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    What Is A NPA?

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    Akshay Goyal
    NPA refers to loans where the principal or interest is overdue for more than 90 days. There are three categories of NPAs - substandard, doubtful, and loss assets. Factors leading to NPAs include lack of proper loan sanctioning process and non-performance of the business. Growing NPAs restrict bank liquidity and profits. Banks use various methods to manage NPAs like debt recovery tribunals, asset reconstruction companies, and the SARFAESI Act which allows banks to enforce security without court intervention.

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    What Is A NPA?

    Uploaded by

    Akshay Goyal
    105 views21 pages
    NPA refers to loans where the principal or interest is overdue for more than 90 days. There are three categories of NPAs - substandard, doubtful, and loss assets. Factors leading to NPAs include lack of proper loan sanctioning process and non-performance of the business. Growing NPAs restrict bank liquidity and profits. Banks use various methods to manage NPAs like debt recovery tribunals, asset reconstruction companies, and the SARFAESI Act which allows banks to enforce security without court intervention.

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    NPA

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    NPA refers to loans where the principal or interest is overdue for more than 90 days. There are three categories of NPAs - substandard, doubtful, and loss assets. Factors leading to NPAs include lack of proper loan sanctioning process and non-performance of the business. Growing NPAs restrict bank liquidity and profits. Banks use various methods to manage NPAs like debt recovery tribunals, asset reconstruction companies, and the SARFAESI Act which allows banks to enforce security without court intervention.

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    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    105 views21 pages

    What Is A NPA?

    Uploaded by

    Akshay Goyal
    NPA refers to loans where the principal or interest is overdue for more than 90 days. There are three categories of NPAs - substandard, doubtful, and loss assets. Factors leading to NPAs include lack of proper loan sanctioning process and non-performance of the business. Growing NPAs restrict bank liquidity and profits. Banks use various methods to manage NPAs like debt recovery tribunals, asset reconstruction companies, and the SARFAESI Act which allows banks to enforce security without court intervention.

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    of 21

    What is a NPA?

    • 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.
    • An asset which ceases to generate income for the
    bank. Interest debited to the borrower’s account has
    to be realized by the bank.
    • Refers to the sum of non-performing loans (NPL) and
    real and other properties owned and acquired
    (ROPOA)
    Identification of Account as NPA(as per RBI
    Guidelines)-
    • Term Loan-
    Interest and /or instalment of principal remain
    overdue for a period of more than 90 days
    • Overdraft/ Cash credit-
    Account remains out of order
    Conditions for Overdraft to become a NPA-

    • The outstanding balance remains continuously


    in excess of the sanctioned limit/drawing power
    for 90 days or more
    • Even if the outstanding in the account is less
    than the sanctioned limit/drawing power, there
    are no credits in the account continuously for
    90 days as on the date of the Balance sheet
    • Credits in the account are not sufficient to cover
    interest debited during the same period
    Identification of NPA (contd.)
    • Bills purchased or discounted-
    If the bills purchased or discounted remains overdue
    for a period of more than 90 days from its due date
    • Agricultural advances-
    - Loans granted for short duration crops will be treated
    as NPA, if the instalment of principal or interest
    thereon remains overdue for two crop season
    - Loans granted long duration crops will be treated as
    NPA, if the instalment of principal or interest thereon
    remains overdue for one crop
    Types of NPAs

    Substandar Doubtful
    Loss Assets
    d NPA NPA
    Substandard NPA-
    • The account holder comes in this category
    when they don’t pay three installment
    continuously after 90 days and up to 1year.
    • For this category bank has made 10%
    provision of funds from their profit to meet
    the losses generated from NPA.
    Doubtful NPA

    D1. up to 1 D2. up to 2 D3. up to 3


    year : 20% year: 30% year : 100%
    provision is provision is provision is
    made by the made by the made by the
    banks bank bank
    Loss Assets
    • Identified as unreliable by internal inspector
    of bank or auditors or by RBI
    • For these 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
    Factors leading to 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 government policies leads to NPA
    Effect of NPA on BFSI-
    • Restriction on flow of cash done by bank due
    to the provisions of fund made against NPA
    • Liquidity shortages
    • Drain of profit
    • Bad effect on goodwill
    • Bad effect on equity value
    Management of NPA-
    • Special Mention Accounts
    • Debt Recovery Tribunals
    • Securitization and reconstruction of financial assets
    and enforcement of Security Interest Act 2002.
    • Corporate Asset Reconstruction Companies
    • Recalled Assets

      
    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 lacs
    and above can be filed
    Asset Reconstruction Company
    • ARCIL-(Asset Reconstruction Company )
    • India’s 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), is ASREC (India).
    SARFAESI Act -2002

    • The Securitization 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.
    SARFAESI Act-
    Alternative
    methods for
    recovery of
    NPAs

    Enforcement
    of security
    without
    Securitization intervention of
    court
    Asset
    reconstruction
    SARFAESI Act Contd.
    • The provisions of this Act are applicable only
    for NPA loans with outstanding above Rs. 1
    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
    SARC
    • Banks have a specific cell for NPA, which is
    called 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 the permission
    given by the court to sell the land or any asset.
    Special Mention Account
    • This is the account which is made before NPA
    • When a customer’s 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,
    standard stock statement etc)
    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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