World Journal of Law, Governance and Public Policy
Resolving Non-Performing Assets in India: A Critical Analysis of the Legal and Policy Framework Under Sarfaesi and the Insolvency and Bankruptcy Code
Abstract
Zeba
Non-Performing Assets (NPAs) continue to pose a significant challenge to the Indian banking sector, affecting financial stability, credit growth, and public confidence in banking institutions. Over the years, the increasing volume of stressed assets has exposed several structural weaknesses within the system, including inadequate credit assessment, ineffective recovery mechanisms, regulatory shortcomings, and governance-related concerns. The issue has become particularly serious for public sector banks, where rising NPAs have impacted profitability and lending capacity.
This paper examines the legal and policy framework developed in India to address the problem of NPAs, with particular focus on the SARFAESI Act, 2002, the Insolvency and Bankruptcy Code (IBC), 2016, and the functioning of Debt Recovery Tribunals (DRTs). The study critically evaluates whether these mechanisms have succeeded in ensuring timely recovery of debts and improving financial discipline, or whether procedural delays and institutional inefficiencies continue to weaken their effectiveness.
Apart from legal analysis, the paper also explores broader policy concerns such as political interference in lending decisions, lack of accountability within public sector banks, and inconsistent implementation of banking reforms. By analysing legislative measures, policy initiatives, and major case studies, the paper highlights both the progress made and the challenges that remain in India’s NPA resolution framework. The study ultimately argues that stronger institutional coordination, efficient enforcement mechanisms, and preventive regulatory strategies are necessary to create a more resilient and transparent banking system.