All about NPA's
What are NPA's (Non Performing Assets):A mortgage in default would be
considered non-performing, after a prolonged period of non-payment(90
days).
the lender will force the borrower to liquidate any assets that were
pledged as part of the debt agreement. If no assets were
pledged, the lenders might write-off the asset as a bad debt and then
sell it at a discount to a collections agency.
Here is an example to help you understand what NPA's are and how Banks
counter it-Mr. X decided to start a business for that he needed money
(the fuel) , X had 25% of the money in his pocket, he decided to go
through the route of Initial Public Offering(IPO) to generate 25% more
by offering his company shares to public , the remaining 50% he
borrowed from Lena bank by mortgaging his papa's land.Days passed and
the company started to do badly then to worse and the loan
installments lapsed month on month, Lena bank issued warning but X
continued the bad practice for more than 90 days (condition for NPA)
and the bank labeled X as defaulter and the loan as a Non Performing
Asset.
Now what X will do? He could take his case against the bank to Debt
recovery tribunal (DRT- A court for such cases).
What are Lena bank's options?In 2002, Govt. gave bank's a lifeline
called as SARFAESI Act (Securitization and Reconstruction of Financial
Assets and Enforcement of security interest Act)With this Act Lena
bank has the power to take possession of Mr.X's property or can
transfer this to some other ownership.
What bank will do with the acquired property? Bank can use this for
their own purpose like , opening a new branch on it, installing of
ATM's etc. Bank can advertise in newspapers for the auction of the
property acquired and could auction them on any pre decided
day.<!--[if !supportLists]-->Ø <!--[endif]-->Bank can sell the
property to ARC (Asset Reconstruction Company), these are registered
companies under RBI, they buy such assets from banks and sell them at
higher prices to gain profits.
NOTE- Total amount of NPA's are around 4.4% of the total assets of
banks in India and expected to increase to 4.7% till the end of FY'15
--
Thanks and best Regards
Yours'
Ram
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