Non Performing Assets (NPA)

Presented byB.SRINATH SARIKA

What is an NPA?

All those assets which generate periodical income are called as Performing Assets (PA). While all those assets which do not generate periodical income are called as Non-Performing Assets (NPA). In simple words, the assets of the Banks which dont perform (means dont bring any return) are called Non Performing Assets. In more general sense they are bad Loans.

INTRODUCTION TO NPA
With effect form March 31, 2004, a non-performing asset (NPA) shell be a loan or an advance where,

If the borrower has failed to make interest or principle payment for 90 days the loan is considered to be NPA in case of term loans. If the account remains out of order for a period of more than 90 days in respect of an overdraft or cash credit.

INTRODUCTION TO NPA

When the bill remains overdue (more than 90 days in case of bills purchased and discounted). In case of agricultural loan when interest or principle amount remains overdue for two harvest seasons but the period not exceeding two and half years is considered as NPA.

GROSS NPA AND NET NPA

Gross NPA is the amount which is outstanding in the books, regardless of any interest recorded and debited. Net NPA is Gross NPA less interest debited to borrowal account and not recovered or recognized as income.

NPA Sub categories

Non Performing Assets

Substandard Assets

Doubtful Assets

Loss Assets

Criteria for classification

Sub-Standard Assets: An asset which has remained NPA for a period less than or equal to 12 months. Doubtful Assets: An asset that has remained in the substandard category for a period of 12 months. Loss Assets: An asset 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.

NPA Provisioning norms

Standard Assets Direct advances to agriculture and SME at 0.25%, CRE at 1% Other loans and advances at 0.40% A general provision of 15% on total outstanding The unsecured exposures which are substandard to attract additional provision of 10%, i.e., a total of 25% on the outstanding balance.

Sub standard Asset

NPA Provisioning norms

Doubtful Assets
100%

of the extent to which the advance is not covered by the realisable value of the security For the secured portion, provision to be made as follows, depending upon the period for which the asset has remained doubtful:
Time spent in doubtful category < 1 year 1 to 3 years > 3 years Provision requirement 25 % 40 % 100 %

Loss Assets

Write Off or provision of 100% of outstanding

REASONS FOR NPAs

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. Loans sanctioned for agriculture purposes. Change in govt. policies may also leads to NPA.

Thank You