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Non-performing assets constitute a crucial parameter to assess the financial health of banking institutions. Given this, the government is in the process of rolling out various measures to curb the ill effects of NPAs on the banking sector.
New powers for ARCs The government is planning to empower Asset Reconstruction Companies to deal with rising NPAs and debt recovery. ARCs will have a role in offering common guidelines for banks to make sure that the reserve price calculations are uniform and fair for banks and for defaulters. The RBI has also proposed setting up a Central Fraud Registry that will keep track of all financial crimes and will share the information with all banks and non-banking financial companies.
The CFR will, thereby, act as a protective cover, helping banks and NBFCs recognise intentional and likely defaulters who approach them.Another step taken in this context is the revised penal provision announced. In order to make company loans and corporate loans strictly adhere to the new guidelines, the RBI proposes to penalise wilful defaulters. According to the new guidelines, all wilful corporate defaulters, including the promoters and directors of the company, will be barred from taking loans from any bank or non-banking financial company for five years.
Rising NPAs Rising NPAs have been affecting the financial health of many public sector banks. If NPAs are under check, banks can be more lenient in offering loans, which will be helpful for the common man.
As a borrower, you should know that with an increase in NPA accounts, banks will be stringent on all loan defaulters. Banks are well within their rights to initiate recovery proceedings by liquidating the security offered, or by selling off the mortgage to recover their dues if the loan amount is not repaid on time. The Finance Ministry is ensuring that banks, especially PSU banks, are able to check their rising NPAs and grow organically. With NPAs in check, it would mean good news for new prospective buyers with a clean financial track record.
The writer is CEO of Bankbazaar.com
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