According to Mint reports, a loan account is classified as a non-performing asset (NPA) when dues remain overdue for more than 90 days. Mukesh Chand, Senior Counsel at Economic Laws Practice, explained that a default usually means failure to pay an instalment on its due date, with even a one-day delay in EMI considered a default. Malak Bhatt, Chamber Head at Chambers of Malak Bhatt, noted that a secured lender may then issue a notice under Section 13(2) of the SARFAESI Act, 2002 and enforce security after 60 days, or approach the Debts Recovery Tribunal (DRT). The Reserve Bank of India (RBI) has issued comprehensive guidelines on classification of loans as Non-Performing Assets (NPAs) through its Master Circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances (effective April 1, 2025).
As reported by Mint, there is no statutory ceiling on how much you can borrow without collateral. Unsecured lending limits are fixed by each lender's board-approved credit policy, assessed against income, repayment capacity, existing obligations, and credit bureau score. Once a lender obtains a decree from a civil court or recovery certificate from the Debts Recovery Tribunal, it may attach and sell the borrower's other assets in execution. However, Chand noted that recovery could also be effected against other assets except those protected by law, such as essential household items, certain residential property, pensions, provident funds, retirement benefits, and life insurance proceeds.
According to Mint reports, family members are not liable for the loan if they have not provided a guarantee. Only the guarantor is liable to repay the loan, as the guarantor's liability is co-extensive with that of the borrower. A borrower can seek a compromise or one-time settlement (OTS) under the lender's board-approved policy, based on the Reserve Bank's Framework for Compromise Settlements and Technical Write-offs. Bhatt explained that the borrower can make a proposal, after which the lender assesses recoverability and the amount it may have to forgo, with approval leading to lump-sum or staggered payment options.
As reported by Mint, default attracts penal charges, a lower credit score, and possible classification as a wilful defaulter, which restricts access to fresh credit. However, Bhatt explained that default by itself is a civil wrong and not an offence, with no person being imprisoned merely for inability to pay. Criminal liability may arise only in specific situations, such as cheque dishonour or cheating, where dishonest intention existed at inception. In secured loans such as home or car loans, if sale proceeds are not enough to clear the outstanding loan, the borrower remains liable for the shortfall. The Kerala High Court has held that a notice issued after the limitation period has expired is invalid, as in a case where the bank issued a notice under Section 13(2) almost 19 years after the account was declared NPA (in 1985), which was far beyond the 12-year limitation period.
According to Mint reports, a lender may take possession of and sell a mortgaged asset under Section 13(4) of the SARFAESI Act, 2002, after the 60-day notice period and following prescribed valuation and sale process. The borrower retains the right to redeem the asset until publication of the sale notice. Chand noted that in secured loans, if sale proceeds are insufficient to clear the outstanding loan, the borrower remains liable for the shortfall. The limitation period for recovery of bank loans is a critical constraint, with the Limitation Act, 1963 prescribing that for bank loans secured by mortgage of immovable property, the suit or proceeding must be initiated within 12 years from when the money sued for becomes due. Section 36 of the SARFAESI Act explicitly incorporates the Limitation Act, meaning a Section 13(2) demand notice cannot be issued after the 12-year limitation period has expired. The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act) establishes a specialized tribunal system with 39 DRTs and 5 DRATs across India, providing an alternative recovery mechanism for debts of ₹20 lakhs or more.
