
-

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 Ways to control NPAs

Rational lending of loans to borrowers

Banks and financial institutions must be more sensible by following a conservative approach for loan disbursement e.g. the repay-
ment tenure should not be stretched for a longer duration.

Loan restructuring is not the ‘only’ option

Recovery of loans must be ensured right from the time when the applicant applies for a loan to secure timely payment of instal-
ments. Banks must not wait for accounts to become delinquent after which they have to end up with loan restructuring.

Use of technology
Innovative means of recovering bad loans must be adopted. Banks must consider investing in advance tools having features like
Early Warning Signals, Loan Origination Systems etc. for streamlined lending and recovery practices.

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 Ways to control NPAs (Cont.)

Amending the Banking Regulations Act

RBI must bring in amendments to track and monitor large borrowers and big defaulters. Stricter rules for Oversight
Committee (OC) and Joint Lender’s Forum (JLF) must be introduced without any further delay.

Stringent Recovery
Smart practices to assess risks and red-flag borrowers who tend to default must be adopted as a preventive measure
over and above the current recovery modes like SARFAESI, IBC and more.

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 Other Possible Ways of minimising NPAs
Mission Indradhanush (2015),
Insolvency and Bankruptcy Act (2016)
Bad Banks (2017)

These are some ways of controlling and reducing NPAs that are yet to prove themselves and deliver the desired outcomes. It would
be interesting to see how these approaches perform in the coming times and add to the economic growth of our country.

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