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Non Performing Assets

Non Performing Assets

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Published by amaresh rout

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Published by: amaresh rout on Sep 24, 2008
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01/04/2013

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NON PERFORMING ASSETS (NPA)1.0WHAT IS A NPA (NON PERFORMING ASSET)Action for enforcement of security interest can be initiated onlyif the secured asset is classified as Nonperforming asset.Non performing asset means an asset or account of borrower,which has been classified by bank or financial institution assub –standard , doubtful or loss asset, in accordance with thedirection or guidelines relating to assets classification issuedby RBI .An amount due under any credit facility is treated as “pastdue “when it is not been paid within 30 days from the due date.Due to the improvement in the payment and settlementsystem, recovery climate, up gradation of technology in thebanking system etc, it was decided to dispense with “past due“concept, with effect from March 31, 2001. Accordingly as fromthat date, a Non performing asset shell be an advance where
i.
Interest and/or instalment of principal remain overdue fora period of more than 180 days in respect of a term loan,
ii.
 The account remains ‘out of order ‘ for a period of morethan 180 days ,in respect of an overdraft/cash credit(OD/CC)iii.The bill remains overdue for a period of more than 180days in case of bill purchased or discounted.iv.Interest and/or principal remains overdue for two harvestseason but for a period not exceeding two half years incase of an advance granted for agricultural purpose ,andv.Any amount to be received remains overdue for a periodof more than 180 days in respect of other accountsWith a view to moving towards international best practicesand to ensure greater transparency, it has been decided to
 
adopt ’90 days overdue ‘norms for identification of NPAs,from the year ending March 31,2004,a non performing assetshell be a loan or an advance where;i.Interest and/or instalment of principal remainoverdue for a period of more than 90 days in respectof a term loan,ii.The account remains ‘out of order ‘ for a period of more than 90 days ,in respect of an overdraft/cashcredit (OD/CC)iii.The bill remains overdue for a period of more than 90days in case of bill purchased or discounted.iv.Interest and/or principal remains overdue for twoharvest season but for a period not exceeding twohalf years in case of an advance granted foragricultural purpose ,andv.Any amount to be received remains overdue for aperiod of more than 90 days in respect of otheraccounts
Out of order
An account should be treated as out of order if theoutstanding balance remains continuously in excess of sanctioned limit /drawing power. in case where the out standingbalance in the principal operating account is less than thesanctioned amount /drawing power, but there are no creditscontinuously for six months as on the date of balance sheet orcredit are not enough to cover the interest debited during thesame period ,these account should be treated as ‘out oorder’.
Overdue
 
Any amount due to the bank under any credit facility is ‘overdue’ if it isnot paid on due date fixed by the bank.
FACTORS FOR RISE IN NPAs
 The banking sector has been facing the serious problemsof the rising NPAs. But the problem of NPAs is more in publicsector banks when compared to private sector banks andforeign banks. The NPAs in PSB are growing due to external aswell as internal factors.
EXTERNAL FACTORS
Ineffective recovery tribunal
 The Govt. has set of numbers of recovery tribunals,which works for recovery of loans and advances. Due totheir negligence and ineffectiveness in their work the banksuffers the consequence of non-recover, their by reducingtheir profitability and liquidity.
Wilful Defaults
 There are borrowers who are able to payback loansbut are intentionally withdrawing it. These groups of people should be identified and proper measures shouldbe taken in order to get back the money extended to themas advances and loans.

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