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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