Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL)

The Reserve Bank established BRBNMPL in February 1995 as a wholly-owned subsidiary to augment the production of bank notes in India and to enable bridging of the gap between supply and demand for bank notes in the country. The BRBNMP L has been registered as a Public Limited Company under the Companies Act, 1956 with its Registered and Corporate Office situated at Bengaluru. The company manages two Presses, one at Mysore in Karnataka and the other at Salboni in West Bengal.

National Bank for Agriculture and Rural Development (NABARD)

National Bank of Agriculture and Rural Development (NABARD) is one of the subsidiaries where the majority stake is held by the Reserve Bank. NABARD is an apex Development Bank with a mandate for facilitating credit w for promotion and development of agriculture, small-scale industries, cottage and village industries, handicraft and other rural craft. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas.

Categories of NPAs

Banks are required to classify non-performing assets further into the following three categories based on the period for which the asset has remained non-performing and the realisability of the dues:

Substandard Assets

With effect from 31 March 2005, a substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. In such cases, the current net worth of the borrower/guarantor or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full.

Doubtful Assets

An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full � on the basis of currently known facts, conditions and values � highly questionable and improbable.

Loss Assets

Loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection, but the amount has not been written o wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

SARFAESI Act, 2002

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, allows banks and financial institutions to auction properties (residential and commercial) when borrowers fail to repay their loans. It enables banks to reduce their non-performing assets (NPAs) by adopting measures for recovery or reconstruction.

If a borrower defaults on repayment of his/her home loan for six months at stretch, banks give him/her a 60-day period to regularize the repayment, that is, start repaying. On failure to do so, banks declare the loan an NPA and auction it to recover the debt.

Non-Performing Assets in Public Sector Banks:

The details of Gross Advances, Gross Non Performing Assets (GNPA) and Gross NPA ratio of Scheduled Commercials Banks (SCBs) and Public Sector Banks (PSBs) for last three years are as under:

Scheduled Commercial Banks (Rs. In Crore)

Gross Advances Gnpa Gnpa Ratio
FY 2014 61,01,775 2,51,060 4.11%
FY 2015 66,92,522 3,09,408 4.62%
FY 2016 72,86,952 5,41,763 7.43%
Public Sector Banks (Rs. In Crore)
Gross Advances Gnpa Gnpa Ratio
FY 2014 45,90,458 2,16,739 4.72%
FY 2015 49,17,228 2,67,065 5.43%
FY 2016 51,16,985 4,76,816 9.32%

Main reasons for increase in NPAs of banks are sluggishness in the domestic growth during the recent past, slowdown in recovery in the global economy and continuing uncertainty in the global markets leading to lower exports of various products like textiles, engineering goods, leather, gems, external factors including the ban in mining projects, delay in clearances affecting Power, Iron & Steel sector, volatility in prices of raw material and the shortage in availability of power have impacted the operations in the Textiles, Iron & steel, Infrastructure sectors, delay in collection of receivables causing a strain on various Infrastructure projects, aggressive lending by banks in past.

Various Measures Taken to Deal with the NPAs in the Banking Sector:

The Government has taken various measures to deal with the issue of Non-Performing Assets (NPAs) in Banking Sector especially in case of Public Sector Banks (PSBs). There are two categories of defaulters, viz. those who are unable to pay back due to economic slowdown both in domestic and global market and other reasons outside their control as well as willful defaulters including loans sanctioned without due diligence by the banks. The Government has taken various measures to deal with both these categories of defaulters.

In order to deal with default due to economic slowdown, the Government has taken various measures to revive the stressed sectors which mainly include steel, textiles, power and roads among others. The Government has also done re-capitalization of banks by providing Rs. 25,000 crore in the last year Union Budget 2015-16 as well as in this year�s budget 2016-17. Transparency and professionalism has been brought in appointment process for top management positions in the PSBs including Chairmen and Managing Directors. The Government has taken various measures to make the management professional, has given full autonomy to the banks in taking commercial decisions without any interference from the Government.

The Bankruptcy Law has been cleared by the Joint Parliament Standing Committee and is to be discussed in the Parliament. The SARFAESI Act and DRT Act have been amended to make the recovery process more efficient and expedient. Wherever it was observed that number of cases in which action taken by the banks against guarantors for recovery of defaulted loans is insult, the Government has advised the banks to take action against guarantors in the event of default by borrowers under relevant Sections of SARFAESI Act, Indian Contract Act and RDDB & FI Act.

The government has taken specific measures to address issues in sectors such as Infrastructure (Power, Roads etc.), Steel and Textiles, where incidence of NPAs is high. The government has also approved establishment of six (6) new Debt Recovery Tribunals (DRTs), to speed up the recovery of bad loans of the banking sector, in addition to existing thirty three. Reserve Bank of India (RBI) has also undertaken steps which include

Formation of Joint Lenders� Forum (JLF) for revitalizing stressed assets in the system, (ii) Flexible Structuring for long term project loans to Infrastructure and Core industries, and Strategic Debt Restructuring (SDR) scheme. (iv) Scheme for Sustainable Structuring of Stressed Assets (S4A). The Government has recently issued advisory to banks to take action against guarantors in event of default by borrower under relevant sections of SARFAESI Act, Indian Contract Act & RDDB&FI Act, since in the event of default; the liability of the guarantor is co-extensive with the borrower.

In addition, the Government has advised Public Sector Banks (PSBs) to constitute a Board level Committee for monitoring of recovery and to increase the pace of recovery and manage NPAs. To remove bottlenecks in the recovery of bad debts e Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2012 has been passed by Parliament and has come into force from 15.1.2013. RBI has also taken a number of steps to resolve the NPA issues. In January 2014 it came out with �Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders: Framework for Revitalizing Distressed Assets in the Economy,� in which the banks have to start acting as soon as a sign of stress is noticed in a borrower�s action and not wait for it to become a NPA.

Written by princy

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