Non performing assets

Non performing assets

• 1.
  NON-PERFORMING ASSETS NIKKYROSE THOMAS (14)
• 2.
  Fig 1: AssetClassification Assets Performing Assets Standard Assets Non Performing Assets (NPA) Sub -Standard Assets Doubtful Assets Loss Assets
• 3.
  Non Performing Assets Non Performing Asset means a loan or an account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by RBI.
• 4.
  BEFORE & AFTER…… Earlier assets were declared as NPA after completion of the period for the payment of total amount of loan and 30 days grace.  In present scenario assets are declared as NPA if none of the installment is paid till 180 days i.e. six months in respect of a term loan.
• 5.
  CATEGORIES OF NPA Standard Assets : Arrears of interest and the principal amount of loan does not exceed 90 days at the end of financial year  Substandard Assets : Which has remained NPA for a period less than or equal to 12 months. Secured Loans: 15% provision UnSecured Loans: 25% Provision  Doubtful Assets : Which has remained in the sub-standard category for a period of more than 12 months  D1 i.e. up to 1 year : 20% provision is made by the bank  D2 i.e. up to 2 year : 30% provision is made by the bank  D3 i.e. up to 3 year : 100% provision is made by the bank  Loss Assets : where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly.
• 6.
  Reasons behind risein NPA  Lack of proper pre-enquiry by the bank for sanctioning a loan to a customer.  Non performance of the business or the purpose for which the customer has taken the loan.  Willful defaulter  Change in govt. policies leads to NPA.
• 7.
  Effects of NPAon banks & FI  Restriction on flow of cash done by bank due to the provisions of fund made against NPA.  Drain of profit.  Bad effect on goodwill.  Bad effect on equity value.
• 8.
  TYPES OF NPA Gross NPA : Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans made by banks. It consists of all the non standard assets like as sub-standard, doubtful, and loss assets.
• 9.
   Net NPA: NetNPAs are those type of NPAs in which the bank has deducted the provision regarding NPAs. Net NPA shows the actual burden of banks.
• 10.
  Causes  Speculation  Default Fraudulent practices  Diversion of funds  Internal reasons  External reasons
• 11.
  NPA Management Strategies Preventive Management : Developing ‘Know Your Client’ profile. Monitoring Early Warning Signals.  Curative Management: Encouraging acquisition of sick units by healthy units Entering compromise schemes with borrowers / Entering one time settlement
• 12.
   Using LokAdalats for compromise settlement for smaller loans in “doubtful” and “loss” category.  Using Securitization & SARFAESI Act  Using Asset Reconstruction Company (ARC)  Approaching Debt Recovery Tribunals (DRTs).  Circulation of Information of Defaulters- Strengthening Database of Defaulters
• 13.
   Public sectorbanks have reported stressed assets — non-performing assets (NPAs) and restructured loans Name of Banks Percentage 1 Central bank Of India 21.15% 2 United bank Of India 19.04% 3 Punjab & Sind Bank 18.25% 4 Punjab national Bank 17.85% 5 Indian Overseas Bank 17.70%