DEFINITION OF NPAS A NPA is a loan or an advance where; Interest and/ or installment of principal remain overdue for a period of more

than 90 days in respect of a term loan, The account remains out of order in respect of an overdraft/ cash credit The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted The installment or interest remains overdue for two crop seasons in case of short duration crops and for one crop season in case of long duration crops CATEGORIES OF NPA Substandard Assets Which has remained NPA for a period less than or equal to 12 months. Doubtful Assets Which has remained in the sub-standard category for a period of 12 months 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. PROVISIONING NORMS Standard Assets general provision of a minimum of 0.25% Substandard Assets 10% on total outstanding balance, 10 % on unsecured exposures identified as sub-standard & 100% for unsecured doubtful assets. Doubtful Assets 100% to the extent advance not covered by realizable value of security. In case of secured portion, provision may be made in the range of 20% to 100% depending on the period of asset remaining sub-standard Loss Assets 100% of the outstanding

FACTORS CONTRIBUTING TO NPAS Poor Credit discipline Inadequate Credit & Risk Management Diversion of funds by promoters Funding of non-viable projects In the early 1990s PSBs started suffering from acute capital inadequacy and lower/ negative profitability. The parameters set for their functioning did not project the paramount need for these corporate goals. The banks had little freedom to price products, cater products to chosen segments or invest funds in their best interest

CURRENT STATUS OF NPAS All SCBs average Net NPA Ratio for 2005-06 is 1.22 (As per RBIs Statistics) The banks have been able to report lower NPA percentage mostly by providing

against or writing off NPAs. The provision to certain extent was facilitated by higher profits on account of treasury management The better Net NPA ratio was also facilitated by higher credit off take resulting in larger asset portfolio/ book size. NPA MANAGEMENT PREVENTIVE MEASURES Formation of the Credit Information Bureau (India) Limited (CIBIL) Release of Wilful Defaulters List. RBI also releases a list of borrowers with aggregate outstanding of Rs.1 crore and above against whom banks have filed suits for recovery of their funds Reporting of Frauds to RBI Norms of Lenders Liability framing of Fair Practices Code with regard to lenders liability to be followed by banks, which indirectly prevents accounts turning into NPAs on account of banks own failure Corporate Debt Restructuring The objective of CDR is to ensure a timely and transparent mechanism for restructuring of the debts of viable corporate entities affected by internal and external factors, outside the purview of BIFR, DRT or other legal proceedings The legal basis for the mechanism is provided by the Inter-Creditor Agreement (ICA). All participants in the CDR mechanism must enter the ICA with necessary enforcement and penal clauses. The scheme applies to accounts having multiple banking/ syndication/ consortium accounts with outstanding exposure of Rs.10 crores and above. The CDR system is applicable to standard and sub-standard accounts with potential cases of NPAs getting a priority. Packages given to borrowers are modified time & again Drawback of CDR Reaching of consensus amongst the creditors delays the process