First understand the purpose of NPA. Non Performing Assets are those assets, that shows signs of becoming bad in due course. Instead of writing the entire amount as bad debt once for all later, knowing that this asset may not fetch any income, applying periodical interest and building up income on an account where principal recovery is doubtful is not a prudent practice.
That means NPA is a symptom for a chronic disease and that must be prevented by taking corrective action. Periodical provision over a period of time has to be made, and interest should not be debted to the account as recovery of even principal is doubtful. According to this forumulae all borrowal accounts (Assets) are to be Divided into Standard Assets where recovery of both principal and interest is certain, Sub standard assets where the accounts show symptoms and warning signals, doubtful assets where securities are there for certain amount and loss assets where both principal and interest can never be recovered. So a borrowal account slowly falls from one category to other if they are not standard assets, depending on value of security. Now point wise reply to your queries.
1)The bank is not concerned with cash crunch, the amount that was utilised in sanctioned amount at all. It is concerned with maintenance of their borrowal account alone. Internal cash generation is not Bank's problem. Bank is only concerned as to whether agreed EMI of Rs.20,000/- is being regularly by borrower.
2)Normally if the overdue installments are more than 6 they will disclose it as substandard type. (Borrower is not concerned. Bank stops showing interest income received on such borrowal account as their income)
3)One can not decide and guess what Bank can do, as it depends on circumstances. If it is a movable asset, under hypothication they can confiscate it, if it is pledged serve notice and auction it, if it is immovable or fixed they may contemplate action depending on other collateral and present running condition of the business.
A banker can never kill business. Till last minute, he helps to make it survive and supports. Legal action is last and final in case of deliberate, malafide actions of borrower as they are responsible for timely recovery and they are accountable for lapses.
