Scribd
Upload
170 views5 pages

MR - Aashish Nagar Prof. Peeyush Bangur: Ms. Sonal Gour MS, Neha Singh

Non-performing assets (NPAs), also called non-performing loans, are loans where repayments or interest payments are overdue, usually by 90 days or more. High levels of NPAs can indicate credit risk problems for a bank. NPAs affect a bank's earnings and profitability. The Reserve Bank of India classifies assets into standard, substandard, doubtful, and loss categories based on how overdue payments are. Various steps have been taken by the Indian government to manage and recover NPAs, including one-time settlement programs, debt recovery tribunals, and new legislation governing problem loans. Managing NPAs remains an ongoing challenge for Indian banks.

Uploaded by

ashgud
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
170 views5 pages

MR - Aashish Nagar Prof. Peeyush Bangur: Ms. Sonal Gour MS, Neha Singh

Non-performing assets (NPAs), also called non-performing loans, are loans where repayments or interest payments are overdue, usually by 90 days or more. High levels of NPAs can indicate credit risk problems for a bank. NPAs affect a bank's earnings and profitability. The Reserve Bank of India classifies assets into standard, substandard, doubtful, and loss categories based on how overdue payments are. Various steps have been taken by the Indian government to manage and recover NPAs, including one-time settlement programs, debt recovery tribunals, and new legislation governing problem loans. Managing NPAs remains an ongoing challenge for Indian banks.

Uploaded by

ashgud
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 5

Presented By: - Faculty:-

MR.AASHISH NAGAR PROF. PEEYUSH


BANGUR
MS. SONAL GOUR

MS, NEHA SINGH

M.B.A. IIIrd SEMESTER.


INTRODUCTION:

Non-performing assets, also called non-performing loans, are loans, made by a


bank or finance company, on which repayments or interest payments are not being
made on time.

A loan is an asset for a bank as the interest payments and the repayment of the
principal create a stream of cash flows. It is from the interest payments than a bank
makes its profits.

Banks usually treat assets as non-performing if they are not serviced for some time.
If payments are late for a short time a loan is classified as past due. Once a
payment becomes really late (usually 90 days) the loan classified as non-
performing.

A high level of non-performing assets compared to similar lenders may be a sign


of problems, as may an sudden increase. However this needs to be looked at in the
context of the type of lending being done. Some banks lend to higher risk
customers than others and therefore tend to have a higher proportion of non-
performing debt, but will make up for this by charging borrowers higher interest
rates, increasing spreads. A mortgage lender will almost certainly have lower non-
performing assets than a credit card specialist, but the latter will have higher
spreads and may well make a bigger profit on the same assets, even if it eventually
has to write off the non-performing loans.
In liberalizing economy banking and financial sector get high priority. Indian
banking sector of having a serious problem due non performing. The financial
reforms have helped largely to clean NPA was around Rs. 52,000 crores in the year
2004. The earning capacity and profitability of the bank are highly affected due to
this

NPA is defined as an advance for which interest or repayment of principal or both


remain out standing for a period of more than two quarters. The level of NPA act
as an indicator showing the bankers credit risks and efficiency of allocation of
resource.

Reasons:

Various studies have been conducted to analysis the reasons for NPA. What ever
may be complete elimination of NPA is impossible. The reasons may be widely
classified in two:

(1) Over hang component 


(2) Incremental component

Over hang component is due to the environment reasons, business cycle etc.

Incremental component may be due to internal bank management, credit policy,


terms of credit etc.
Asset Classification :

The RBI has issued guidelines to banks for classification of assets into four
categories.

1. Standard assets:
These are loans which do not have any problem are less risk.

2. Substandard assets:
These are assets which come under the category of NPA for a period of less then
12 months.

3. Doubtful assets:
These are NPA exceeding 12 months

4. Loss assets:
These NPA which are identified as unreliable by internal inspector of bank or
auditors or by RBI.

Income recognition and provisioning 

Income from NPA is not recognized on accrued basic but is booked as income only
when, it is actually received. RBI has also tightened red the provisions norms
against asset classification. It ranges from 0.25% to 100% from standard asset to
loss asset respectively.
Management of NPA

The table II&III shows that during initial sage the percentage of NPA was higher.
This was due to show ineffective recovery of bank credit, lacuna in credit recovery
system, inadequate legal provision etc. Various steps have been taken by the
government to recover and reduce NPAs. Some of them are.

1. One time settlement / compromise scheme


2. Lok adalats
3. Debt Recovery Tribunals
4. Securitization and reconstruction of financial assets and enforcement of Security
Interest Act 2002.
5. Corporate Reconstruction Companies 
6.  credit information on defaulters and role of credit information bureaus 

CONCLUSION

The Indian banking sector is facing a serious problem of NPA. The extent of NPA
is comparatively higher in public sectors banks. To improve the efficiency and
profitability, the NPA has to be scheduled. Various steps have been taken by
government to reduce the NPA. It is highly impossible to have zero percentage
NPA. But at least Indian banks can try competing with foreign banks to maintain
international standard.
 

You might also like