NPA & SARFAESI
Banking · NPA और SARFAESI
📋Quick Overview
Non-Performing Asset (NPA) is a loan or advance where the borrower has stopped making interest or principal payments for 90 days or more. NPAs are a major concern for Indian banks as they reduce profitability and lending capacity. To deal with NPAs, India has the SARFAESI Act 2002 (which allows banks to seize assets without going to court), Asset Reconstruction Companies (ARCs), the Insolvency and Bankruptcy Code (IBC) 2016, and the National Company Law Tribunal (NCLT). In 2021, the government announced NARCL (National Asset Reconstruction Company Ltd.) — popularly called 'Bad Bank' — to absorb bad loans from banks.
NPA = loan overdue for 90+ days | SARFAESI Act 2002: banks can seize assets without court | IBC 2016: insolvency resolution | NARCL = Bad Bank (2021)
📖NPA Classification
| Category | Duration | Description | Provisioning |
|---|---|---|---|
| Standard Asset | Not overdue | Loan being repaid on time — not NPA | 0.40% |
| Sub-Standard | NPA for up to 12 months | Loan overdue 90+ days but less than 12 months | 15% |
| Doubtful | NPA for more than 12 months | Recovery is doubtful, may need write-off | 25-100% |
| Loss Asset | Identified as unrecoverable | Bank/auditor has identified it as total loss | 100% |
📝SARFAESI Act 2002
- •Full form: Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act
- •Enacted in 2002 — allows banks to recover NPAs without going to court
- •Banks can take possession of assets, sell/transfer them, or change management
- •Applicable for loans above ₹1 lakh only
- •NOT applicable to agricultural land
- •60-day notice period given to borrower before action
- •Borrower can appeal to DRT (Debt Recovery Tribunal) within 45 days
📝IBC 2016 & NCLT
- •IBC = Insolvency and Bankruptcy Code, 2016 — single law for insolvency resolution
- •Replaced multiple overlapping laws (SICA, CDR, etc.)
- •NCLT (National Company Law Tribunal) handles corporate insolvency cases under IBC
- •Time limit: 180 days for resolution (extendable by 90 days, max 330 days)
- •IBBI (Insolvency and Bankruptcy Board of India) is the regulator
- •IBC follows a 'creditor in control' model (Committee of Creditors decides)
📝NARCL — Bad Bank
- •NARCL = National Asset Reconstruction Company Limited
- •Announced in Union Budget 2021-22, licensed by RBI in 2022
- •Popularly called 'Bad Bank' — absorbs bad loans (NPAs) from banks
- •IDRCL (India Debt Resolution Company Ltd.) manages resolution of assets acquired by NARCL
- •Majority owned by public sector banks; IDRCL has majority private sector ownership
- •Government guarantee of ₹30,600 crore for security receipts issued by NARCL