A key aim of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, is to facilitate the recovery of amounts due to secured creditors, without the intervention of civil courts and/or tribunals.
To seek enforcement of a security interest under the act, three conditions specified under section 13(2) of the act must be satisfied. One of these is that the account of the borrower must be classified by the secured creditor as a non-performing asset (NPA).
Section 2(1)(o) of the act, prior to an amendment in 2004, stated that an account which had been classified by a bank or financial institution (FI) as a substandard, doubtful or loss asset, in accordance with the directions or under guidelines issued by the Reserve Bank of India (RBI), was to be termed as a NPA.
By the amendment of 2004, secured creditors may follow guidelines defining NPA set by their administering or regulating authority. Banks/FIs not regulated by any other authority must follow the RBI directions and/or guidelines.
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