Non performing Assets (NPA) is the root cause of global financial crisis and the regularly increasing volumes of NPA in banks and sluggish recovery of NPAs has hit the bottom line of Banks. It requires a look for the solution from a new perspective and means as the net non-performing assets (NPAs) of banks had gone up 51% in FY13 to RS.92825/- crores. According to a recent CRISIL report, the gross NPAs of banks are slated to increase from 3.3% in March 2013 to 4% by March 2014. The data, shared with the Standing Committee, shows that NPAs in the corporate sector are far higher than those in the priority or agriculture sector. RBI governor Mr. Raghuram Rajan has recently said that NPAs must be curbed before the problem becomes alarming.
NPAs at the Global Level
A closer look at the Non-performing Loans (NPL), as they are called in many nations, reveals in collecting data that the NPL at the global level was US$ 1,300 billion. India ranks fourth with NPL of around US$ 30 billion (2.3 per cent of the global NPL), while Japan has the highest NPL of US$ 330 billion (25.4 per cent of the global NPL) and Turkey has the lowest NPL of US$ 8 billion (0.6 percent of global NPL).
Table 1: Global Non-performing Loans
| Countries | NPLs (US$ billion) | Share in Global (per cent) |
| Japan | 330 | 25.4 |
| China | 307 | 23.6 |
| Taiwan | 19.1 | 1.5 |
| Thailand | 18.8 | 1.5 |
| Philippines | 9 | 0.7 |
| Indonesia | 16.9 | 1.3 |
| India | 30 | 2.3 |
| Korea | 15 | 1.2 |
| Germany | 283 | 21.8 |
| Turkey | 8 | 0.6 |
| Global | 1300 | 100 |
Source: Global NPL Report 2004, Ernst and Young.
Legal Mechanism to recover NPA: SARFAESI Act
This act was passed with the aim of enabling banks and financial institutions to realise long-term assets, manage the problem of liquidity, reduce asset liability mismatches and improve recovery by taking possession of securities, selling them and reducing NPAs. The ordinance also allows banks and financial institutions to utilise the services of ARCs/SCs for speedy recovery of dues from defaulters. In addition to passing the SARFAESI Act, certain other legal reforms were also introduced to speed up the loan recovery process.
Now the question arises whether the banks were able to reduce the pendency of NPA accounts inspite of introducing of such acts. The statics shows that it is increasing and introduction of said act has not serve their purpose fully.
Table : NPAs Recovered by SCBs through Various Channels (Rs crores)
| One-time Settlement/ | LokAdalats | DRTs | SARFAESI Act | ||
| compromise Scheme | |||||
| 2003-04 | |||||
| No of cases referred | 139,562 | 186,100 | 7,544 | 2,661 | |
| Amount involved | 1,510 | 1,063 | 12,305 | 7,847 | |
| Amount recovered | 617 | 149 | 2,117 | 1,156 | |
| 2004-05 | |||||
| No of cases referred | 132,781 | 185,395 | 4,744 | 39,288 | |
| Amount involved | 1,332 | 801 | 14,317 | 13,224 | |
| Amount recovered | 880 | 113 | 2,688 | 2,391 | |
| 2005-06 | |||||
| No of cases referred | 10,262 | 2,68,090 | 3,534 | 41,180 | |
| Amount involved | 772 | 2,144 | 6,273 | 8,517 | |
| Amount recovered | 608 | 265 | 4,735 | 3,363 | |
| 2006-07 | |||||
| No of cases referred | — | 1,60,368 | 4,028 | 60,178 | |
| Amount involved | — | 758 | 9,156 | 9,058 | |
| Amount recovered | — | 106 | 3,463 | 3,749 | |
| 2007-08 | |||||
| No of cases referred | — | 1,86,535 | 3,728 | 83,942 | |
| Amount involved | — | 2,142 | 5,819 | 7,263 | |
| Amount recovered | — | 176 | 3,020 | 4,429 | |
| 2008-09 | |||||
| No of cases referred | — | 5,48,308 | 2,004 | 61,760 | |
| Amount involved | — | 4,023 | 4,130 | 12,067 | |
| Amount recovered | — | 96 | 3,348 | 3,982 | |
Source: RBI
How effective are these changes? This calls for a closer look at the NPA trends in the recent past.
New Innovative Solutions
We have to improve the efficiency of the recovery system and an online settlement platform seems to be a new dependable mechanism and can prove to be a very effective solution for NPA’s. It will find many defaulters at a click of the mouse who intend to settle their account moreover, there will be no face to face meeting during negotiation which the defaulter usually avoided after the declaration of his/her account as NPA. Moving to online settlements is likely to give a substantial boost to present sluggish recovery of NPA s and hence an effective solution to ever increasing perennial problem of banking sector and the borrowers. Also this step can be helpful for the curing the disease of NPAs.
