Non Performing Assets (NPA) is becoming a growing problem for Indian banking industry and even if Insolvency & Bankruptcy Code has been passed, it will only add to filing of insolvency petitions, disposal of debtors assets, recovery of loans and close down of business entities. Actual problem lies in early detection of ensuing NPA of borrowers and settlement of loans through restructuring of capital, loan interest rate, repayment schedule, security valuation and most important the change in management of business entities.
However there is a urgent need to fix some caps on the borrowing capacity of the corporate entities like companies, cooperative societies and large firms where the management is in few hands of directors, partners etc who may not be directly liable for repayment of debts of the enterprise and actual users of debt capital may not even be known to lending banks, financial institutions, individual depositors etc.
Today loan is primerily granted on the strength of security offered to lender by the borrower on the estimated market value of capital asset. Capital Assets of business are not meant for sale or disposal and the security can be enforced only in specific case of NPA and actual value of security in distress sale can be much below the estimated value.
Therefore banks must make it a policy to ensure that borrower has adequate capital in the business and a ration is maintained between loan and capital and company law should be amended accordingly. Working capital loans and credit facilities are secured against current assets that keep changing and are most vulnerable to NPA.