Meaning of Recalled Advances in Banks

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gargi (Querist)
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18 March 2011 Dear Sir,

Please explain,what are recalled assets (advances) in case of Banks (this is related to NPA accounts in Banks)?

Is it advances recalled under SARFAESI Act 2002, i.e, notice issued u/s. 13(2) of SARFAESI Act for recovery purpose?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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03 August 2024 **Recalled Advances** in the context of banking typically refer to loans or advances that a bank has demanded repayment for, often due to the borrower defaulting on their obligations. Here's a breakdown of what this means, especially in relation to Non-Performing Assets (NPAs) and recovery under the SARFAESI Act:

### **Understanding Recalled Advances**

1. **Definition:**
- **Recalled Advances**: These are loans or advances that a bank has formally requested to be repaid earlier than the original schedule. This recall usually happens when the bank perceives that the borrower is unable to meet their payment obligations, or the account has become an NPA (Non-Performing Asset).

2. **NPA Context:**
- **Non-Performing Assets (NPA)**: An NPA is a classification for loans or advances that are in default or arrears. Specifically, in India, an asset is classified as an NPA when the principal or interest payments remain overdue for 90 days or more.

### **Recalled Advances and SARFAESI Act**

- **SARFAESI Act, 2002**: The SARFAESI Act (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act) provides a legal framework for banks and financial institutions to recover dues from borrowers. Under this Act:
- **Section 13(2)**: This section empowers banks to issue a notice to the borrower, demanding repayment of the loan if the borrower fails to repay the debt. This notice is typically sent when the account is classified as an NPA.
- **Recalled Advances**: Under SARFAESI, a recalled advance is not exclusively tied to Section 13(2), but rather it can be a result of general banking practices where the bank demands immediate repayment due to the borrower's default status.

### **Process and Implications**

1. **Issuance of Recall Notice:**
- When a bank issues a recall notice, it formally asks the borrower to repay the outstanding amount immediately. This can be done before or in conjunction with other recovery actions, including those under SARFAESI.

2. **Recovery Actions under SARFAESI:**
- If the borrower fails to respond to the recall notice, the bank can take further action under the SARFAESI Act. This includes:
- **Section 13(4)**: For taking possession of secured assets.
- **Section 14**: For obtaining possession orders from the District Magistrate if the borrower resists.

3. **Impact on Borrower:**
- Recalled advances often signify that the borrower’s financial situation is under serious scrutiny. Failure to address these recalls can lead to severe recovery measures, including asset seizure.

### **Summary**

- **Recalled Advances** refer to loans that a bank demands repayment of due to default or deteriorated financial health of the borrower.
- **SARFAESI Act** plays a role in recovery but is not the only context in which advances are recalled.
- **NPA Classification** often triggers the process leading to the recall of advances, with SARFAESI Act providing additional recovery mechanisms.

In essence, recalled advances are a proactive measure by banks to recover dues, and this process often involves legal frameworks like SARFAESI to ensure that recovery actions are enforceable and effective.

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