Narendra Sharma

Before declaring NPAs, Bankers have numerous duties to perform including rehabilitation not only once but multiple times – Important Information for Borrowers and their advocates

Our Associate and Banking Expert has drawn attention to the following important RBI Guidelines and circulars which will be highly useful to Borrowers and their Advocates. These need to be studied and important aspects included in the ‘Representation and Objections’ to notice u/s 13 of the Securitisation Act as well as in the application u/s 17 of the said Act:-

(a)     Even before the prudential norms to declare accounts as NPA was brought by RBI to be implemented from 31st March 2004, RBI issued a circular DBS.CO.OSMOS/B.C./ 4/ 33.04.006 / 2002-2003 dated September 12, 2002 on “Guidelines on preventing slippage of NPA accounts” based on a study on preventing slippage of NPA accounts, addressed to The chairman/ Managing Director/Chief Executive Officer – All Commercial Banks (Excluding RRBs) which means it is applicable to all commercial banks irrespective of whether they are Indian banks or foreign banks or multi state co-operative banks. Since the circular cited now is issued previous to the circular issued for declaration of NPA, the guidelines as prescribed in the aforesaid circular has to be implemented first before declaring an account as NPA.

(b)     RBI Master circular DBOD No.BP.BC.10/21.04.048/ 2004-05 dated July 17, 2004 where in prudential norms are given. As per the said circular of RBI, mere irregularity in the account cannot make it a Non Performing Asset. It depends upon the nature of irregularity.

(c)     RBI circular RPCD.PLNFS.BC.No.31/06.02.31/2005-2006 dated August 19, 2005 highlights the “Policy Package for Stepping up Credit to Small and Medium Enterprises. – Further RBI circular RPCD.SME & NFS.BC.No.9/06.02.31/ 2010-11 dated July 1, 2010 under lending to Micro, Small & Medium Enterprises (MSME) Sector among other things states about  Debt Restructuring Mechanism for Micro Small and Medium Enterprises.

(d)     That as per Government of India policy and RBI guidelines and directives, it is apparent that an account can be classified as NPA only when all the means of making the account performing, which includes repeated rehabilitation fail to produce the desired result, and then and then only, the legal proceedings under Securitization Act 2002 can be invoked and proceedings initiated by issuing the notice u/s 13(2) of the said Act.

Note: The views expressed are my personal and a view point only.

(Author:  Author can be reached at Mobile-9229574214, E-mail: nkdewas@yahoo.co.in)

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0 responses to “Banks duties before declaring NPAs”

  1. SRINIVAS says:

    NPA is to be determined based on RBI prudential norms applicable to different class of borrowers.

    Bank software shall not be in control. The NPA shall be in control of Borrower or the Lending Bank in accordance with RBI norms for different class of Borrowers keeping the flexibility in terms of RBI guidelines on :

    1) Temporary deficiencies.
    2) Past Track Record.
    3) Privileged class of Borrower.
    4) Subjectivity / Conditional approval by Authorized officer based on Size of the account Etc.

    NPA is a part of any economy and cannot be eliminated, but requires restructuring and nursing for the benefit of society before decision of terminating is arrived at. A duty bound diligent officer only should have powers to Certify NPA who understands:

    1) Current Market trends.
    2) Industry / Borrower under reference.
    3) Abilities and strengths including Technology or USP of the Borrower.
    4) Past relation, Track record and ethics of the borrower.
    5) Past earnings from the Borrower.
    6) scope of Diversification, administration, Management Up gradation, Etc with the borrower.
    7) Etc., Etc.,

    All the above cannot be built in to computer even embedding the same with Human brain. Hence Human intervention is essential before the NPA Thunder bullet is shot at ailing borrower.

    Lending and Borrowing is also a business. Why Only Lender always dictates terms? Only Because RDDB 1993, SARFAESI 2002 etc Blinding them to wield swords at their customers take funny excuse Computers Etc., Which cannot be accepted. Ability to conduct Banking business cant be assigned to computer in totality.

  2. Abhay kumar sinha,Adv,patna high court says:

     dear sir,you have posted a very useful information and a sharp edged legal tools for handling banking cases before DRT.but  bankers now a days are taking action by ignoring  the mandates of law as they have got a favourable.PO of drt.

  3. Harish Bhatia says:

    What would be the systems NPA response towards Pre and post shipment advances guaranteed by ECGC or towards SME advances guaranteed by CGTMSE.
    How could you adjudicate threat to recovery till ECGC accepts or declines exporters claim under his buyerwise policy which normally takes 6 to 18 months to process?? RBI IRAC directives state that Central govt advances cannot be classified as NPA till invoked guarantee is declined.
    How do you define ‘threat to recovery’ in this case.

  4. vn kulkarni says:

    AS A BANKER I AM NOT IN AGREEMENT WITH THE AUTHOR.BECAUSE THE CLASSIFICATION OF NPA IS BASED ON RECORD OF RECOVERY.BANK IS NOT REQUIRED TO WAIT/OR TO GO THROUGH THE PROCESS OF IDENTIFYING THE LOAN WHICH BECOMES NPA.IF THERE IS THREAT TO REVOVERY,THEN STRAIGHT WAY THE LOAN BECOMES NPA.THE BANKING SOFTWARE DOES NOT GIVE ANY ROOM TO CONCEAL NPAS.

    • Narendra Sharma says:

      The statement “THE BANKING SOFTWARE DOES NOT GIVE ANY ROOM TO CONCEAL NPAS” is wholly irrelevant. The efforts are to be done with application of mind, not mechanically.KINDLY COME OUT OF THE STEREOTYPED APPROACH.
      In “Central Bank of India Vs Ravindra and Ors” {2001 AIR 3095, 2002(1) SCC 367, 2001(7) SCALE 351, 2001(9) JT 101; Date of Judgment: 18/10/2001} hon’ble Supreme Court of India has held that the instructions and guidelines issued by the RBI have STATUTORY FORCE, hence are of BINDING NATURE on the Banking Companies.
      FURTHER, as per Government of India policy and RBI guidelines and directives, it is apparent that an account can be classified as NPA only when all the means of making the account performing, which includes repeated rehabilitation fail to produce the desired result, and then and then only, the legal proceedings under Securitization Act 2002 can be invoked and proceedings initiated by issuing the notice u/s 13(2) of the said Act.REGARDS-N.K.SHARMA

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