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Loan Defaulters Beware: Banks To Begin Recovery Even Before An Account Is Declared NPA
To expedite the grim stressed asset situation, recent ordinance passed allows banks to begin the recovery process early even before the loan account is classified as NPA.
The approval of the President of India to overhaul the Banking Regulations Act in respect of NPAs which has been the curse of the banking industry for long is set to change the dynamics of the industry. As per the RBI, an NPA is a account on which the payment of interest amount or principal is overdue for a period of more than 90 days.
Recent changes that empower banks with greater powers for faster resolution on the NPA front, allow banking entities to begin the recovery procedure against loans which as per banks can default. Now the default shall partake any failure of repayment of interest or principal amount as per the Bankruptcy Laws.
In one of the reports, The Insolvency and Bankruptcy Board of India, clearly specifies that hereon the definition of Default shall now be taken as per the Insolvency and Bankruptcy Code. And for the resolution of the asset well in advance, bankers now do not have to wait for a period of 90 days for the formal announcement of a loan account as an NPA.
Each of the decision as to whether the timing is right or not to initiate mitigation process against a particular account lies with the bank.
For dealing with the account and recover outstanding amount, creditor's panel shall decide on the liquidation or the likely revival procedure or plan within a time period of six months time. Nonetheless, the enactment on a swift basis is expected to be done for extreme accounts and not become a regular phenomena.
"I don't think RBI will jump in tomorrow and say these are the 10 cases I want to take to IBC. I don't think the regulator will jump in and exploit their right just because they have it." said a senior official in one of leading business daily report.
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