Recovery of Bad Loans and Non-Performing Assets (NPAs)

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Empowering Financial Recovery: Comprehensive Solutions for NPAs and Bad Loan Retrieval

Recovery of Bad Loans and Non-Performing Assets (NPAs) is a major global concern for banks and other financial institutions. Enterslice provides comprehensive services for the recovery of bad loans and non-performing assets (NPAs) by providing legal advice and solutions. We offer a wide range of services, including asset tracing, enforcement, legal and regulatory compliance, negotiation with defaulting parties, and assessing and restructuring distressed assets. With the help of our skilled professionals, work with them to develop efficient recovery plans that minimize losses and optimize the likelihood of NPA resolution.

What are Non-Performing Assets (NPAs) and Bad Loans?

Non-performing Assets (NPAs), sometimes referred to as bad loans, are loans on which the borrower has stopped making payments or is routinely unable to fulfil the repayment requirements when interest or principal payments are not made on these loans for a predetermined amount of time, usually 90 days or more, as they are labelled as non-performing assets (NPAs).

What Is a Non-performing Asset?

A non-performing asset (NPA) is a financial instrument in which the borrower has defaulted to the designated lender for a lengthy period of time on all previously agreed-upon principal and interest repayments. Therefore, the lender is not receiving any revenue in the form of interest payments from the non-performing asset.

Types of Non-Performing Asset (NPA)

A loan is divided into three categories based on how long it has remained a non-performing asset (NPA):

Types of NPAs


Substandard Assets

An asset that remains non-performing for a period of less than 12 months

Doubtful Assets

An asset which remained non-performed for a period of more than 12 months.

Loss Assets

Even though the bank or RBI has recognized an asset as lost, it can still have some value left in it. As a result, the loan hasn't been entirely written off.

Sub-Standard Assets

First, a sub-standard asset was identified and designated as a non-performing asset (NPA) for a maximum of two years. But on March 31, 2005, the RBI modified the timeframe to twelve months, making an asset that had been an NPA for a while but was now a sub-standard asset capable of a year. In these situations, an asset will have clearly defined credit weaknesses that imply the borrower is unable to conceal all of his liabilities and exposure, endangering the debt's liquidation and raising the possibility that the banks will suffer some loss if the flaws aren't fixed.

Doubtful Assets

A doubtful asset was one that remained an NPA for more than 12 months; nevertheless, the RBI increased the length to 12 months on March 31, 2005. In addition to having all of the same doubts as assets classified as sub-standard, a loan that is deemed doubtful has the additional characteristic that its doubts make the borrower's full collection or liquidation extremely unlikely, given the current circumstances, facts, and values.

Loss Assets

When the amount has not been written off wholly, but the loss has been identified by the RBI, external auditor, or internally by the bank, then this asset is classified as a loss asset.

These are the three groups that non-performing assets are put into. Banks can now effectively and fairly designate assets as non-performing by following standards established by the RBI. In summary, these guidelines specify that when classifying assets into the aforementioned categories, consideration should be given to the degree of clearly defined credit weaknesses and, consequently, the degree of reliance on collateral security (e.g., shares, land, promoter guarantee, etc.) for the payment of outstanding debts.

Causes of non-performing assets

  • Money is being invested in fraud and unrelated ventures.
  • Company losses as a result of modifications to the regulatory and corporate environment.
  • Low morale, especially in the wake of government programmes that eliminated debt.
  • Financial crises on a global, regional, or national scale cause businesses' margins and earnings to decline; this stresses their balance sheet and ultimately leads to non-payment of interest and loan payments. (For instance, the world financial crisis of 2008).
  • For instance, the overall slowdown in the economy led to a greater increase in non-performing assets (NPAs) once the Indian economy slowed down after 2011.
  • Due to the downturn in a particular industrial sector, businesses operating in that sector suffer, and some may even go bankrupt.
  • Unplanned corporate house growth during the boom and low-rate loans that were subsequently serviced at high rates led to NPAs.
  • Because of corporate mismanagement, such as deliberate defaulters.
  • Loans become non-performing assets (NPAs) as a result of poor governance and policy gridlock that slows down project timelines and speeds. Take the Infrastructure Sector, for instance.
  • Land acquisition is being delayed for environmental, social, political, and cultural reasons.
  • A dishonest lending technique that involves providing loans without verifying the credentials.
  • Because of natural occurrences like disease outbreaks, floods, droughts, earthquakes, tsunamis, etc.
  • Due to dumping, cheap imports cause domestic businesses to go out of business. Take the Indian steel industry, for instance.

What effects can NPAs have?

  • The profit margins of lenders decline.
  • Stress in the banking industry reduces the amount of money available to finance other initiatives, which has a detrimental effect on the country's overall economy.
  • Banks raise interest rates in order to preserve their profit margin.
  • Transferring money to the failing initiatives from the successful ones.
  • One possible outcome of investment stalling is unemployment.
  • When it comes to public sector banks, poor bank health translates into poor shareholder returns, which reduces dividend payments to the Indian government.
  • As a result, it could affect how easily funds are allocated for the development of infrastructure and society and have an adverse social and political impact.
  • Investors do not receive returns that are fair.
  • The stressed balance sheets of India's business sector and banks lead to a balance sheet syndrome that halts the investment-led development process.
  • Matters involving NPAs put additional strain on court matters that are already on the docket.

Strategies for NPA

The Debt Recovery Tribunals (DRTs) – 1993

The Debt Recovery Tribunal is controlled by the Financial Institutions Act 1993. In many places, cases remain unresolved for over two to three years due to their insufficient number, which also causes a delay in processing.

An Asset Reconstruction Company(ARC), a company that specializes in collecting bad debts, can purchase bad loans and NPAs. Subsequently, ARCs might employ diverse techniques to tackle debt recovery.

Lok Adalats

Institutions supporting Lok Adalat assist banks in resolving conflicts about "loss" and "doubtful" assets with an outstanding balance of Rs. 5 lakh and are eligible for compromise settlement under Lok Adalat. The ability to convene Lok Adalats to deliberate on cases involving NPAs of at least Rs. 10 lakh has been granted to debt recovery tribunals.

Compromise Settlement

A negotiated arrangement between a bank and a borrower is known as a compromise settlement. In accordance with the terms of the loan agreement, the borrower proposes to pay the bank less than the full amount owed. The bank consents to take this sum as complete and final payment for its obligations.

One non-legal way to lower a bank's non-performing assets (NPAs) is compromise settlement. They may lead to:

  • Early repayment of debts
  • savings of the bank on other costs and legal fees
  • Declines in NPAs

Negotiating compromise solutions with or without remission or dues composition is possible. The compromise sum may be paid out over a maximum of 12 to 18 months.


The SARFAESI Act of 2002 deals with the securitization, reconstruction of financial assets, and enforcement of security interests. Through acquiring and disposing of secured assets in NPA accounts with an outstanding balance of Rs. 1 lakh or more, the Act enables Banks and Financial Institutions to recover their Non-Performing Assets (NPAs) without needing court intervention. The banks must first publish a notification. When the borrower defaults, they can then:

  • Assume that of the security and/or administration of the borrowed company.
  • Additionally, this Act was modified a year ago to expedite its enforcement.

Insolvency and Bankruptcy Code Act-2016

It was developed to address the Economic Survey of India's exit issue. This law aims to maximize the value of such individuals' assets and matters related to or incidental to them by consolidating and amending the laws relating to the timely resolution of corporate insolvency and reorganization, partnership firms, and individual insolvency, as well as to balance the interests of all stakeholders.

The Supreme Court, the Board for Industrial and Financial Reconstruction (BIFR), the Debt Recovery Tribunal (DRT), and the Company Law Board (CLB) were the first four forums to understand the benefits of insolvency and bankruptcy. However, with the implementation of the IBC, the role of these forums was diminished because all matters pertinent to the code were now required to be filed with the National Company Law Tribunal (NCLT). The primary goals of the IBC are to reduce the backlog of lengthy court cases while simultaneously providing banks with prompt remedies against non-performing assets.

A firm debtor who has fallen behind on payments may start the IRP, or the creditors may start it. Creditors ' claims should be resolved within 180 days after the IRP's inception. During that time, they will consider resurrection suggestions and decide the best course of action going forward. 75% of economic creditors are required to follow a restoration strategy within those 180 days.

The government enacted the Insolvency and Bankruptcy Code Ordinance of 2020, which suspends the application of sections 7, 9, and 10 of the code. This is intended to prevent insolvency for corporate entities that are in default due to the disruptions brought on by the coronavirus pandemic. The Insolvency and Bankruptcy Code essentially assists in handling the debt recovery from Non-Performing Assets (NPAs), enabling banks to effectively retrieve their debt and release themselves from the NPA burden, hence maintaining the health and avoiding undue stress on banks and financial institutions.

We recover bad loans through legal avenues, including lawsuits and insolvency proceedings

Our experts at Enterslice are proactively engaged in providing legal assistance for the recovery of bad loans and non-performing assets (NPAs). We work closely with clients, and our dynamic approaches to serving clients include the filing of lawsuits, initiating insolvency proceedings specified under the Insolvency and Bankruptcy Code (IBC), and utilizing several legal strategies to claim remedy for our client business. We have a team of experts who are well-versed in the industry landscape and actively engage in optimizing the outcomes and increasing the possibility of successfully recovering bad loans or Non-performing assets (NPAs). We offer a wide range of legal services, including diverse measures, to ensure an effective and efficient recovery of bad loans and Non-performing assets (NPAs). Utilizing our legal assistance, businesses can easily navigate the complex legal landscape to maximize their chances of a successful recovery of bad loans and non-performing assets (NPAs) resolution.

We offer Debt Recovery Management Services to recover bad loans or Non-Performing assets (NPAs)

Our experts at Enterslice offer valuable support to manage the debt recovery of bad loans and non-performing assets (NPAs) effectively. Our team works closely with the clients and maintains ongoing proper monitoring and tracking of non-performing assets (NPAs) accounts and ensures an effective and proactive measure is implemented for debt recovery of bad loans or non-performing assets (NPAs). It includes close communication and coordination with the default borrowers, facilitating an open communication method to understand their financial status, etc. Moreover, our experts implement strategic recovery steps to optimize the chances of successful debt recovery of bad loans and Non-performing assets (NPAs). By leveraging innovative strategies and using advanced industry practices, we contribute to streamlining the entire debt recovery process of bad loans and non-performing assets (NPAs) for client businesses.

We offer Expert Financial Guidance to Manage NPAs through Restructuring and Sales Strategies

At Enterslice, our experts are well-versed in the financial landscape and specialized in delivering expert financial advice in accordance with the specific needs of our client businesses to manage non-performing assets (NPAs) effectively. We offer a wide range of recovery services for bad loans and non-performing assets (NPAs), which go beyond client expectations to provide them with expert strategic guidance to handle non-performing assets (NPAs). It includes a thorough analysis of available options with a focus on restructuring or advising on the sale of bad loans, etc.

We offer Expert Negotiation for Amicable Settlements with Defaulting Borrowers

We provide expert guidance in the negotiation process to deal with defaulting borrowers. Our experts are more likely to advise that focused on achieving settlements and ensuring clients recover the maximum amount from their bad loans or non-performing assets (NPAs). Our strategic negotiation is aimed at optimizing the recovery of bad loans and non-performing assets (NPAs) outcomes and ensuring our clients can secure the equivalent of their outstanding loans as much as possible by maintaining cooperative and mutually beneficial relations with their defaulting borrowers. We assess a thorough analysis of the financial landscape and consider diverse factors, including the market trends, regulatory frameworks and norms, and considering the unique circumstances of each client. We work closely with clients and help develop and implement effective and efficient plans for the recovery of bad loans and non-performing assets (NPAs).

Frequently Asked Questions

Non-performing assets (NPAs) can be recovered using a number of methods, including asset reconstruction, debt recovery tribunals, the SARFAESI Act, the Insolvency and Bankruptcy Code, and Lok Adalats.

Bad loans, also known as non-performing assets (NPAs), are the assets owned by banks that don't perform or provide any return. Customer advances and loans make up the bank's assets. Customers' loans become bad loans if they fail to pay the principal amount, interest, or both.

Guidelines issued by RBI to loan recovery agents

The agent must bring a copy of the authorization letter and the bank's notification when they visit the defaulter. Until a borrower's complaint has been settled or rejected, banks are not allowed to forward the matter to a recovery agency.

Banks use techniques including asset reconstruction, debt recovery tribunals, and Lok Adalats to deal with non-performing assets (NPAs).

The loan account is categorized as a Non-Performing Asset (NPA) if the interest or principal principal has not been paid for 90 days or more. When a day's past due count (DPD) hits '0', an asset that has been classed as NPA will return to the 'Standard' category.

When a borrower doesn't make principal or interest payments on a loan for 90 days or longer, the loan is considered a non-performing asset (NPA). The bank must keep trying to recoup the debt through a variety of means even after the write-off. Additionally, the written-off amount needs to be budgeted for.

If you are unable to return the loan within the allotted time, banks will dispatch recovery agents to collect the outstanding balance from you. The Debt Recovery Tribunal makes fast loan recovery possible under banking law.

The Limitation Act 1963, which establishes the time limits for various situations, contains legislation pertaining to the statute of limitations for debt collection. The statute of limitations for debt recovery is three years from the date of the loan.

This 2002 law mandated that debtors return their loans within 180 days of the order's date of issuance. The Debt Recovery Act governs all debt recovery cases in India.

Sub-standard asset: A non-performing asset qualifies as a sub-standard asset if it is past due by at least 12 months. Assets deemed doubtful are those that have been non-performing for a period beyond a year. Loss Asset: An asset is considered a loss asset if it is not used for more than three years.

As of March 2023, the gross non-performing assets ratio for Indian banks has dropped to 3.9%, a ten-year low, according to the Reserve Bank. As of March 2023, the gross non-performing assets ratio for Indian banks dropped even lower, reaching a ten-year low of 3.9%, the Reserve Bank reported on Wednesday.

Minister of State for Finance Bhagwat Karad informed the Lok Sabha in writing that Scheduled Commercial Banks (SCBs) had recovered an aggregate of Rs 2,04,668 crore in written-off debts, including corporate loans, from April 2014 to March 2023.

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