By : M.S.Yatnatti Editor and Video Journalist Bengaluru : Reportedly The RBI's asset quality review in 2015 pushed up the level of gross NPAs to large industry from a little under Rs 1.2 lakh crore at the end of March 2015 to Rs 5.3 lakh crore at the end of last December a jump of four-and-a-half times in 33 months. Indiscriminate lending in boom years and the Reserve Bank of India's (RBI's) pressure on banks to recognise sticky assets on their books have resulted in some lenders having to classify over 40% of their loans to large industry as non-performing assets (NPAs), or bad debt, putting pressure on their profits.
According to RBI's timelines :If the account does not reflect credits into the account, 90 days preceding the date of balance sheet of the firm. Temporary deficiencies like late/ non-submission of stock statements or balance outstanding exceeding the drawing power, non-renewal of limits should not get categorized as NPA. And If the borrower does not pay three instalments continuously after 90 days but up to 12 months the account becomes sub-standard and NPA. Section 13 (2) empowers the Bank/ FI to serve a notice to the borrower for taking possession of the assets held as security for the money lent by it. But there is precursor to this action: the Bank/FI shall serve notice to the borrower to discharge his full liabilities within 60 days from the date of notice that should also detail out the legal consequences and penal provisions. Going by these two directions under the Act, the borrower should be getting at least 17 months' time before the Bank could proceed against the defaulting MSMEs.The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 is a powerful instrument in the hands of the banks and financial institutions (FIs) as secured creditors. This Act helps them enforce securities held as collateral to loans disbursed by them should such loans turn out as non-performing assets (NPAs) during the currency of the loan without interference from the Courts. Section 13 of the Act gives power to the secured creditor even to evict the tenant. It is our observation that the banks have been overenthusiastic in taking recourse to SAFRAESI Act provisions as a first resort of recovering the micro, small and medium enterprises (MSME) loans, mostly violating guidelines of Reserve Bank of India (RBI).