Managing and Reducing Non-Performing Assets in the Banking Sector: A Case for a Centralized Legal Mechanism in India

ANBARASU MAHADEVAN; AMBIKA KUMARI

doi:10.36948/ijfmr.2025.v07i06.62159

Managing and Reducing Non-Performing Assets in the Banking Sector: A Case for a Centralized Legal Mechanism in India

Author(s)	Mr. ANBARASU MAHADEVAN, Dr. AMBIKA KUMARI
Country	India
Abstract	Non-performing assets (NPAs) remain one of the most persistent structural weaknesses of the Indian banking system. Despite a dense regulatory and legislative architecture comprising the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act), and the Insolvency and Bankruptcy Code, 2016 (IBC), Indian banks continue to grapple with stressed assets, capital erosion, and impaired credit delivery. This article critically examines the existing legal and regulatory framework for NPA management in India and argues that the current model—in which individual banks exercise near-complete discretion in credit appraisal and loan sanction—has systemic limitations that cannot be cured by post-facto recovery mechanisms alone. Building on doctrinal analysis, empirical insights, and comparative experiences from jurisdictions such as the United States, the United Kingdom, China, and the European Union, the article proposes the establishment of a Centralized Loan Approval Department (CLAD). This specialized, multi-disciplinary body would scrutinize high-value and sensitive credit proposals ex ante, thereby standardizing risk assessment, strengthening collateral evaluation, reducing informational asymmetries, and curbing relationship-based lending. The article concludes that a centralized legal-cum-technical mechanism like CLAD, integrated with existing statutory regimes and prudential norms, can significantly reduce NPAs, enhance financial stability, safeguard public funds, and promote sustainable credit growth in developing economies such as India.
Keywords	Non-Performing Assets (NPAs); SARFAESI Act; Recovery of Debts and Bankruptcy Act (RDB Act); Insolvency and Bankruptcy Code (IBC); Reserve Bank of India (RBI); Debt Recovery Tribunals (DRTs); Centralized Loan Approval Department (CLAD); Credit Appraisal; Banking Regulation; Comparative Banking Law
Field	Sociology > Administration / Law / Management
Published In	Volume 7, Issue 6, November-December 2025
Published On	2025-11-29
DOI	https://doi.org/10.36948/ijfmr.2025.v07i06.62159
Short DOI	https://doi.org/hbdsmg

View / Download PDF File

E-ISSN 2582-2160

doi

CrossRef DOI is assigned to each research paper published in our journal.

IJFMR DOI prefix is
10.36948/ijfmr

Downloads

Research Paper Format Copyright Permission Form and Undertaking Form Cover Page Vol 7 Isu 5 Cover Page Vol 7 Isu 4 Cover Page Vol 7 Isu 3

All research papers published on this website are licensed under Creative Commons Attribution-ShareAlike 4.0 International License, and all rights belong to their respective authors/researchers.

CC-BY-SA

About IJFMR Fees & Payment Current Issue Publication Archive	Submit Research Paper Track Submission Status Publication Guidelines Publication Ethics Peer Review & Plagiarism	Join as a Reviewer Editors & Reviewers Reviewer Referral Program Get Reviewer Membership Certi.	Website/Journal Policies Usage Policy Content Policies Privacy Policy

Contact Us		+91-9687-828-838	editor@ijfmr.com

International Journal For Multidisciplinary Research

A Widely Indexed Open Access Peer Reviewed Multidisciplinary Bi-monthly Scholarly International Journal

Managing and Reducing Non-Performing Assets in the Banking Sector: A Case for a Centralized Legal Mechanism in India

Share this