At noon today, the Finance Minister introduced a Bill in Parliament to address the issue of delayed debt recovery. The Bill amends four laws including the SARFAESI Act and the DRT Act, which are primarily used for recovery of outstanding loans. In this context, we examine the rise in NPAs in India and ways in which this may be dealt with.
I. An overview of Non-Performing Assets in India
Banks give loans and advances to borrowers which may be categorised as: (i) standard asset (any loan which has not defaulted in repayment) or (ii) non-performing asset (NPA), based on their performance. NPAs are loans and advances given by banks, on which the borrower has ceased to pay interest and principal repayments. 
In recent years, the gross NPAs of banks have increased from 2.3% of total loans in 2008 to 4.3% in 2015 (see Figure 1 alongside*). The increase in NPAs may be due to various reasons, including slow growth in domestic market and drop in prices of commodities in the global markets. In addition, exports of products such as steel, textiles, leather and gems have slowed down.[i] The increase in NPAs affects the credit market in the country. This is due to the impact that non-repayment of loans has on the cash flow of banks and the availability of funds with them.[ii] Additionally, a rising trend in NPAs may also make banks unwilling to lend. This could be because there are lesser chances of debt recovery due to prevailing market conditions.[iii] For example, banks may be unwilling to lend to the steel sector if companies in this sector are making losses and defaulting on current loans. There are various legislative mechanisms available with banks for debt recovery. These include: (i) Recovery of Debt Due to Banks and Financial Institutions Act, 1993 (DRT Act) and (ii) Securitisation and Reconstruction of Financial Assets and Security Interest Act, 2002 (SARFAESI Act). The Debt Recovery Tribunals established under DRT Act allow banks to recover outstanding loans. The SARFAESI Act allows a secured creditor to enforce his security interest without the intervention of courts or tribunals. In addition to these, there are voluntary mechanisms such as Corporate Debt Restructuring and Strategic Debt Restructuring, which These mechanisms allow banks to collectively restructure debt of borrowers (which includes changing repayment schedule of loans) and take over the management of a company.
II. Challenges and recommendations for reform
In recent years, several committees have given recommendations on NPAs. We discuss these below.
Action against defaulters: Wilful default refers to a situation where a borrower defaults on the repayment of a loan, despite having adequate resources. As of December 2015, the public sector banks had 7,686 wilful defaulters, which accounted for Rs 66,000 crore of outstanding loans.[iv] The Standing Committee of Finance, in February 2016, observed that 21% of the total NPAs of banks were from wilful defaulters. It recommended that the names of top 30 wilful defaulters of every bank be made public. It noted that making such information publicly available would act as a deterrent for others.
Asset Reconstruction Companies (ARCs): ARCs purchase stressed assets from banks, and try to recover them. The ARCs buy NPAs from banks at a discount and try to recover the money. The Standing Committee observed that the prolonged slowdown in the economy had made it difficult for ARCs to absorb NPAs. Therefore, it recommended that the RBI should allow banks to absorb their written-off assets in a staggered manner. This would help them in gradually restoring their balance sheets to normal health.
Improved recovery: The process of recovering outstanding loans is time consuming. This includes time taken to resolve insolvency, which is a situation where a borrower is unable to repay his outstanding debt. The inability to resolve insolvency is one of the factors that impacts NPAS, the credit market, and affects the flow of money in the country.[v] As of 2015, it took over four years to resolve insolvency in India. This was higher than other countries such as the UK (1 year) and USA (1.5 years). The Insolvency and Bankruptcy Code seeks to address this situation. The Code, which was passed by Lok Sabha on May 5, 2016, is currently pending in Rajya Sabha. It provides a 180-day period to resolve insolvency (which includes change in repayment schedule of loans to recover outstanding loans.) If insolvency is not resolved within this time period, the company will go in for liquidation of its assets, and the creditors will be repaid from these sale proceeds.
[i] ‘Non-Performing Assets of Financial Institutions’, 27th Report of the Department-related Standing Committee on Finance, http://164.100.47.134/lsscommittee/Finance/16_Finance_27.pdf. [ii] Bankruptcy Law Reforms Committee, November 2015, http://finmin.nic.in/reports/BLRCReportVol1_04112015.pdf. [iii] Volume 2, Economic Survey 2015-16, http://indiabudget.nic.in/es2015-16/echapter-vol2.pdf. [iv] Starred Question No. 17, Rajya Sabha, Answered on April 26, Ministry of Finance. [v] Report of the Bankruptcy Law Reforms Committee, Ministry of Finance, November 2015, http://finmin.nic.in/reports/BLRCReportVol1_04112015.pdf. *Source: ‘Non-Performing Assets of Financial Institutions’, 27th Report of the Department-related Standing Committee on Finance, http://164.100.47.134/lsscommittee/Finance/16_Finance_27.pdf; PRS.
Amidst news reports of violence against healthcare workers during the spread of the COVID-19 pandemic, the Epidemic Diseases (Amendment) Ordinance, 2020 was promulgated on April 22, 2020. The Ordinance amends the Epidemic Diseases Act, 1897. The Act provides for the prevention of the spread of dangerous epidemic diseases. The Ordinance amends the Act to include protections for healthcare personnel combatting epidemic diseases and expands the powers of the central government to prevent the spread of such diseases.
Who is considered a healthcare service personnel under the Ordinance?
The Ordinance defines healthcare service personnel as a person who is at risk of contracting the epidemic disease while carrying out duties related to the epidemic such as caring for patients. They include: (i) public and clinical healthcare providers such as doctors and nurses, (ii) any person empowered under the Act to take measures to prevent the outbreak of the disease, and (iii) other persons designated as such by the respective state government.
What is considered an ‘act of violence’ under the Ordinance?
An ‘act of violence’ includes any of the following acts committed against a healthcare service personnel: (i) harassment impacting living or working conditions, (ii) harm, injury, hurt, or danger to life, (iii) obstruction in discharge of his duties, and (iv) loss or damage to the property or documents of the healthcare service personnel. Property is defined to include a: (i) clinical establishment, (ii) quarantine facility, (iii) mobile medical unit, and (iv) other property in which a healthcare service personnel has direct interest, in relation to the epidemic.
What are the offences and penalties outlined under the Ordinance?
The Ordinance specifies that no person can: (i) participate in or commit an act of violence against a healthcare service personnel, or (ii) participate in or cause damage or loss to any property during an epidemic. A person committing these two offences is punishable with imprisonment between three months and five years, and a fine between Rs 50,000 and two lakh rupees. However, for such offences, charges may by dropped by the victim with the permission of the Court. If an act of violence against a healthcare service personnel causes grievous harm, the person committing the offence will be punishable with imprisonment between six months and seven years, and a fine between one lakh rupees and five lakh rupees. All offences under the Ordinance are cognizable (i.e., a police officer can arrest without a warrant) and non-bailable.
Do healthcare service personnel that face violence get compensation?
Persons convicted of offences under the Ordinance will be liable to pay a compensation to the healthcare service personnel whom they have hurt. Such compensation will be determined by the Court. In the case of damage or loss of property, the compensation payable to the victim will be twice the amount of the fair market value of the damaged or lost property, as determined by the Court.
What protections did healthcare service personnel have prior to the promulgation of this Ordinance?
Currently, the Indian Penal Code, 1860 provides for penalties for any harm caused to an individual or any damage caused to property. The Code also prescribes penalties for causing grievous hurt i.e., permanent damage to another individual.
The Ministry of Health and Family Welfare had released a draft Bill to address incidences of violence against healthcare professionals and damage to the property of clinical establishments in September 2019. The draft Bill prohibits any acts of violence committed against healthcare service personnel including doctors, nurses, para medical workers, medical students, and ambulance drivers, among others. It also prohibits any damage caused to hospitals, clinics, and ambulances.
Table 1 compares the offences and penalties under the Ordinance, the draft Bill, and Indian Penal Code, 1860.
Table 1: Offences and penalties with regard to violence against healthcare service personnel
|
Offences and Penalties |
Epidemic Diseases (Amendment) Ordinance, 2020 |
Healthcare Service Personnel and Clinical Establishments (Prohibition of violence and damage to property) Bill, 2019 |
Indian Penal Code, 1860 |
|
Violence
|
|
|
|
|
Violence causing grievous harm |
|
|
|
|
Damage to property |
|
|
|
Sources: Epidemic Diseases (Amendment) Ordinance, 2020, Healthcare Service Personnel and Clinical Establishments (Prohibition of violence and damage to property) Bill, 2019, and Indian Penal Code, 1860; PRS.
Are there provisions for the safety of healthcare service personnel at the state level?
Several states have passed legislation to protect healthcare service personnel. These states include: Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Chhattisgarh, Delhi, Gujarat, Haryana, Karnataka, Kerala, Maharashtra, Manipur, Odisha, Punjab, Rajasthan, Tamil Nadu, Tripura, Uttarakhand and West Bengal.
Most state Acts define healthcare service personnel to include registered doctors, nurses, medical and nursing students, and paramedical staff. Further, they define violence as activities causing harm, injury, endangering life, intimidation, obstruction to the ability of a healthcare service person to discharge their duty, and loss or damage to property in a healthcare service institution.
All state Acts prohibit: (i) any act of violence against healthcare service persons, or (ii) damage to property in healthcare service institutions. In most of these states, sf a person partakes in these prohibited activities, he/she is punishable with imprisonment up to three years and a fine of up to fifty thousand rupees. However, in certain states such as Tamil Nadu the maximum prison sentence may be up to ten years.
For more information on the spread of COVID-19 and the central and state government response to the pandemic, please see here.
