DRT Rules Intermittent Repayments Cannot Prevent Loan Account from Becoming NPA, Orders Recovery Certificate
Tribunal stresses consistency in repayment obligations
Case highlights stricter enforcement of banking norms
By Legal Correspondent
New Delhi: March 03, 2026:
The Debt Recovery Tribunal (DRT) has clarified that intermittent repayments made by a borrower do not prevent a loan account from being classified as a Non‑Performing Asset (NPA). In a ruling delivered in February 2026, the Tribunal directed its registry to prepare a recovery certificate against the borrower, reinforcing the principle that consistent repayment is essential to maintain loan accounts in good standing.
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The case underscores the growing importance of DRTs in addressing India’s rising NPA crisis and ensuring that banks and financial institutions can recover dues efficiently.
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Background of the Case
- The dispute involved a borrower who had taken a substantial loan from a financial institution.
- The borrower made sporadic repayments but failed to maintain regular schedules as per the loan agreement.
- The bank classified the account as an NPA under Reserve Bank of India (RBI) guidelines, which require accounts to be marked as non‑performing if repayment obligations are not met for 90 days.
- The borrower contested the classification, arguing that intermittent repayments should have prevented the account from being declared an NPA.
- The DRT rejected this argument and upheld the bank’s classification.
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Tribunal’s Observations
- Consistency Matters: Repayments must be regular and in line with contractual obligations. Sporadic payments cannot cure default.
- RBI Guidelines Binding: Banks are bound by RBI’s prudential norms, which mandate classification of accounts as NPAs after 90 days of non‑payment.
- Recovery Certificate: The Tribunal directed its registry to prepare a recovery certificate, enabling the bank to initiate recovery proceedings.
- Borrower Accountability: The ruling emphasized that borrowers cannot rely on occasional payments to avoid consequences of default.
Why This Matters
- Banking Sector Stability: The ruling strengthens banks’ ability to classify and recover NPAs, ensuring financial discipline.
- Borrower Awareness: It sends a clear message that intermittent repayments are insufficient to maintain loan accounts.
- Judicial Oversight: By directing issuance of a recovery certificate, the Tribunal reinforced its role in expediting recovery.
Reactions and Implications
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- Banks and Lenders: Financial institutions welcomed the ruling, noting that it provides clarity and strengthens recovery mechanisms.
- Borrowers: Some borrowers expressed concern that strict enforcement could overlook genuine financial distress.
- Legal Experts: Lawyers highlighted that the ruling aligns with RBI norms and ensures consistency in NPA classification.
Wider Context
- India’s banking sector has struggled with high NPAs, particularly in corporate and infrastructure loans.
- The Recovery of Debts and Bankruptcy Act, 1993 empowers DRTs to adjudicate disputes and issue recovery certificates.
- Recovery certificates act as deemed decrees, enabling banks to enforce recovery through legal mechanisms.
- The Supreme Court has previously clarified timelines for initiating insolvency proceedings based on recovery certificates, underscoring their importance in debt enforcement.
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Conclusion
The DRT’s ruling that intermittent repayments do not prevent a loan account from becoming an NPA is a landmark clarification in debt recovery law. By directing issuance of a recovery certificate, the Tribunal has reinforced borrower accountability and strengthened banks’ ability to recover dues. The judgment is expected to influence future disputes and contribute to India’s ongoing efforts to tackle the NPA crisis.
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