nonperforming-assets-1233402860280207-3

8/12/2019 nonperforming-assets-1233402860280207-3

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31-01-2009 [email protected]


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NPA (NON PERFORMING ASSET)

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, inaccordance with the directions or guidelines

relating to asset classification issued by RBI.

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INTRODUCTION TO NPA

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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CONT..

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 aperiod of more than 90 days in respect of a Term Loan,

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 in

the case of bills purchased and discounted,

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CONT..

interest and/ or installment of principalremains overdue for two harvest seasons butfor a period not exceeding two half years in

the case of an advance granted foragricultural purpose, and

any amount to be received remains overduefor a period of more than 90 days in respectof other accounts.

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TYPES OF NPA

There are three major types of NPA:

Sub-standard: The account holder comes

in this category when they dont pay three

installment continuously after 90 days and

upto 1year. for this category bank has made

10% provision of funds from their profit to

meet the losses generated from NPA.

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CONT..

Doub tful NPA : under doubtful NPA there

are three sub categories : D1 i.e. up to 1 year : 20% provision is made by the

banks 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.

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CONT..

Loss Assets : under this 100% provision is

made. When account holder comes in this

category their account can be written off by

the banks.

After this the assets are handed over to

recovery agents for sale

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REASONS BEHIND 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.

Loans sanctioned for agriculture purposes.

Change in govt. policies leads to NPA.

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EFFECTS OF NPA ON 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.

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NET NON PERFORMING SSETS

YEARS SBI PNB ICICI UTI SCB

1996 7.31 10.21 3.69 5.33 3.30

1997 7.30 10.38 3.22 3.66 2.88

1998 6.07 9.57 1.14 5.63 2.421999 7.33 8.96 2.88 6.32 NA

2000 6.65 8.52 1.53 4.71 2.04

2001 5.33 6.69 3.36 2.39 1.53

2002 5.63 5.32 5.48 3.46 3.46

2003 4.5 3.86 5.21 2.39 2.39

2004 3.48 0.98 2.21 1.29 1.29

2005 2.65 0.2 1.65 1.39 1.39

2006 1.87 0.29 0.72 0.98 0.98

2007 1.32 0.28 0.78 0.72 0.8711

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SARFAESI ACT, 2002

The Securitisation and Reconstruction of

Financial Assets and Enforcement of

Security Interest Act, 2002 empowers Banks

/ Financial Institutions to recover their non-performing assets without the intervention of

the Court.

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CONT..

The Act provides three alternative methods

for recovery of non-performing assets,

namely: -

Securitisation

Asset Reconstruction

Enforcement of Security without the

intervention of the Court.

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CONT..

The provisions of this Act are applicable only

for NPA loans with outstanding above Rs.

1.00 lac.

NPA loan accounts where the amount is less

than 20% of the principal and interest are not

eligible to be dealt with under this Act

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DEBT RECOVERY TRIBUNAL

It is the special court established by

central government for the purpose of

bank or any financial institutions recovery.

The judges of this court are the retired

judges of high court.

In this court only the recovery cases of 10

lakhs and above can be filed.

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SARC

Banks have a specific cell for NPA, which iscalled as Stress Asset Recovery Cell.

This cell continuously works on How

Recoveries Can Be Done. Bank does its recovery by sending notices,

by bidding, and by taking a legal action.

DECREE is a paper of court or thepermission given by the court to sell the

land or any asset.

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SPECIAL MENTION ACCOUNT

This is the account which is made before

NPA.

When a customers account comes under

this account then immediate follow up is

done by the respective bank.

Warning signals are given by the bank.

(when a bank has a doubt on a customer

although they have standard accounts, sr

stock statement etc)18

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RECALLED ASSETS

When bank has a doubt on the intension of

the customer it ask for the whole money to

be paid back even, if he has not paid two or

three installments.

Notices are sent to the customer.

On recalled assets bank can take legal

action also.

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AGENTS APPOINTED FOR RECOVERY

Recovery agent : they are agents hired by the

banks for the recovery of the non-performing

assets at 10% commission.

Enforcement agent: they are the agents hired

by the bank after filing the case in court. They

are hired under SARFAESIact at 10%

commission.

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CONT..

Self help group(SHG): SHG is a group of 10

to 15 people in rural areas which is

appointed by the banks especially SBI as

recovery agent for govt. sponsered schemelike PMRY etc.

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ARC

The Asset Reconstruction Company

Limited(ARCIL),

Indias first ARC with an initial equity of Rs.10

crore with ICICI bank, IDBI and SBI to pick

up 24.5% stake each(and remaining to be

acquired by HDFC, IDBI Bank and UTI

Bank). The second asset reconstruction company

(ARC), ASREC (India) in the country is set to

be operational soon 22

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@ il


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