How do banks handle NPA?

Banks handle NPA through various ways like use of Lok Adalats, Debt Recovery Tribunals, Asset Reconstruction etc. On September 16, 2021, Union Finance Minister Nirmala Sitharaman announced the establishment of Bad Bank, in order to help the banks handle NPA. You can read about the Non Performing Assets (NPA) – What is the meaning of NPA? [UPSC Economics Notes] in the given link.

Bad Bank would set up as a separate entity that would buy the Non-Performing Asset from other banks to free up and begin their normal operations. Around Rs 90,000 crore worth of bad loans have been identified by the banks which will be transferred to National Asset Reconstruction Company Limited (NARCL).

Further readings:

1. RBI – Reserve Bank of India [UPSC Indian Economy Notes]
2. Bad Banks – Idea Proposed by Indian Banking Association (IBA) Due to COVID-19