N.Fathima ThabassumDr. E.Mubarak Ali
Research Scholar Reader in Commerce
Bharathidasan UniversityJamal Mohammed College, Trichy.
The quality of loans held by banks and financial institutions is a critical indicator of the health of financial system. If the assets are of high quality, credit risk is less. Thus, credit growth is one of the drivers of economic growth, non performing assets is a disaster to the Indian Economy. The increase in the level of Non Performing Assets (NPAs) has a number of negative consequences. Management of NPAs through speeding up of loan recoveries and controlling the misconduct of loan has become an organizational goal. In order to bring about significant improvement in the strength and resilience in the banking systems the banks are trying to keep the NPAs at its lowest level.
What is Non Performing Asset?
An asset, including a leased asset, becomes non performing when it stops generating income for the bank. A non performing asset (NPA) is a loan or an advance where;
i. interest and/ or instalment of principal overdue for a period of more than 90 days in case of a term loan, ii. The account remains ‘out of order’, in an Overdraft/Cash Credit (OD/CC), iii. The bill remains overdue for a period of more than 90 days for the bills purchased and discounted, iv. The installment of principal or interest which remains overdue for two crop seasons for short duration crops, v. The installment of principal or interest remains overdue for one crop season for long duration crops, vi. The amount of liquidity facility remains outstanding for more than 90 days, in terms of guidelines on securitization transaction dated February 1, 2006. vii. in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment. Banks should, classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter.
‘Out of Order’ status
An account is treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account 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, these accounts should be treated as 'out of order'.
Any amount due to the bank under any credit facility is considered as ‘overdue’ if it is not paid on the due date fixed by the bank.
Asset Classification, Upgradation and Provisioning of NPAs
|Asset classification with effect from 31st March 2005. |Standard assets: This asset is not a non performing asset .It | | |carries not more than normal risk attached to the business. | | | Sub standard assets: Non-performing asset for a period not | | |exceeding 12 months. | | | Doubtful assets: NPA for a period exceeding 12 months. | | | Loss assets: Reserve Bank of India (RBI) identifies by the banks| | |concerned or by internal auditors or by external auditors or | | |Loss. | |Up gradation of NPA |*...