In order to to solve the problems of NPA a successful reality, it is necessary to understand the knowledge realities of the bank and financial institutions.


The Hon’ble Prime Minister of India and the Hon’ble Finance Minister of India,

Dear Sirs,

Some of the recent pronouncements with regard to non-performing asset have created concern among the honest and upright borrowers particularly coming under the category of SME with integrity whose accounts have become non-performing assets (NPA) because of the circumstances beyond their control. Banks do have their right to recover their dues from the borrowers. But every right is derived out of a duty first to be performed and that duty being the concern and care of the borrowers and prevention of account being classified as NPA.


Indian banking sector have undergone changes from time to time. It passed through social control during the early 60s and then to nationalization of some banks in the year 1969 and then came the reforms of 1990. Since then the Indian banking system has been trying to integrate their activities with the global development and market and this has brought out drastic changes and reforms to keep up with the global trend. The introduction of prudential norms particularly changed the very approach of the banks towards asset classifications and income recognition. But the reforms also put a great pressure on their profitability, compatibility and competitiveness  with the world banking trend and market demands which led to the enactment of Recovery of Debts Due To Banks And Financial Institutions Act, 1993 (RDDB & FI Act) and its later amendments. After having found the ineffectiveness of the RDDB & FI Act and to give more power to the banks and financial institutions, yet another more stringent enactment of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act)  came into existence and amendment were introduced subsequently. But did the reforms and the subsequent enactment of the Acts produce the desired result?

Taking into account the quantum of recovery compared to total NPA and mounting incidents of NPA accounts, the result is pathetic and alarming. Now everyone connected with banking and finance look eagerly up to the recently passed Bankruptcy and Insolvency Act with great hopes and aspiration. A dispassionate and non prejudiced review of the past experience and the result achieved and an understanding of the present unpleasant financial situation prevailing in the banking and financial sector would indicate none too pleasant situation of the future. That is because what steps that were taken in the past and being pursued in the present and envisaged for the future are for treating the symptoms and not the disease. Hence, a reorientation in the approach to the existing problems is very much necessary to produce the desired results.


An unbiased review of the measures taken for the recovery of debt shows that there is an underlying conflict of interest between the bank and the borrower client. Since “a conflict of interest is a set of circumstances that creates a risk that professional judgment or actions regarding a primary interest will be unduly influenced by a secondary interest”, it is imperative to understand what is the primary interest for both the bank and the borrower. There exists a trust deficit and mutual suspicion creating a divide between the bank and the borrower with regard to their perceptions about their respective roles in their contribution to the nation building activities and social obligations.  The primary objective of commercial banks is to accept deposits from the public and to lend for productive purposes. When the banks accept the deposits from the public, they become the custodian of public fund and keep it under trust. The duty and responsibility of the banks start when they deploy the funds for progress and development of commerce and industry.

The prime duty of the borrower is to utilize the funds for the productive purposes for which the bank has lent the funds. Hence, it is apparent that the roles of the bank and the borrower are complimentary to each other and not contradictory. But in the process of lending and utilization of funds, there arise conflicts of interest from time to time which affect the respective cash flows on either side depending on the situation prevailing then which results in the creation of non-performing assets which leads to recovery process being initiated by the bank which the borrower resents.  The perceived knowledge about non-performing asset by the borrower and the bank alike and the modus-operandi of the recovery process adopted by the banks leads to further conflict and prolonged litigations. This is counterproductive to the objectives of lending and utilization of funds affecting severely the economic wealth and health of the nation. Thus it is the inevitable necessity that such deterioration in the economic wealth and health of the nation should be arrested.

Understanding the respective roles of the bank and the borrower which are complimentary to each other is the first step. KYC (Know Your Customer) norms are already implemented. There is vast difference between knowing the customer and understanding the customer and hence more importantly new UYC (Understand Your Customer) norms are to be formulated in line with Banking Codes and Standards adopted by banks as per the norms announced by Banking Codes and Standards Board of India. The next step is to understand and accept the harsh realities and unpleasant truth regarding the prevailing situations in their correct perspectives by the bank and the borrower which may lead to a change of norms in the classification of the account as NPA. The initial two aforesaid steps are very important because “Understanding is the first step to acceptance, and only with acceptance can there be recovery.” 


Effective communication is the key to understanding because the very purpose of communication is to understand and to be understood which will pave the way for an endearing and enduring relationship between the bank and its clients. But currently the emphasis is on technology, fiscal policies, system and procedures etc which are, no doubt, positive steps for making the banking and financial system robust and dynamic. But the fact is that technology innovation can bring only the marvels of technology but it cannot produce economic results. Economic results are produced only by knowledgeable and self actualized human resources and quality leadership and also that relationship can be built up only with human beings and not with machines or any policies. Unfortunately no such steps seem to being initiated to produce economic and financial results by building up healthy and strong understanding, endearing and enduring relationship between the bank / financial institution and the clients.

Today the ‘relationship banking’ has given rise to ‘faceless baking’ using technology and there seems to be no ‘bonding’ but only ‘binding’ between the bank and the customer. This is the basic difference found in what is being done in the recovery of dues of banks and financial institutions and what should have been adopted for the recovery such dues.

What is advocated now is a total change in the attitude and approach to recovery of dues by the banks / financial institutions and the borrowers. Since attitude is the approach that banks and financial institution take to lend and recover the dues, the result depends upon their attitudes and similarly is the attitude and approach of borrowers with regard to utilization of funds received by way of loan and payment of dues.  Hence, a new concept of “Conscience Cum Conscious Banking” and “Recovery with a Human Touch” is if understood properly and implemented diligently, would ease the recovery of debts with the mutual consent of bank and borrower and facilitate reduction of NPA to a great extent if not totally eliminating them.

The Concept of “Conscience Cum Conscious Banking”.   (CCC Banking)

The dictionary meaning of conscience is “the part of you that judges how moral your actions are and makes you feel guilty about bad things that you have done or things you feel responsible for.” The legal meaning of conscience is “conscience an internal sense of right and wrong.

To respect differences between persons the law sometimes permits a conscience clause. Freedom of conscience is a human right.” (Collins Dictionary of Law © W.J. Stewart, 2006). The psychological definition of conscience states “Your conscience is what tells you whether an action is right or wrong. It is the reason you have guilt or remorse after doing something morally questionable, and the reason you feel relief or pride after telling the truth or giving to charity. It can also have an affect on decisions you are contemplating. If you just have a bad feeling about a possible action, your conscience may be telling you to choose otherwise. The sense of right and wrong is learned and deeply embedded, so someone with a very strict religious upbringing may have a more critical conscience than someone brought up with a looser moral compass.”


The dictionary meaning of ‘Conscious’ is “State of understanding and realisng something” and as per Wikipedia “Consciousness is the state or quality of awareness, or, of being aware of an external object or something within oneself. It has been defined as: sentience, awareness, subjectivity, the ability to experience or to feel, wakefulness, having a sense of selfhood, and the executive control system of the mind

The concept may be considered more moralistic than practical. But more success can be achieved using a more moralistic approach than pursuing a ruthless way devoid of any justice, values and professional ethics. Every person has a conscience which is a very powerful part of the person. It helps him be aware of the world around him and it helps him have interaction with the world. With the conscience trained, the conscience empowers and helps every one. But, like all things in life, the conscience can have various degrees of training and capability.

The principal of “Conscience Cum Conscious Banking” is based on the fact that most people are honest and uphold integrity. The truth is that between the good and the bad, only the circumstances have to wedge in. Hence, as far as banking is concerned, the circumstances that trigger the creation of non-performing asset are to be identified and removed so that further deterioration of the secured assets does not take place.  Further, a constant vigil without complacency and effective monitoring of credit would also ensure prevention of accounts’ becoming non-performing assets.

A “Conscience Cum Conscious Banking” will usher in an environment of goodwill and mutual respect among banks / financial institutions and the customers without the feeling of being abused, shamed and threatened. It also inculcate a sense of belonging among the executives, employees and the customers leading to understanding the respective roles and mutual obligations and contributions towards the health and wealth of economy and the society alike. Further they would hold themselves and each other accountable for adhering to some set of agreed-upon values and ethics and for working toward an agreed-upon vision. Deviations and errors would be considered as an opportunity for learning and growth, rather than an excuse for blame and punishment. This does not mean that there won’t be any problems.

In an uncertain and volatile business environment nobody can predict precisely the future outcome. But with trust and mutual understanding based on the culture, values and ethics that they developed, timely actions will be initiated tide over the problems and to achieve the goals of mutual welfare keeping the national interest above all. A Conscience Cum Conscious Banking will create an everlasting relationship between the bank and the customer with mutual help and respect which will also enable “Recovery with Human Touch”.  

“Recovery with human touch” is the process of recovery without jeopardizing the interest of the bank and financial institution and the borrower. The basic rule is to fix the problems and find solutions.  There are two types of problems namely the internal problems of the banks, financial institutions and the borrowers respectively as the case may be which are within their individual domain and the other problems are external over which none have any control. Thus it is very important to recognize the cause of the problems to find solutions.

“Recovery with human touch” is based on the following human behavioral principles:- “The greatest technology in the world hasn’t replaced the ultimate relationship building tool between a customer and a business: the human touch” and “Too often we under estimate the power of a touch, a smile, a kind word, a listening ear, an honest accomplishment, or the smallest act of caring, all of which have the potential to turn a life around” and   more importantly the truth is that “Your situation is never permanent. It is what you make it. Life isn’t solid. It’s fluid. It changes”.

The “Recovery with human touch” method is based on the fact that it takes considerable time to build and it takes no time to destroy. Considering the roles of the banks and that of the borrower, any wrong step that the bank make either to lend or to recover would certainly affect the borrower and vice versa any erroneous path that the borrower takes would also affects the bank since their existence are interdependent and not independent. Any weakening of the banking system is detrimental to the economy of the nation and so also any adverse features inflicted on the entrepreneur organization would also affect the contribution to the welfare of the society and deprive the livelihood of the multitude of the employees and workers engaged by the enterprise and also other stake and share holders.

Hence, the principle behind “Recovery with Human Touch” is that any recovery process being adopted should not jeopardize the existence of both the lender and the borrower aiming only to reconstruct and not to destroy. In the ultimate analysis, the veritable realization of the organizational objectives and individual aspirations for banks and enterprises depend upon the following principle: “In management, the first concern of the company is the happiness of the people connected with it. If the people do not feel happy and cannot be made happy, that company does not deserve to exist.”

There may exist a different situation where the borrower never has any problem but tend to become non-paying. They are the willful defaulters. Their case is to be treated differently and with a firm resolve. Therefore, it is imperative that there should be a definite distinction made between honest borrower with integrity and willful defaulter. This distinction should be made objectively and subjectively taking into account the human sensitivity. Expediency should not be a policy to declare a borrower as a willful defaulter who has a long association with the bank or financial institution who has been doing well but who becomes a defaulter due to circumstances beyond their control.

The broader steps that are envisaged under the “Recovery with Human Touch” are as follows.

  1. To begin with declare a moratorium on all cases pending with DRT, DRAT and other Courts for a period of two years pertaining to recovery proceedings of amounts more than a threshold limit on an experimental basis for which the limit has to be fixed. The remaining cases are to be tried in the respective
    Tribunals / Courts but without bias and prejudice.
  2. Constitute an evaluation, assessment and appraisal committee in every state consisting of banking experts, representative from respective banks and financial institutions, representatives from respective industries and commerce whose case beyond the threshold is being evaluated in detail.
  3. Evaluation should be done by identifying the internal factors of the bank / financial institution and defaulted enterprise and also external factors which caused the account being classified as NPA. The primary aim of such an exercise is not to fix responsibility and punish but to fixing the problems and finding solutions to take the account out of its NPA status.
  4. Under the existing conditions there is a decision making paralysis due to fear psychosis of being held responsible and accountable for their actions prevailing among the executives of banks and financial institutions which is one of the reasons for the creation of non-performing assets because if the behaviour of the banks is governed by the attempt to escape risk, it will end up by taking the greatest and least risk of all, the risk of doing nothing. Hence, the executives should be allowed to take decisions boldly without fear or favour.
  5. To Implement the plan of action faithfully and diligently necessary support and help can be brought from outside also. A knowledgeable authority exclusively for the purpose of monitoring the implementation of the plan of action and to take such steps which are necessary for the success of the plan is to be constituted. A reporting system is to be devised to inform the concerned bank / financial institution and the borrower regarding the observations made by the monitoring authority and corrective steps to be taken without any delay.
  6. Rightly or wrongly the general perception of the borrowers out of experience is that the banks and financial institutions invoke legal proceedings without complying with the directives of RBI which is mandatory and many times by violating the provisions of the respective banking Acts with impunity and also violating the principles of natural justice. If any such incidents are found then such banks and financial institutions are to be pulled up and reprimanded and directed to fall in line with the instruction of RBI and complying with the provisions of the Acts and principles of natural justice.
  7. Most unfortunately it is found that most of the presiding officers of DRT and DRAT act as the recovery agents for banks and financial institutions. Even when clear evidences are produced against the banks and financial institutions for their wrong doings and even when higher courts’ citations are quoted during the course of legal proceedings, they are overlooked and orders are passed favoring the bank and financial institutions thereby denying justice and equity to the borrowers. Many are the cases when the borrowers and the guarantors have lost their livelihood and assets leading miserable lives devoid of human dignity. Such incidents are to be stopped to uphold equity, justice and principles of natural justice.
  8. The pitiable effect of classification of account as NPA is that all avenues of raising funds by the borrower enterprise are closed and the resultant effect is that the workers and employees engaged by them are deprived of their livelihood and the pathetic plight of them and their families and dependants are not at all being taken into consideration which may lead to social unrest which goes against the government objective of wealth creation and employment generation. Such incidents also violate the fundamental rights and human rights of such deprived workers and employees. Chances of such deprivation are to be eliminated ensuring human dignity and decent existence to those who are deprived of their employment and livelihood.
  9. Of late it has become a practice for the banks and financial institutions to assign their debts to Asset Reconstruction Companies and Securitisation Companies which is another breeding ground for corruption and malpractices. Most of these companies are interested only in the real estate value aiding cartel of land mafia. In fact the banks and financial institutions shirk their duty and responsibility of rehabilitating the NPA to take it out of the purview of NPA. It only shows their inability to tackle the ticklish question of non-performing assets. Such transactions do not reduce the incidences of accounts becoming NPA but shifting them from one basket to another and does not solve the problem of recovery of non-performing assets. If the banks and financial institutions cannot deal with NPA, how can the Asset Reconstruction Companies and Securitisation Companies undertake managing non-performing assets? The assignment exercise is nothing but a sham and it will not produce the desired result destroying an otherwise potential industry.
  10. The cases of housing loans, education loans and individual retail loans are to be treated in a different way and not at par with industrial or commercial loans because the circumstances and purposes are different.


The aforesaid steps form only a general approach to be taken in solving the crisis of non-performing asset. If the concept of “Conscience Cum Conscious Banking” is accepted along with the “Recovery with a human touch” then more studies and research can be undertaken to finally making it as an Act or a system and procedure to be announced by RBI and also a part of corporate and SME good governance and which should be made mandatory for the bank and financial institutions and also business enterprises to be adopted and implemented under a time bound program.. 

  1. It may be argued that already avenues are available to resolve the problems of NPA under SICA Act through BIFR, CDR and rehabilitation program as announced by RBI, Joint Lenders Committee formed as per RBI directive etc. But experience has shown that nothing timely is happening and the results are meager and not producing any tangible result. But in the envisaged concept, the basic difference is that there is a factor of compensating the enterprise for the losses and damages incurred by them on account of the wrong doings of the banks / financial institutions if it is proved which can be construed as lenders’ liability.

The prevailing approach of generalizing the reasons for the creation of non-performing assets though valid and since each case is different from the other, individual evaluation and assessment has to be undertaken to find solutions to the particular case. In order to make the approach to solving the problems of NPA a successful reality, it is necessary to understand the knowledge realities of the bank and financial institutions and that of the enterprise and the people managing the business on both sides. Since economic results are achieved by the concerted, unified and co-operative efforts of human resources, it is essential and inevitable that the importance of building a team of knowledgeable and highly motivated work force is to be established for the veritable realization of objectives of banks, financial institutions and the enterprise. Educating the work force and the customer is yet another important task along with undertaking training programs to update the knowledge and skill for the effective and efficient implementation of plans and programs for achieving goals.

Experts and officials may consider whatever that are stated above may seem to be utopian, non-practical and based on moralistic approach which has no value in the present day attitude. But there are many ways of implementing the aforesaid programs effectively within the ambit of the law and RBI directives based on the above mentioned concepts. A review of various happenings in the history of the world, be it political, scientific inventions, discovery contributing to progress and development of the humanities show that all such initiatives have started with a vision which was opposed and unaccepted by the people at large in the beginning and later when the mission fulfilled successfully  were appreciated and adopted and accommodated by them. What were considered impossible is made possible. Hence, the aforesaid approach can also be tried and when implemented with the true spirit and with sincerity of purpose and with commitment can definitely produce the desired result.

Lastly what is lacking in the financial sector and the entrepreneurial field is lack of leadership to carry out effective and successful implementation of plans and programs. Leadership is lifting an employee’s and workers’ vision to high sights, the raising of their performance to a higher standard, the building of their personalities beyond their normal limitations. Empowering people is an enthralling quality of a true leader. The quality of leadership is the ability to recognize a problem before it becomes an emergency and lies in guiding others to success by ensuring that everyone is performing at their best, doing the work they are pledged to do and doing it well.  “Experience is not what happens to a man. It is what a man does with what happens to him.” Besides, “The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands in times of challenge and controversy.”

The success mantra is:

Winners are too busy to be sad,

Too positive to be doubtful,

Too optimistic to be fearful,

And too determined to be defeated.”

And let the clarion call of Swami Vivekananda be followed, “ARISE, AWAKE AND STOP NOT TILL THE GOAL IS REACHED”. JAI HIND.

Sincerely Yours,

T.R. Radhakrishnan

(The author invites comments and opinions from readers. He can be contacted either through his email or mobile) )

(The author has advanced the concept of Conscience Cum Conscious Banking and Recovery with a Human Touch out his experience as an e x-banker and then as a facilitator for DRT cases.)

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