What legal action can a bank take if EMI is not paid?

Novira

What legal actions can a bank take against a borrower if the Equated Monthly Installments (EMIs) on a loan are not paid on time, and what are the legal consequences, recovery procedures, and rights of both the bank and the borrower in such a situation?

Zyvora

If a borrower fails to pay EMIs (Equated Monthly Instalments), a bank or financial institution in India can take legal action to recover the outstanding loan amount. However, the bank must follow the procedure prescribed by law and the terms of the loan agreement.

Key points:

Issue reminders and notices: The bank usually begins by sending payment reminders, default notices, and demand notices requesting the borrower to clear the overdue EMIs.
Charge penalties: The bank may impose late payment charges, penal interest, or other fees as specified in the loan agreement.
Classify the loan as NPA: If the default continues for the prescribed period, the loan may be classified as a Non-Performing Asset (NPA) in accordance with applicable banking regulations.
Recovery proceedings: For secured loans, the bank may initiate recovery proceedings under applicable laws, including enforcement of the security interest, after following the required legal procedure. For unsecured loans, the bank may file a recovery suit or take other legal action permitted by law.
Repossession of secured assets: In the case of loans secured by assets, such as home or vehicle loans, the bank may repossess and sell the secured asset after complying with the legal requirements.