Non Preforming Asset(NPA)
Submitted to, Submitted by., Mr. K.R.Subramaniyan Eureka A Vijay T.N
Harimanikandan S
Non Performing Assets
The assets of the banks which don’t perform (that is don’t bring any return) more than 90 days are called Non Performing Assets ( NPA) or bad loans. If customers don’t pay either interest or part of principal or both, the loan turns into bad loan.
Asset Classification
Performing Asset: Standard AssetNon-performing Asset:
Substandard AssetDoubtful AssetLoss Asset
Fig 1: Asset Classification
Assets
Performing Assets
StandardAssets
Non Performing Assets(NPA)
Sub -StandardAssets
DoubtfulAssets
Loss Assets
Types of NPA
Gross NPAs = Gross NPA / Gross
Advances
Net NPA = (NPAs–provisions)/ (Gross Advances - Provisions)
FACTORS RISE IN NPAs
The banking sector has been facing the serious problems of the rising NPAs. But the problem of NPAs is more in public sector banks when compared to private sector banks and foreign
INTERNAL FACTORS EXTERNAL FACTORS
Internal FactorsDefective Lending process Inappropriate technologyAnalyze the balance sheet.Purpose of the loanPoor credit appraisal systemManagerial deficienciesAbsence of regular industrial visit
External Factors Ineffective recovery tribunalWillful DefaultsNatural calamities Industrial sicknessLack of demandChange in Govt. policies
PREVENTIVE MEASURES FOR NPA
Early recognition of the problem Identifying borrowers with genuine intent Timeliness and adequacy of response Focus on cash flowsManagement effectivenessMultiple financing
Provisioning Coverage Ratio
For every loan given out, the banks to keep aside some extra funds to cover up losses if something goes wrong with those loans. This is called provisioning. Provisioning Coverage Ratio (PCR) refers to the funds to be set aside by the banks as fraction to the loans.
LEAGAL TOOLS RECOVERYLok AdalatDebt recovery Act Orissa
and BiharMoney suit or Mortgage Suit.Debt Recovery Tribunal – 1993Securitization and Reconstruction of
Financial Assets and enforcement of Security Interest. (SARFAESI) – 2002
Sale of Financial Assets to Securitization/ Reconstruction Company.
Conclusion Non Performing Assets are one of the most influencing factors that effect the profit rate of banking sector. RBI suggested various measures to recover the loss from NPA’s like Increasing the rate of Provisioning Coverage Ratio(PCR), conduct more recovery camps, resale of NPA’s to Asset Reconstruction Companies etc., RBI governor Raghuram Rajan has given strict guidelines to all public and private sector banks to control the growing rate of NPA’s which will ultimately effect the performance of whole banking sector.
Query Time
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