Indian Banks are sitting on volcano of Non-Performer Assets (NPAs) estimated at about Rs.9.5 Lakh Crores which are ultimately affecting the economic progress of the nation. It is important to note that Banks are not only serving the social objectives of the country but also ensuring easy cash flow which is paramount for upward growth of the economy. The Narasimham and Verma committee mandated the curbing of measures of NPAs which ultimately r esulted into enactment of SARFAESI Act.

There are several mechanism available to the bank or financial institution as legal measure, strategic tool and regulatory measure to control the menace of NPAs.

RBI had framed guidelines for bank/individul financial institutions to highlight the status of stressed borrowers and to furnish the details to the RBI which are being stored in a central database :- Central Repository of Information on Loan Credits (CRILC). Bank/Financial institutions are required to submit monthly reports of all the borrowers with an aggregate fund-based and non-fund based exposure of Rs 5 Crores or more under the CRILC guidelines. Bank are also supposed to report weekly to the borrower about the same The guidelines also require institutions to segregate borrowers as Special Mention Accounts of various levels to determine their probability of going delinquent. It is important for the bank that before a loan account turns into an NPA, banks are required to identify incipient stress in the account by creating a sub-asset category viz. ‘Special Mention Accounts’ (SMA) SMA-0:- Payment of principal or interest payment not overdue for more than 30 days ; SMA-1:- Payment of principal or interest overdue between 31-60 days & SMA- 2:- Payment of Principal or interest overdue between 61-90 days.

Banks are advised by the RBI that as soon as an account is reported by any of the lenders to CRILC as SMA-2, they should mandatorily form a committee to be called Joint Lenders’ Forum and thereafter, there was schedule of Strategic Debt Restructuring Scheme, Corporate Debt Restructuring and Scheme for Sustainable Structuring of Stressed Assets (S4A Mechanism). However, on account some high profile matter related to huge NPAs , on 13th F ebruary, 2018 RBI had withdrawn certain scheme which includes Corporate debt Restructuring Scheme (CDR), Flexible Structuring of Long term project loans (also known as 5/25 Scheme), strategic debit restructuring scheme (SDR) and Scheme for Sustainable Structuring of Stressed Assets (S4A). The RBI has also withdrawn Joint Lenders Forums (JLF) as an institutional mechanism for resolution of stressed accounts.

The Recovery of Debts due to Bank and Financial Institution Act, 1993 enables banks in the swift adjudication of cases related to recovery of bad loan of and above Rs 10 lakh within time frame.

SARFAESI Act enables banks and financial institution to sell secured assets to recover loans. Section 13 empowers the banks and financial institutions to take possession of secured assets from the defaulters without approaching the courts if the loan is categorized as a NPAs. The bank may take possession of secured assets within sixty days of serving the notice to the defaulter with the assistance of Chief Judicial Magistrate. An authorized officer of the bank may commence the proceedings under the Act where the bank may demand remaining complete loan amount be refunded together with interest.

The Insolvency and Bankruptcy Code, 2016 is to consolidate and amend the laws relating to re-organisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto. The code provides a framework to either resolve distress in a company or to liquidate the company. The regulations for the liquidation process are part of the rules notified by the Insolvency and Bankruptcy Board of India to implement the code. The National Company Law Tribunal is to be the applicable adjudging authority to manage corporate insolvency cases under the Code. RBI also encouraging IBC to be used as a main instrument for resolution of stressed assets where the banks are not able to work out any other resolution.

Asset reconstruction companies ( ARCs ) are formed under Section 3 of the SARFAESI Act. The primary objective of ARC is rapid disposal of bad assets owned by banks to clean up their balance sheets and thus enable banks to focus on usual and normal banking activities rather than routing their efforts and resources towards recovery. The ARCs recover a sum through attachment, liquidation and securitization.

The civil suit is one of the time consuming recovery procedure available to banks and financial institutions by filing simple money suit for recovering outstanding amount. The Bank can also file a summary suit under Order 37 Code of Civil Procedure 1908. The summary suits are comparatively disposed of faster than ordinary suits.

The Bank may use the Arbitration proceeding to recovery the loan amount if the agreement contain arbitration clause and after the award and get it enforced through Debt Recovery Tribunal. Recently, in the case of Kotak Mahindra Bank Ltd. Vs. Baun Foundation Trust before the Hon’ble Bombay High Court issue of whether the award in the hand of the Bank enforceable under RDBBI Act or under Section 36 of Arbitration and Conciliation Act, 1996 come up for hearing which is still pending.

One Time Settlement (OTS) is a dispute redressal and settlement mechanism reached upon by mutual consent and agreement. It is a negotiated settlement with certain benefits foregone and certain components of advantage sacrificed on part of all the parties to the dispute. It is a non-legal remedy for reduction of NPAs of the Bank. Negotiated compromise settlement is made to enhance the compromise amounts and make a win-win situation.

Despite aforesaid measures still banks are foisted with the pain of sore like NPAs which require government to take tough measure in all dimension in consultation with RBI, banks / financial institution, borrower, auditors and experts