Legal Aspects of Recovery & Reduction of Non-Performing Assets in Banking Industries

India is facing a growing problem of non-performing assets (NPA) which is dangerous as it is a symptom of an ailing banking sector which in-turn affects the economy of India as well.Assets which generate income are called performing assets and but those do not generate income are called non-performing assets. The Non-performing assets better known as NPA's are broadly defined as a classification for loans or advances that are in default or in arrears. To further understand this definition, it is pertinent to understand what is meant by a loan in arrears and a loan in default. A loan is in arrears when interest payment or principal is late or missed and a loan is in default when the lender considers the agreement of loan to be broken and it is not possible for the debtor to meet his obligations.This is the general definition of a non-performing asset over the world, however each country has its own procedure and requirements to declare an asset as non-performing. In India for an asset to be classified as an NPA the borrower should have the principal or interest on the loan or advance given by the lender overdue for a period of 90 days. The NPAs are further classified into three categories depending on the period for which the asset has remained non-performing and the reasonability of the dues.The Non-performing Asset has been one of the widespread problems of the financial system and economy. The number of NPAs acts as an indicator of soundness of the banking system of any country. The problem of NPAs is faced globally but when it comes to developing countries like India, the magnitude is undoubtedly very high. The Government of India has initiated economic reforms to cope up the speed of the global economy but it is impossible to achieve unless the Indian banking and financial system will be at a complete overhaul. Recovery mechanism is a process of carrying out the recovery procedures and mechanisms required to restore the financial assets in the event of failure to repay by the borrower. An NPA as explained above is an asset that has ceased to generate income and returns which if not dealt with correctly and promptly can be detrimental to the bank and therefore the recovery of NPAs plays an important role to sustain the banking industry.There were first 4 forums which dealt with matters of insolvency and bankruptcy which were the High court, Board for Industrial and Financial Reconstruction (BIFR), Debt Recovery Tribunal (DRT) and Company Law Board (CLB), upon the enforcement of the IBC the burden of these forums was reduced as now all the matters in relation to the code were to be filed in the National Company Law Tribunal (NCLT). The solution of NPAs and its recovery lies only with proper credit assessment and recovery management mechanism. In a situation of liquidity overhang and economic boom, it is the tendency of banks to lend more compromising asset quality, raising concern about their adverse selection and potential danger of addition to the stock of NPAs. When an asset become NPAs, the recovery wings stats its operations. Performance of various recovery channels of NPAs in Indian banking system is not found to be satisfactory. Improper due diligence, insufficient law to combat against defaulter and externalities of macro-economic variables may be the main cause of weak recovery mechanism process.Objectives of the Study is to study the status of Non Performing Assets of Indian Scheduled Commercial Banks in India and to study the impact of NPAs on Banks. Also to know the recovery of NPAS through various channels. This book make appropriate suggestions to avoid future NPAs and to manage existing NPAs in Banks.The purpose of the present work is to provide an objective and analytical overview of the recovery of non performing assets in banking industries. The book aims to explain the concept of non-performing assets and the magnitude of their impact on the banking sector.The work analyse the recovery mechanism of NPAs with its three important wings i.e. recovery through Lok Adalat, DRTs and SARFASEI and its impact on NPA covering the years. The author will try to throw light on the reasons for its growth and changes that came after RBI guidelines. At lastwhile suggesting measures and drawing inferences from past, the book will suggest measures that can help in preventing the growth of NPAs focussing on the Indian economy set up. The book is divided into five chapters starting with the introduction chapter which provides the meaning and types of Non- Performing Assets and RBI Framework.. The second chapter titled, Non Performing Assets & Their Impact it includes overview of NPAs, reasons for occurrence of NPAs and the Impact of NPAs in banking Industries.The Third Chapter Titled, Modes Of Recovery Available To Bank in this author discuss the different tools which are available for recovery of debt. The Chapter Four Titled, Adjucatory Approach which include important case laws under SARFAESI ACT, 2002. The Chapter five titled Conclusion and Suggestions. The conclusion of the work is in the form of crux of the study conducted in the preceding chapters and some suggestions have been proposed for better working of the non performing assets in banking industries.No work is ultimate and final. So is the case with this work. However, the author has made best efforts to gain an insight to the subject. The author has put all efforts in carrying out this work and proposes realistic and idealistic recommendations for the recovery of non performing assets in banking industries