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sukhbir singh (Businessman)     26 March 2010

Exception under SARFAESAI Act

"NPA loan accounts where the amount is less than 20% of the principal and interest are not eligible to be dealt with under this Act."

Can anybody elaborate its meaning.    My specific question is suppose I have a total loan and advances of Rs.100 lakhs.   The account becomes NPA as I have not paid instalment of interest and principal for 90 days and this amount of default is Rs.6 lakhs, being two lakh rupees a month.    Can the Bank still issue notice under SARFAESAI for recovery of entire loan.   If so, then what is the meaning of 20% of the principal and interest......above given in the Act.

It is contended that once the account becomes NPA, entire amount becomes payable, i.e. Rs.100 lakhs.  According to me and as per RBI guidelines on Prudential Norms on NPA, if the overdue in interest and principal overdues for which the account had become NPA are repaid, then the account should be declaryed standard and in a standard account bank cannot resosrt to further action under SARFAESAI act.   Therefore, please hightlight what is the meaning of above exception in the act.


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