What are different methods used by banks for recovery of NPA?
The Act aims to achieve recovery of NPAs through three major ways which are the following:
- Securitization:
- Asset Reconstruction:
- Enforcement of Security Interests:
What solutions will you suggest reducing the menace of non performing assets?
Ways to Reduce NPAs
- SARFAESI ACT, 2002. The SARFAESI empowers banks to deal with NPAs, without the involvement of court, through three alternatives:
- Debt Recovery Tribunals.
- Lok Adalats.
- Compromise Settlement.
- Credit Information Bureau.
Why Indian banking face more NPAs give reasons and way forward to tackle them?
Indian Banking sector has been facing the NPA issue due to the mismanagement in the loan distribution carried by the Public sector banks. As the NPAs of the banks will rise, it will bring a scarcity of funds in the Indian markets. Few banks will be willing to lend if they are not sure of the recovery of their money.
What are the tools provided in managing NPAs?
NPA Recovery Tools
- Lok Adalats. Lok Adalats deal with NPAs that fall under ‘doubtful’ or ‘loss’ categories and cover small loan amounts till ₹ 5 lakhs.
- SARFAESI Act, 2002.
- Debt Recovery Tribunals.
- Compromise Settlement.
- Credit Information Bureau.
What does Bank do after NPA?
After a prolonged period of non-payment, the lender will force the borrower to liquidate any assets that were pledged as part of the debt agreement. If no assets were pledged, the lender might write-off the asset as a bad debt and then sell it at a discount to a collection agency.
How is NPA treated?
On an account turning NPA, banks should reverse the interest already charged and not collected by debiting the Profit and Loss account, and stop further application of interest. However, banks may continue to record such accrued interest in a Memorandum account in their books.
What will banks do with NPA?
Nonperforming assets are listed on the balance sheet of a bank or other financial institution. After a prolonged period of non-payment, the lender will force the borrower to liquidate any assets that were pledged as part of the debt agreement.
Why public sector banks have higher NPA?
The study highlights that the primary causes of higher NPAs in PSBs are their liberal credit policies and loose terms and conditions of loans, deficiencies in the credit sanctions, and disbursements of loans.