Non – Performing Assets (NPA’S

)

In the last 20 years, banks have expanded
their areas of coverage. Today, banks have
covered almost all corners of the country. As
the growth of banking sector is developing
rapidly certain weaknesses have developed in
recent years. One of them is
NON – PERFORMING ASSESTS (NPA’S)

. increase in their existence.Meaning When an asset stops generating income for the bank then it is said to be a Non performing Asset. Apart from internal and external complexities.

2004 a Non – Performing Asset (NPA) shall be an advance where : • Interest and/or installment of principal remain overdue for a period of more than 90days in respect of a Term Loan.3.DEFINITION OF NPA In terms of current RBI guidelines with effect from 31. • The account remains ‘Out of Order’ for a period of more then 90 days. . in respect of an Overdraft/Cash Credit.

• Interest and/or installment of principal remains overdue for 2 harvest seasons but for a period not exceeding one year in the case of an advance granted or agricultural purpose.DEFINITION OF NPA • The bill remains overdue for a period of more than 90 days. and • Any amount to be received remains overdue or a period of more than 90 days in respect of other accounts. in the case of bills purchased and discounted. .

Causes of NPA The factors which are responsible for NPA are follows : • Improper selection of Borrowers • Socio – political measures for financing some people by way of target fulfilling under the Government’s Poverty Alleviation Programmes and other popular schemes • Lack of income generation due to natural calamities and other uncertainties like infrastructural bottleneck. . etc.

• Mentality of the people and attitude to default willfully. • Lack of proper follow up by the bank and failure to take punitive action against willful defaulters. • Improper project planning by businessman and assessment by banks before granting loans. • Mismanagement/ or misutilization of funds by the borrowers.Causes of NPA • Inefficient management. .

• Non – action/Non – cooperation of government agencies in recovery of loans.Causes of NPA • Bank’s failure to appreciate the acts of good re payers. .

Early symptoms by which one can recognize a performing asset turning into NPA. • • • • Financial Operational and Physical Attitudinal Changes Others .

Financial • Non payment of the very first installment in the case of term loan • Bouncing of cheque due to insufficient balance in the accounts • Irregularity in installment • Unpaid overdue bills • Declining current ratio • Payment which does not cover the interest and principal amount is diverted to sister concern or parent company. .

• External non – controllable factor like natural calamities in the city where borrower conducts his business. • Frequency changes in plan • Non payment of wages .Operational and Physical • If the information is received that the borrower has either initiated the process of winding up or not doing the business. • Overdue receivables • Stock statement not submitted on time.

.Attitudinal Changes • Use of personal comfort. stock and shares by borrower • Avoidance of contact with bank • Problems with/between partners.

Others • Changes in Government Policies • Death of Borrower • Competition in the market .