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NON PERFORMING

ASSETS
(NPA)

By:-
CHETAN MODI 101604050
CHIRANJEEV SINGH 101604051
What is NPA?

The word itself will give you the meaning

Assets: Anything that is used in the business for a long time. For a
bank, the main asset of a bank is "Loans" given to public. Since that is
an amount which is receivable in future with Interest, it constitutes a
major part of Asset.

Non-performing: These loans are not performing, means that they are
not being received on time
OVER DUE & OUT OF ORDER
• Overdue- Any amount due to the bank under any credit
facility is ‘overdue’ if not paid on the due date fixed by the
bank.

• Out of order- An out of order account is one in which the


outstanding balance is less than the sanctioned
limit/drawing power, but there are no credits continuously
for 90 days as on the date of Balance Sheet or credits are
not enough to cover the interest debited during the same
period.
Defination Of NPA

• NPA is defined as a loan or an advance in respect of


which the interest &/or installment of principal remains
“overdue” for a period of more than 90 days in respect of
a term loan or remains “out of order” for a period of
more than 90 days in respect of an Overdraft /Cash
Credit.
CLASSIFICATION OF LOAN AS
NPA
• TERM LOANS- Instalments of principal overdue for 90
days.
• Overdraft Account-Account remains out of order for more
than 90 days
• Bills Account: Bills purchased/discounted remain
overdue/ unpaid for a period of 90 days.
• Agriculture Loans
1) Instalment remain unpaid for 2 crop seasons for short
duration crops (maturing with in one year).
2) Instalment remain unpaid for crop seasons for long
duration crops (maturing after one year).
ASSET CLASSIFICATION

• Standard Assets :- Advance account which does not


disclose any problem & does not carry more than
normal business risk.

• Substandard Assets – Which has remained NPA for


a period less than or equal to 12 months.

• Doubtful Assets – Which has remained NPA for a


period more than 12 months.

• Loss Assets – where loss has been identified by the


bank or internal or external auditors or the RBI
inspection.
Reasons for Occurrence of NPAs

• Usual banking operations /Bad lending practices

• A banking crisis (as happened in USA, South Asia and Japan)

• Overhang component (due to environmental reasons, natural


calamities,business cycle, Disease Occurrence,etc...)

• Incremental component (due to internal bank management, like


credit policy, terms of credit, etc...
The Problems caused by NPAs
• Banks may begin charging higher interest rates on some
products to compensate NPL losses
• Bank shareholders are adversely affected
• Bad loans imply redirecting of funds from good projects
to bad ones. Hence, the economy suffers due to loss of
good projects and failure of bad investments.
• When bank do not get loan repayment or interest
payments, liquidity problems may ensue.
SARFAESI ACT 2002

• The Securitisation and Reconstruction of Financial Assets


and Enforcement of Securities Interest Act, 2002
• It allows banks and other financial institution to auction
residential or commercial properties to recover loans.
• The first asset reconstruction company (ARC) of India,
ARCIL, was set up under this act.
• The law does not apply to unsecured loans loans
below ₹100,000 or where remaining debt is below
20% of the original principal
Implementation of SARFAESI

• Appointment of Authorized person.


• Recall of loan 30 days notice
• The bank or financial institution may, if it considers
appropriate, give a notice of acquisition of financial assets. 60
days.
• Possession – Immovable Assets, Movable Assets. – Normally
30 days time to file objections.
• Auction of the property.
SALE AND RECONSTRUCTION
COMPANIES

• There are many Assets reconstruction Companies to whom


Bank Sale its NPA Assets for which SARFAESI Act has
spelt out the detail procedure. Some of them are
• Assets care and Reconstruction enterprises.(ACRE)
• Asset Reconstruction Company (India) Limited (ARCIL)
• Pridhvi Asset Reconstruction and Securitisation Company
Limited (PARAS)
NPA IN BANKS

• The BAD loans have risen up from ₹ 2.6 Lakh crore by

135%
In the last two years. In all the total NPAs including both the
public and private sector banks were ₹ 6.97 lakhs crore in
December 2016.

SOURCE - Care Ratings


NPA IN BANKS

• State Bank of India has the highest value of gross NPA


around ₹ 93,000 crores.
• Punjab National Bank with ₹ 55,000 crores.
• Bank of India comes next with ₹ 44,000 crores.
 Basic Metal and Metal Products sector is the worst
performing in NPA ratio. As of June 2016 NPA was ₹ 1.49
lakhs crores.
 Textile sector and Beverage sector both having NPA around
17% of the total
SOURCE
• https://en.wikipedia.org/wiki/Securitisation_and_Reconstr
uction_of_Financial_Assets_and_Enforcement_of_Security
_Interest_Act,_2002
• https://www.hindustantimes.com/business-news/five-
ways-govt-rbi-trying-to-speed-up-npa-recovery/story-
kWKLDFyZ2Hb5RcyoMj4U8J.html
• http://www.iibf.org.in/documents/irac-norms.pdf
• https://www.investopedia.com/terms/n/non-performing-
assets.asp