Non-performing Asset (NPA) means an asset for which:
With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the ‘90 days’ overdue’ norm for identification of NPAs, from the year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a non-performing asset (NPA) shall be a loan or an advance where;
- Interest and/or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan,
- The account remains ‘out of order’ for a period of more than 90 days, in respect of an overdraft /cash credit (OD/CC),
- The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,
- Interest and/or instalment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purposes, and
- Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.
Classification of Non-performing Assets:
Banks are required to classify non-performing assets further into the following three categories based on the period for which the asset has remained non-performing and the realisability of the dues:
- Sub-standard Assets
- Doubtful Assets
- Loss Assets
Regarding NPA, this can be discussed in my next article.
Rising level of bank Non-performing Assets raised concern in 1990s and committees headed by Narasimhan and Andhyarujina are asked to look into this matter as recovery posed legal problems and much time consumed in litigation and sale of assets. These committees suggested a new legislation for securitization and empowering banks and Financial institutions to take possession of the properties and securities and sell them without intervention of court and without allowing the borrowers to take shelter under laws like SICA/BIFR. Acting on their advice, the SARFAESI Act 2002 was passed.The act also recommended formation of asset reconstruction companies (ARC) / Securitisation companies(SCs).
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) empowers Banks / Financial Institutions to recover their non-performing assets without the intervention of the Court.
Pursuant to the announcement made by the Finance Minister in the budget speech for 2011-12, Government of India, Ministry of Finance notified the establishment of the Central Registry. The objective of setting up of Central Registry is to prevent frauds in loan cases involving multiple lending from different banks on the same immovable property. This Registry has become operational on March 31, 2011. The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), a Government Company licensed under section 25 of the Companies Act 1956 has been incorporated for the purpose of operating and maintaining the Central Registry under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
It may be noted that initially
a)transactions relating to securitization and reconstruction of financial assets and
b) those relating to mortgage by deposit of title deeds to secure any loan or advances granted by banks and financial institutions, as defined under the SARFAESI Act,
are to be registered in the Central Registry.
The records maintained by the Central Registry will be available for search by any lender or any other person desirous of dealing with the property. Availability of such records would prevent frauds involving multiple lending against the security of same property as well as fraudulent sale of property without disclosing the security interest over such property. It may be noted that under the provisions of Section 23 of the SARFAESI Act, particulars of any charge creating security interest over property is required to be filed with the Registry within 30 days from the date of creation.
Now banks have to register all their mortgages w.e.f. 2011 in the above registry which is compulsory. This is boon for all banks and problem for cheaters of bank loans who pledge/mortgage the same property in multiple banks.
C.R. Venkata Ramani