When we talk about Non Performing Assets (NPA), we certainly can’t forget the Narasimhan Committee, which worked out on its report for prudential norms and suggested RBI for a reform to strengthen the recovery of dues by financial institutions and banks. The Act, which came into existence in 1993, became a guideline for further financial stability of the economy.
What are Non Performing Assets?
As per the Reserve Bank of India guidelines, any asset, leased or owned, which ceases to generate any financial gains for the banks is said to be a non performing asset. It is often in terms of loans given to a party by the bank, the recovery of which is not possible any further and falls under the following categories:
- A loan whose interest or periodic installment has become overdue for a period higher than ninety days
- When an account is in ‘out of order’ state due to overdraft or cash credit and the outstanding balance goes in excess.
- If an invoice has been overdue for a period greater than ninety days
- When a loan of short duration crops has been overdue for payment for a period of two or more than two crop seasons.
- When a loan of long duration crops has been overdue for a period higher than one crop season.
Are banks and financial institutions following RBI guidelines for NPA in true spirit?
Although banks are managed and function on RBI guidelines, there are instances where banks are not able to follow the guidelines in true spirit and that holds true for NPA as well. Not every bank declares its assets as NPA within the stipulated time period as specified by the RBI. The fundamental principles laid out by RBI in context of NPA are often overlooked by the financial institutions.
The RBI, however, makes sure to come out with regular checks on banks so that transparency and higher consistency within the institutions and its system are maintained.
What the Supreme Court of India has to say?
The Mardia Chemicals judgment is a reference and directive for banks and financial institutions as far as non performing assets are concerned. The Supreme Court directs that flow of money and liquidity of finances is quite mandatory for an economy that wants to grow in a healthy way.
However, it is noteworthy that the law should not be in contradiction with the rights which are guaranteed to people of India. There are times when banks and financial institutions go a little farther than reasonable ways to recover their dues from people, who complain of infringement of their rights by these institutions.
A recent statistics suggest that the level of Non Performing Assets is increasing with a constant pace inspite of the efforts of RBI and Banks to bring it down. The question here arises that what prevents these financial institutions that they are not able to implement effective ways of recovery of dues within time.