Role of Non-Performing Assets: A Critical Analysis of NPA of a Bank and Allied Laws

Abstract

With the nationalisation of banks in 1969 and 1980, the business of banking grew leaps and bounds in India. As one of the most important aspects of banking is lending of loans, and when the borrower skips or defaults the payment of interest or principal, it becomes a non-performing asset. At present, banking system is well-rooted into the Indian economy and anything that effects the banking business will affect the economy as well. The rise of Non-performing assets affect the flow of funds in the market. It becomes cumbersome for the banks to operate with the rise of non-performing assets. Non-performing assets has been a major problem to banks in India and as well as around the world. Under the aegis of Finance Ministry, two committees (Narsimham Committee I&II) in 1991 and 1998 were set up to deal with the issues in the banking system and to propose reforms in banking system and later to deal with rising non-performing assets the government of India passed SARFAESI Act, 2002 and gave authority to banks for the recovery of non-performing assets. This paper shall discuss different types of NPA’s, the damage non-performing assets cause to the banking business, the basic law governing them and the allied laws which play a crucial role in recovering non-performing assets, the reasons for banks incurring NPA’s and an analysis of its effect on the banks.