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Non Performing Assets
NON PERFORMING ASSETS
INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVISIONING NORMS (IRAC NORMS) &
Asset Reconstruction Companies
Bank Credit (% to GDP)
Non Performing Assets
Non Performing Assets
Non Performing Assets
6 Non Performing Assets Banking .
. etc Delay in releases Directed lending … Slow decision making process Etc etc etc …. 7 Non Performing Assets supervision. Natural Calamities . Banking ..Why Loan accounts go bad ? BORROWER-SIDE BANKER – SIDE Lack of Planning Diversion of Funds Disputes within… Defective Sanction No post-sanction No contribution … No modernisation … Improper monitoring Industrial Relations..
3. 8. 5. Satisfactory Accounts Irregular Accounts Sick-viable : Under Nursing Sick – Non-viable : Sticky accounts Advances Recalled Suit Filed Accounts Decreed Debts and Debts classified by the Bank as Bad/Doubtful Accounts 8 Non Performing Assets Banking .Health Code System in Indian Banks during 1980’s 1. 2. 6. 7. 4.
Asset Classification – 4 way 1993 Standard Assets All regular loan accounts & investments (Performing Assets) Non-Performing Assets 1. Loss Assets 9 Non Performing Assets Banking . Doubtful Assets 3. Sub-Standard Assets 2.
Performing Asset defined … An account (loan or investment) is classified as Performing Asset if it does not disclose any problems and carry more than normal risk attached to the business All loan facilities which are regular ! 10 Non Performing Assets Banking .
11 Non Performing Assets Banking . including a leased asset.N P As : Definition An asset. A credit facility in respect of which the interest and/or installment of principal has remained “past due” for a specified time. becomes non-performing when it ceases to generate income for the bank.
educational loan. Doubtful and Loss Assets… 12 Non Performing Assets Banking . RBI followed 8 point Health Code Also called Non Performing Loans (NPLs) or Stressed Assets An advance where interest and / or instalment of principal remain ‘overdue’ for a period of more than 90 days in respect of Term Loan / OD / CC /BP / BD / other accounts – investments. Sub-standard. SSI/SME/ agricultural.Non Performing Assets In accounting. Etc. housing loan. originally Bad & Doubtful Debts In 1980s. lease and hire purchase …. export finance.
Winding Up Notices. Simple or Compound calculation Lok Adalat. … Seizure and disposal of assets thro’ auctions Criminal Action per Sec 138 of NI Act … Compromises – Interest reduction / waiver. DRT / BIFR Awards.Recovery of Loans Field Visits. Legal … Civil Procedure. OTS. Regd. CDR Asset Securitisation under SARFAESI Act … 13 Non Performing Assets Banking . Stock Statements Notices on due dates – Ordy. deferment. Personal persuasion.
1994 4 quarters 3 quarters Mar 31. 1995 Mar 31. 1993 Mar 31. 2004 2 quarters 1 quarter only ??? 14 Non Performing Assets Banking .Def’n of NPAs Chronologically Mar 31.
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679 % 14.962 Total Loans 3.52.436 4.840 63.816 188.8.131.52 12.722 60. 2001) 16 Non Performing Assets Banking .% NPAs to Total Advances (Rs in crores) Year 1998 1999 NPAs 50.757 5.696 3.99.8 11.4 2000 2001 (Source : Trends & Progress : RBI.4 14.
17 Non Performing Assets Banking . Earth quakes.IRAC NORMS Master circular dated 17th July. etc.. 2003. Fire Accidents. Natural Calamities – Floods. 2004. Status-quo of classification in respect of earth-quake affected accounts available upto 15/07/2004. Superceded earlier master circular dated 22nd August.. Cyclones. Failure of Monsoon.
NON-PERFORMING ASSET (NPA) The asset ceases to generate income for the bank. 18 Non Performing Assets Banking .ASSET TYPE STANDARD ASSET / PERFORMING ASSET The account is standard / performing and does not carry more than the normal risk attached to the business.
Cash Credit / Overdrafts The account is treated as ‘out of order’ if : * Outstanding Balance remains continuously in excess of sanction limit/drawing power for 90 days or more.IDENTIFICATION OF NPA Account remains ‘out of order’ for 90 days or more. 19 Non Performing Assets Banking . * No credit continuously for 90 days or more as on the date of Balance Sheet. * Credits in the account are not sufficient to cover interest debited during the same period.
loan Others Any amount to be received remains overdue for 90 days or more . Bill remains overdue for 90 days Agricultural Advances Interest and/or installment remains overdue for two harvest seasons for short duration crop.IDENTIFICATION OF NPA … Term Loans Bills Purchased and or more. 20 Non Performing Assets Banking . Discounted Interest and/or instalment remains overdue for 90 days or more. one harvest season for long duration crop.
f.e. (w. 21 Non Performing Assets Banking . identified by the bank or internal or external auditors or by RBI Inspectors as wholly irrecoverable but the amount for which has not been written off.CLASSIFICATION NORMS Standard Asset The account is not non-performing. Sub-Standard Asset A sub standard Asset is one which has remained NPA for a period less than or equal 12 months. 31st March 2005) Loss Assets These are accounts.
I Doubtful .CLASSIFICATION NORMS Doubtful Asset .Three Categories Category Period Doubtful .II Doubtful .III Years 22 Non Performing Assets up to One Year Up to Three Years More than Three Banking .
PROVISIONING NORMS STANDARD ASSET 0.25% on Standard Assets on Global loan portfolio basis SUB-STANDARD ASSET 10% of total outstanding 20% of total outstanding if loan is unsecured abinitio (new guidelines). 23 Non Performing Assets Banking .
PROVISIONING NORMS SUB-STANDARD (Cont’d) Banks are permitted to phase the additional provisioning upon reduction in transition period from 18 to 12 months Over a period of four years with minimum 20% each year (new guidelines) LOSS ASSET: 100% should be provided for out standing amount. 24 Non Performing Assets Banking .
2013(100%) 25 Non Performing Assets Banking . 31st March 2011(60%) .PROVISIONING NORMS DOUBTFUL ASSETS Period Provision (Secured +Unsecured) + 100% + 100% + 100% Upto 1 year 20% 1to 3 years 30% More than 3 years 100% (effective from 31st March 2005) Outstanding as on secured portion. 2012(75%).
Non Performing Assets Banking 26 . In case of advances guaranteed by DICGC/ECGC. Provision should be made only for balance in excess of the amount guaranteed by these corporations.PROVISIONING NORMS Provision Under Special circumstances Normal provision on Government guaranteed advances.
NSCs.2. IVPs. Advance against gold ornaments securities not exempt. KVPs and Life Insurance Policies need not be treated as NPAs. / Government 27 Non Performing Assets Banking . Income to be recognised subject to availability of margin.10 of Master Advances against term deposits. till security cover is sufficient to cover outstanding balance.IMPORTANT ASPECTS Exempted Circular) Category (Para 4.
2.IMPORTANT ASPECTS Classification of a Borrower (Para 4. Exception: Credit facility to Primary Agricultural Credit Society (PACS) and Farmers Service Societies (FSS) under on lending arrangement.6 of Master Circular) All facilities granted to a borrower shall be treated as NPA & not only that facility which has become irregular. Obtain cross-branch confirmation for classification. 28 Non Performing Assets Banking .
recovery or obtain an express consent from the Lead Bank.IMPORTANT ASPECTS Consortium Circular) Member Advances (Para 4.2.7 of Master banks shall classify the accounts according to their own record of recovery. Bank needs to arrange to get their share of Bank may obtain Lead Bank confirmation & cognizance of the same may be taken? Non Performing Assets Banking 29 .
as for restructuring under CDR will applicable to otherwise restructured Accounting treatment Projects under implementation 30 Non Performing Assets Treatment to be in line with Para 4.20 Crores & above.Corporate Debt Restructuring. (Not available for sole banking accounts) be same accounts.2.(Para 4. CDR will be available only in respect of multiple banking/syndication/consortium accounts with outstanding exposure of Rs. Corporate Debt Restructuring (CDR) .16 of Master Circular Banking .2.15 of Circular) Master CDR is an institutional mechanism for evolving financial solution.
Conversion of Overdue Limits. 31 Non Performing Assets Banking facility / . Frequent Re-schedulement of Term Loans.GREENING ISSUES Sanction/extension of Additional Adhoc facility. Enhancement of Limit. Adjusting Loan of one borrower against other borrower.
unrealised interest of the previous year to be derecognised/ reversed.Priority Unrealised Expenses . When an account becomes non-performing. Unrealised Interest Amount of Principal Outstanding Clarification vide Master Circular .in the absence of clear agreement between the Bank and the Borrower. an appropriate policy to be followed in uniform and consistent manner. 32 Non Performing Assets Banking .INCOME RECOGNITION Income Recognition For NPA accounts income should be recognised on realisation basis. Adjustment of Recoveries .
33 the guidelines issued by the Reserve Bank of India in connection with Percentage of Net NPAs to Net Advances. Accounting policy for classification. Movements in NPAs. Movement in Provision for NPAs. Non Performing Assets Banking Disclosure needs to be made as required in terms of . Provision for Standard Assets & NPAs.DISCLOSURE At Branch Level Auditor needs to report the compliance with IRAC norms of RBI with respect to classification & provisioning for NPA and income recognition in Long Form Audit Report (LFAR) of the branch. At Head Office Level Advances are disclosed net off NPA provisions & Interest Suspense. provisioning & income recognition need to be disclosed.
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Asset Reconstruction Companies 37 Non Performing Assets Banking .
Dep Guarantee Fund : 1977-80 Chile . 1989 Japan .Resolution Trust Corp’n.Cash Purchase of Bad Loans1982 USA .Experience abroad Spain .Coop Cr’ Purchasing Co 1993 Poland : Rescheduled Bad Loans : 1994 Eastern Europe : Govt Bonds : 1994 (Hungary) 38 Non Performing Assets Banking .
etc too 39 Non Performing Assets Banking .. Czech.1988 Ghana . Tanzania .Experience abroad. Slovak..1995 Philippines .Asset Privatisation Trust Malaysia .NPA Recovery Trust – 1989 Sweden .SECURUM .Soft loans by Central Bank Colombia.January 1993 Uganda .
Asset Reconstruction Companies Capital from Banks/Financial Inst’ns ARCs in private sector like an SPV Staff from Banks/Financial Inst’ns Issue Bonds in lieu of Assets taken over Guaranteed by Government of India Stamp Duty to be exempted On par with Venture Funds for Inc. Tax 40 Non Performing Assets Banking .
. against right of ICICI Bank 41 Non Performing Assets Banking . Securitisation of Financial Assets. etc Challenged in Supreme Court by M/s.Developments in India Ordinance in June 2002 on Securitisation Law Enacted by Parliament in December 2002 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) 2002 Powers to Lenders – To Seizure of Assets. Mardia Chemicals Ltd. Change of Management.
4. Deutsche and UTI Bk? Corp Bank. Stanchart. Asset Reconstruction Company India Ltd 2.Setting up of AR Companies in India 1. 3. ING Vysya and Actis to start? 42 Non Performing Assets Banking . (ARCIL) – (SBI+ HDFC+ IDBI+ ICICI Bk) Asset Care Enterprise (ACE) – (IFCI + PNB) ARC to be floated by Kotak Mahindra Bank? ASREC – Andhra Bank. 5.
Definition of ARCs (RBI _ April 2003) A company which is set up with the objective of taking over distressed assets (Non Performing Assets) from banks or financial institutions and to reconstruct or re-pack these assets to make those assets saleable. 43 Non Performing Assets Banking .
Restructuring of weak banks to divest the bad loan portfolio — essential for a comprehensive restructuring strategy of weak banks. with special powers for recovery. if necessary by special legislation.Objectives of ARCs in India To buy out troubled loans from banks and make special efforts at recovering value from the assets. 44 Non Performing Assets Banking .
and Punjab National Bank Vision .in Sponsored by SBI.arcil.ARCIL www. ICICI Bank Ltd.. IDBI Ltd.Mission Statement Vision Be a major contributor to the Indian economy by capturing value from the impaired assets Mission Maximise value through innovative resolution Establish fair and transparent business practices Facilitate development of market for distress debt 45 Non Performing Assets Banking .co.
ARCIL : Shareholding Pattern 46 Non Performing Assets Banking .
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2002 amended in Dec 2004 To set up Asset Reconstruction Companies Take possession of secured assets of borrowers Right to lease out.Developments in 2004 Revised Definition of NPA to 90 Days Banks managed to bring down NPAs < 3% SARFAESI Act. sell and realize such assets Right to take over the management of borrowers 60 days notice by lenders is adequate No appeal permissible unless borrowers deposit 50% amount due and approach DRT / DRAT Non Performing Assets 48 Banking .
NPAs in Banks : March 2005 (Rs in Cr) Banks Public (27) Private (29) Foreign (31) IDBI Bank 49 Non Performing Assets Total Assets 16.25.802 Gross Net NPAs NPAs 46.216 848 Banking .76.038 81.847 4.135 8.360 1.380 16.715 4.
DRTs and other legal proceedings To consider all viable entities with dues above Rs. 20 crores facing problems of repayment . 50 Non Performing Assets Banking . Korea & Malaysia RBI guidelines to Banks and FIs in Aug’01 To ensure timely and transparent mechanism to restructure debts.CDR mechanism Corporate Debt Restructuring mechanism Similar to UK. Thailand. outside purview of BIFR...
C I B I L.. Credit Information Bureau of India Ltd Exchange of Credit Info among Banks/FIs Unscrupulous borrowers cannot play one bank against another for credit facilities Set up in January 2001 by SBI + HDFC + Dun and Bradstreet Info Pvt Ltd + Trans Union International Inc – Rs 25 cr Capital Formal set up 2005 onwards . 51 Non Performing Assets Banking ..
77.11.36.000 crores Says unlocking value from NPAs will help banks meet additional capital requirements Gr NPAs in financial sector – Rs 1. 2. 2006 Bad Loans cross 16% of India’s GDP ARCIL puts figure at Rs. Restructured Standard Assets – Rs. 27. Corporate Debt Restructring – Rs.000 crores.Economic Times dt Jan 05.000 crs. 52 Non Performing Assets Banking . 65.000 crores.000 crores. Bad Loans Written off by Banks Rs.
Banking – Asset Quality 53 Non Performing Assets Banking .
86 2.Gross NPAs as % of Total ASSETs BANKS 87 SCBs 28 PSBs 20 OPBs 9 NPBs 30 FBs 54 20012 4.2003.60 4.34 3.13 2.50 0.64 2.90 2.44 3.00 4.41 2002.50 3.15 1.30 3.96 Banking Non Performing Assets .42 2.56 1.20043 4 5 4.52 2.43 20056 1.21 4.96 0.20 3.73 3.89 5.09 2.76 2.
72 0.10 0.40 Banking Non Performing Assets .116 0.39 0.Net NPAs as % of Total ASSETs BANKS 87 SCBs 28 PSBs 20 OPBs 9 NPBs 30 FBs 55 20012 2.93 2.66 0.28 1.42 20056 0.17 1.43 0.30 2.20 1.20043 4 5 1.2003.91 0.23 2.66 0.95 1.10 0.90 1.80 0.92 0.81 2002.51 2.79 1.42 3.
Net NPAs as % of Total Assets Percentages 87 SCBs 28 PSBs 20 OPBs 9 NPBs 30 FBs Years 56 Non Performing Assets Banking .