NPA Accounts-Way Forward

In current scenario the non performing assets are increasing day by day. As per rough estimates the NPA loans are estimated to be over 4 Lac Crore or 70 Billions. These are official figures and unofficially it can be near to 6 Lac Crores or 100 billions. More than 4 Lac industrial units have been forced to close the operation due to loan defaults . Promoters of these units are facing the legal heat and most of them would be soon finished as the legal system will also not support them much. Other side the employees and other small enterprises depending upon such units have no option but to look for alternative options. As per rough estimates more than 12 million people have faced unemployment due to NPA and loan defaults.

The moment an account is declared defaulter or NPA, all the  promoters and guarantors are branded defaulters and the names start appearing as defaulter in CIBIL lists. This results into prohibiting such promoters and their guarantors from raising any money, means doors closed to survive. In this situation it is very important to be aware of the various options of fund raising and survival.

A. Fund raising options:

 i. There are some NBFCs and High networth individuals who can rescue the unit and lend money for short period but at higher cost. Since banks don't support, this is most common method to raise money and settle with the banks. Also there are structured funding available in the market against specific order, contacts or sales under escrow mechanism to give some breathing to the stressed unit.

ii. Sale of non core assets is another option if the lending institutions permit because most of the assets are under the charge of the lending institutions. This may help to a great extent in reviving the unit.

iii. Private equity is another major source if there is good potential in the unit.

Above options are in addition to the support of available from the existing bankers. Banks resist but if convinced can look into  revival proposal positively. Most of the revival/restructuring proposals have failed due to very impractical approach . The revival is based on more theoritical approach than practical thinking. Recently RBI has come out with Flexible restructuring scheme under which for certain segments, the loans can be restructured for 25 years too. 

B. Survival Options:

 Legal remedy is always available if there is injustice to the stressed units. If the unit is in operation, the courts take positive view and help ion revival also.

Overall, the NPA declaration is not the end, there are lot of options available if properly handled.

CP