For people who are associated/transact with banks the word NPA is not unfamiliar. People generally may not fully know the meaning or definition of a NPA. NPA is the abbreviation for NON PERFORMING ASSET. This in short refers to an asset which is not giving out any useful performance. Before analyzing this aspect of an asset let us briefly know what an asset is in this context.
It is part of banking that banks which accept deposits from the public lend the money so collected in order to generate sufficient income to meet the commitment of interest that is payable on the deposit and also to earn a reasonable profit not only to meet their operational costs but also earn a reasonable profit. While lending monies the banks also collect some sort of security be it gold, bonds, machinery, LIC policies, shares, immovable properties, etc., and all these and other forms of securities become the Assets of the financing bank. As stated above the intention of any bank lending money is to earn income by way of interest on the loan. This generation of income in short is the performance of the loan/asset.
If any borrower fails to re-pay the loan installments/fails to service the interest continuously over a period of time then that particular account and the asset relating to that account become NON PERFORMING ASSET. As of now in a loan account if three EMIs are not remitted continuously or interest for two quarters is not serviced continuously then that account will be classified as NON PERFORMING ASSET.
It is the endeavor of all banks to keep the percentage of NPAs as low as possible because a high NPA percentage in the advance portfolio of any bank will send wrong signals to the public regarding the health of the bank. It also reflects on the procedure of scrutinizing the credit proposals, assessment of the borrower etc. . In short it reflects badly on the management of their credit portfolio.
Once an account is classified as NPA then bank takes various steps to realize their dues and taking possession of the security and going for auction/sale of the asset are the important steps. This process of taking possession of the security is called "Foreclosure" and the entire process starting with issue of notice to the borrower to pay up the overdue amount is called "asset recovery" and "asset reconstruction".
Whenever a bank earlier tried to realize its dues by taking possession of the security and going for auction it had to follow the legal procedure. Banks could not take possession of the securities with out a court decree, the obtaining of which in itself was a time consuming process. In fact there are so many escape routes available for the defaulter, like prolonging the litigation with adjournments, false claims etc., and even after decree going in for appeals etc.
With a view to speed up the process and bring relief to banks and other financial institutions which were groaning under the burden of NPAs and also to bring in more teeth to the financial institutions in combating the menace of willful default, the government has brought in an institution called The Debt Recovery Tribunal through an Act of Parliament called the Recovery of Debts due to banks and other financial institutions Act 1993. This worked well for some time but people found loopholes in this also and the banks were back to square one in no time.
In order to plug in the existing loopholes in the DRTs and their working and to provide more teeth to the banks in dealing with the menace of growing NPAs Government of India in 2002 has brought in a new act called Securitization And Reconstruction of Financial Assets And Enforcement of Security Interest Act 2002 (SARFAESI) was passed. This led to an increase in number of "Foreclosures" in India which again led to an increase in the number of bank auctions, DRT auctions etc. This in turn has opened up a fresh market for the buyers who want to purchase/invest in Real Estate known as "Bank foreclosure sales".
With a view to cater to the needs of banks and other financial institutions, Asset Reconstruction Company of India Limited (Arcil) also was formed. Thus a market for sale of bank auction properties, DRT properties has started emerging and the demand for properties under bank auctions, DRT auctions, and home auctions is found to be gradually increasing.
According to the latest data from the Reserve Bank of India, the gross non-performing assets of the state-run banks touched 68,597 crore at the end of December 2010, an increase of 27% from a year ago.
We at ForeclosureIndia.com are proud of the fact that we are the only website in India who is publicizing the possessed/under auction properties across India, which can be viewed throughout the world. We are also proud of the fact that we are doing our bit to the national economy by being helpful to the banks and other financial institutions in realizing the NPAs and keeping the country’s economy healthy. Several banks which have started utilizing our services are already feeling the difference as they are able to find more participants to their home auctions, other property auctions and are able to affect an increase in sales properties possessed by them. We are also proud that through our efforts only, the market for bank auction properties was created and it is with our efforts that this is being expanded exponentially.