Non Performing Assets (Npa)

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INTRODUCTION
The core banking business is of mobilizing the deposits and utilizing it for lending to industry. Lending business is generally encouraged because it has the effect of funds being transferred from the system to productive purposes which results into economic growth. The debtor take the funds from the bank in the form of credit and he have to payback the principle amount with the interest to the creditor as a result the creditor (Bank)gets the profit in the form of interest and again this profit is reinvested leading to the growth of the economy. However lending also carries credit risk, which arises from the failure of borrower to fulfill its contractual obligations either during the course of a transaction or on a future obligation. Due to non performance of the fund the financial institutions become bankrupt and failed to provide investors with clearer and more complete information thereby introducing a degree of risk that many investors could neither anticipate nor welcome.

The Financial companies and institutions are nowadays facing a major problem of managing the Non Performing Assets (NPA) as these assets are proving to become a major setback for the growth of the economy. Undoubtedly, the world economy has slowed down. Globally stock markets have tumbled and business itself is getting hard to do with the simple reason that the banks (creditor) money in the form of funds get blocked. Under such a situation, it goes without saying that banks are no exception and are bound to face the heat of a global downturn.

NON PERFORMING ASSET

Non Performing Asset means an asset or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by RBI. An amount due under any credit facility is treated as "past due" when it has not been paid within 30 days from the due date. Due to the improvement in the payment and settlement systems, recovery climate, up gradation of technology in the banking system, etc., it was decided to dispense with 'past due' concept, with effect from March 31, 2001. Accordingly, as from that date, a Non performing asset (NPA) shell be an advance where; i. interest and /or installment of principal remain overdue for a period of more than 180 days in respect of a Term Loan, ii. the account remains 'out of order' for a period of more than 180 days, in respect of an overdraft/ cash Credit(OD/CC), iii. the bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted, iv. interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose, and v. any amount to be received remains overdue for a period of more than 180 days in respect of other accounts. With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the '90 days overdue' norm for identification of NPAs, form the year ending March 31, 2004. Accordingly, with effect form March 31, 2004, a non-performing asset (NPA) shell be a loan or an advance where; i. interest and /or installment of principal remain overdue for a period of more than 90 days in respect of a Term Loan, ii. the account remains 'out of order' for a period of more than 90 days, in respect of an overdraft/ cash Credit(OD/CC), iii. the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, iv. interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose, and v. any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.

Out of order
An account should be treated as...
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