CASE STUDY

NON PERFORMING ASSETS

PROVISIONS AND IMPACT ON P&L

Prepared by: SineEdge Consulting Pvt. Ltd.

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CALCULATING PROVISIONS A CASE STUDY

Total Loan Outstanding (as on 31st March 2014)
NPA - %age of Loan O/s
Sub-Standard Assets
Doubtful Asset (Upto 1 year) - %age of Loan O/s
Corresponding Security Value
Doubtful Asset (1 to 3 years) - %age of Loan O/s
Corresponding Security Value
Doubtful Asset (> 3 years) - %age of Loan O/s
Corresponding Security Value

Rs. 100 Crores

3%
2.2%
0.40%
Rs. 4,200,000
0.30%
Rs.2,900,000
0.10%
Rs.900,000

All Properties are residential properties

All Loans are given at Normal Rates
Provisioning Norms for ready reference (% of loan outstanding)
o Standard Assets :
0.4% (for residential properties loans given at normal rates)
2% (for properties lent at teaser rates / special rates)
1% (for commercial real estate)
o Sub Standard Assets : 15% of Loan Outstanding
o Doubtful Assets :
100 % amount to the extent to which the advance is not covered by the
realisable value of the security to which the HFC has a valid recourse. In this
case the realisable value of the security should be estimated on a realistic
basis. (We will see this in more detail in the coming slides).
On the balance portion, which is the portion that is covered by the
realisable value of the security (also called the Secured Portion, provision is
to be made on the following basis:
Doubtful Asset for upto 1 year : 25% of the secured portion
Doubtful Asset for 1 to 3 years : 40% of the secured portion
Doubtful Asset for more than 3 years : 100% of the secured portion
o Loss Assets : 100% of Loan Outstanding
Total Provisions held on books as on 31st March 2015 : Rs. 13,000,000

Exercise: Please Calculate

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Total Provisions to be held on books as on 31st March 2014

Total Provisions to be taken to P&L for the year ended FY 2014-15