In my experience of advising businesses on financial regulations, I’ve seen too many MSME owners blindsided by NPA classifications that could have been prevented.
When your business gets labeled a Non-Performing Asset:
– Asset seizures become immediate threats
– Your creditworthiness plummets overnight
– SARFAESI Act provisions can be invoked against you
– Banking relationships built over years vanish
The Supreme Court has reinforced critical MSME protections that most business owners don’t know about.
Banks must follow the 2015 “Framework for Revival and Rehabilitation of MSMEs” before classifying your loan as an NPA.
Your 3-step legal defense strategy:
1. Verify your MSME registration status
Official recognition under MSMED Act isn’t just paperwork, it’s your first line of defense.Without this, you lose crucial protections.
2. Document Everything
Submit authenticated MSME status documentation to your bank.In legal battles, documentation is your strongest ally.I’ve seen cases won and lost on this alone.
3. Early Communication is Critical
The #1 mistake I see?
Waiting until it’s too late.
Financial stress indicators appear long before the 90-day overdue period.
Open communication channels NOW.
The technical framework you must understand
Banks must categorize accounts showing signs of stress under “Special Mention Account” sub-categories BEFORE an NPA classification.
Remember: Per RBI guidelines, an account can only be classified as NPA when payments remain overdue for more than 90 days.
CRUCIAL SAFEGUARD: Banks and Financial Institutions are legally obligated to inform you in advance about their intention to classify your loan account as NPA. They cannot surprise you with an NPA classification without prior notification and opportunity to regularize your account.
And critically: No bank can classify your account as NPA by fraudulently charging interest rates higher than what’s specified in your sanction letter or beyond RBI-declared caps.
After representing dozens of businesses in similar situations, I can tell you: prevention is infinitely more effective than remediation.
Have you experienced pressure from banks regarding potential NPA classification?