11042 microsoft powerpoint - non performing asset [compatibility mode]

8/10/2019 11042 Microsoft PowerPoint - Non Performing Asset [Compatibility Mode]

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NP Management

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Fig 1: Asset Classification

Assets

Performing

Assets

Non Performing Assets

(NPA)

Standard

Assets

Sub -Standard

Assets

Doubtful

Assets

Loss

Assets

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Performing sset

An account does not disclose anyproblems and carry more than normal risk

a ac e o e us ness

All loan facilities which are regular !

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Non Performing ssets

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.

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Introduction

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.

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With effect form March 31 2004 a non-performing asset

(NPA) shell be a loan or an advance where;

interest and /or installment of principal remain overdue for a

eriod of more than 90 da s in res ect of a Term Loan,

Introduction

the account remains 'out of order' for a period of more than 90

days, in respect of an overdraft/ cash Credit(OD/CC),

the bill remains overdue for a period of more than 90 days inthe case of bills purchased and discounted,

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C TEGORIES OF NP

Standard Assets

Arrears of interest and the principalamount 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.

Doubtful Assets

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



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.6/9/2014


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Rea sons behind rise in NP

Lack of proper pre-enquiry by the bank for

sanctioning a loan to a customer.

Non performance of the business or the purpose

.

Willful defaulter.

Loans sanctioned for agriculture purposes.

Change in govt. policies leads to NPA.

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Effects of NP on b nks & FI

Restriction on flow of cash done by bank due

to the provisions of fund made against NPA.

.

Bad effect on goodwill.

Bad effect on equity value.

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Fa ctors Imp cting Rise In NP s

External factors :

Ineffective legal framework & weak recovery

tribunals

slowdown

Change in Govt. policies

Wilful defaults by customers

Alleged political interferences

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Fa ctors Imp cting Rise In NP s

Internal factors :

Defective Lending process

Inappropriate / non use of technology like MIS ,

Computerization

Im ro er SWOT anal sis Inadequate credit appraisal system

Managerial deficiencies

Absence of regular industrial visits & monitoring

Deficiencies in re-loaning process

Alleged corruption

Inadequate networking & linkages b/w banks

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BANKER SIDE

Defective SanctionNo post-sanctionsupervision, etc

BORROWER-SIDE

Lack of Planning

Diversion of Funds

Why Lo n a ccounts go b d ?

Delay in releasesDirected lendingSlow decisionmaking process

Disputes within

No contribution

No modernization

Improper monitoring

Industrial Relations

Natural Calamities

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TYPES OF NP

Gross NPA :Gross NPAs are the sum total of all loan

assets that are classif ied as NPAs as

per RBI guidelines as on Balance Sheet

date. Gross NPA reflects the quality ofthe loans made by banks. It consists of

all the non standard assets like as sub-

standard, doubtful, and loss assets.

Gross NPAs Gross NPAs

Gross Advances6/9/2014


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Net NPA:

Net NPAs are those type of NPAs in which the

bank has deducted the provision regarding

NPAs. Net NPA shows the actual burden of

.

Net NPAs Gross = __NPAs Provisions__

Gross Advances - Provisions

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Causes

NPA arises due to a number of factors or causes like:-

Speculation : Investing in high risk assets to earn high income.

Default : Willful default by the borrowers.

Fraudulent practices : Fraudulent Practices like advancing loans to

ineligible persons, advances without security or references, etc.

expansion and diversion of business.

Internal reasons : Many internal reasons like inefficient management,

inappropriate technology, labour problems, marketing failure, etc. resulting

in poor performance of the companies.

External reasons : External reasons like a recession in the economy,

infrastructural problems, price rise, delay in release of sanctioned limits bybanks, delays in settlements of payments by government, natural

calamities, etc.

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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

.

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.

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Standard Assets

Direct advances to agriculture and SME at 0.25%,

CRE at 1%

Substandard Asset

A general provision of 15% on total outstanding

The unsecured exposures which are

substandard to attract additional provision of10%, i.e., a total of 25% on the outstanding

balance.6/9/2014


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Doubtful Assets

100% of the extent to which the advance

is not covered by the realisable value of

the securit For the secured portion, provision to be

made as follows, depending upon the

period for which the asset has remained

doubtful

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Loss Assets

Write Off or provision of 100% of

outstanding

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NP Ma na gement Stra tegies

Indian Banks are pursuing variety of

strategies to control NPAs, which can be

studied under two broad categories as

un er :

a. Preventive Management

b. Curative Management

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a. Preventive Management - It is rightly said

that prevention is better than cure.

Developing Know Your Client profile (KYC

Monitorin Earl Warnin Si nals Installing Proper Credit Assessment and Risk

Management Mechanism

Reduced Dependence on Interest

Generating Watch-list/Special MentionCategory

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b. Curative Management

Re-phasement of loans

Pursuing Corporate Debt Restructuring (CDR

units

Encouraging acquisition of sick units by healthy

units

Entering compromise schemes with borrowers /Entering one time settlement

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Using Lok Adalats for compromise

settlement for smaller loans in doubtful

and loss category.

Using Securi tization & SARFAESI Act

Using Asset Reconstruction Company (ARC)

Approaching Debt Recovery Tribunals

(DRTs).

Recovery Action against Large NPAs Circulation of Information of Defaulters-

Strengthening Database of Defaulters6/9/2014

11042 microsoft powerpoint - non performing asset [compatibility mode]

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