Management of Non Performing Asset (NPA)

Importance of Training

The advent of banking reforms in India has brought the concept of NPA (Non Performing Asset) which has changed drastically the perception and approach of the bank and the customer when dealing with loans financed by the bank. The attitude of the bank and the borrower has created a divide between them leading to misunderstanding and distrust. The divide has widened with the enactment of the SARFAESI ACT (The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) where in the bank is empowered to take over the secured assets without the intervention of the court. The prudential norms introduced on account of the banking reforms have generated more pressure on the performance and profitability of the banks. The alarming increase in the NPA has lead to resort to more stringent and desperate measures by the banks with their new found strength derived out of SARFAESI ACT to regularise and recover their loans. There exists a feeling among the aggrieved defaulted borrowers that SARFAESI ACT is a draconian law and the bank use harsh methods of invoking the SARFAESI ACT without understanding their problems and predicaments that borrowers face. They complain that the bank does not distinguish between a willful defaulter and a defaulter due to circumstances beyond his control. The basic problem is that while the bank thinks that the borrower is responsible for the account becoming NPA, the borrower on the other hand believes that the many wrong doings of the bank are the reasons for his account becoming NPA. Thus there is a stalemate and an aberration in the respective thinking and approach. The circumstances now prevailing with regard to the recovery of dues from the borrowers, rightly or wrongly, add more woes to the borrower customers because of the tilt and bias in favour of banks and financial institutions by Debts Recovery Tribunals, Legal Courts and the Government. 

A new dimension has come with the repeal of Sick Industrial Companies Act (SICA) with effect from December 1, 2016 and the protection u/s 22(1) of SICA has also ceased from 1-12-2016. However the companies have been allowed 180 days time to make fresh reference before National Company Law Tribunal (NCLT) under the recently notified 'The Insolvency and Bankruptcy Code, 2016' (The Code) & regulations issued there under. NCLT has powers under Sec 14 of the Code to declare moratorium for prohibiting: (i) Institution and Continuation of Suits (ii) Transfer of Assets / Legal Rights (iii) Any action under SARFAESI Act and (iv) Recovery of Property be Owner or Lessor. Besides an expert Resolution Professional of borrower’s choice can be appointed by NCLT to resolve impending debt and achieve amicable resolution.

What are the reasons for such divergent views? The basic reason is lack of effective communication between the bank and the borrower. Communication can make or mar a relationship. The purpose of effective communication is to understand and to be understood and the result is the creation of trust between the bank and the customer which is the key that opens all doors. In any relationship, the essence of trust is not in its “bind”, but in its “bond”.  Communication, if effective, leads to co-operation that is to say to understand each other creating an intimate relationship valuing each other views. So it is with the bank and its customer. Acceptance comes out of understanding and acceptance can lead to better customer banker relationship. The banker customer relationship is complimentary to each other and not contradictory.

But how a congenial and conducive atmosphere of trust and understanding can be built up? If only the banker and the borrower can understand their respective roles and duties and responsibilities and how are they interconnected with their mutual welfare in their correct perspectives, then only can there be an everlasting enduring and endearing relationship.  The banker has certain rights and so also the customer. But no one should overlook the fact that a right is derived out of a duty first o be performed. Hence the imperative necessity is that the rights and the responsibilities of the banker and that of the customer are to be defined precisely and without any ambiguity.

In view of what has been stated above, it is imperative that there has to be a basic understanding between the bank and the borrower through effective communication which will lead to an everlasting relationship creating mutual trust and confidence in each other which will solve the problems and predicaments already existing, being faced presently and also any impending adverse happenings. Therefore it is essential that reality knowledge and the mental acumen to foresee the impending problems is very essential for which the knowledge regarding banking and the laws connected with banking are to be understood in their correct perceptive. To achieve a perennial solution  the need of the hour is to inculcate such knowledge about banking with its various complexities which are necessarily to be understood, for which periodical trainings are to be undertaken  through workshops to educate the entrepreneur borrowers and the banking staff about the importance of maintaining a cordial and congenial mutual relationship between the bank and customer and also about the updated law and practice of banking and the inter connected roles between the bank and the customer. Training is the essence of transformation leading to commitment culminating in cherishing the good result that the bank and the borrower ardently seek.