Banking Operations
Non-Performing Assets
NPA is a loan or an advance where:
i) Interest and /or instalment of principle 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 or cash credit iii) The bill remains overdue for a period of more than 90 days in case of bills purchased and discounted iv) Any amount to be received overdue for a period of more than 90 days in respect of other accounts.
NPAs affect the operational efficiency which in turn affects profitability, liquidity and solvency position of banks. While gross NPA reflects the quality of loans made by banks, net NPA shows the actual burden of banks. Any loan on which interest or principle installment is not paid for more than 90 days would be reckoned as NPA. NPAs affect the economy both at the macro level and micro level. At the macro level, alarming degrees of NPAs have a detrimental effect on the macro economy. A high level of NPAs or loss could cause significant banking crisis or banking distress. This causes a serious liquidity and credit risk on the banking system, which unless managed effectively would jeopardize the same.
Loan Defaults
Loan default occurs when a debtor has not made a scheduled payment, or has violated a loan condition of the debt contract. A default is a failure to pay back a loan, which in turn leads to losses to banks. A loan default occurs if the borrower is not competent to pay the installments or have taken loan with an intention of not paying back to the bank.
The rate of increase in NPAs has remained high in spite of large quantum of accounts being written-off or recovered under the one-time compromise settlement schemes of individual banks. It is important to see the volume of assets going through restructuring. There were cases facing stress and turning into NPAs, but prompt action has helped to prevent further slippage. However, the NPAs in personal loans
NPA is a loan or an advance where:
i) Interest and /or instalment of principle 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 or cash credit iii) The bill remains overdue for a period of more than 90 days in case of bills purchased and discounted iv) Any amount to be received overdue for a period of more than 90 days in respect of other accounts.
NPAs affect the operational efficiency which in turn affects profitability, liquidity and solvency position of banks. While gross NPA reflects the quality of loans made by banks, net NPA shows the actual burden of banks. Any loan on which interest or principle installment is not paid for more than 90 days would be reckoned as NPA. NPAs affect the economy both at the macro level and micro level. At the macro level, alarming degrees of NPAs have a detrimental effect on the macro economy. A high level of NPAs or loss could cause significant banking crisis or banking distress. This causes a serious liquidity and credit risk on the banking system, which unless managed effectively would jeopardize the same.
Loan Defaults
Loan default occurs when a debtor has not made a scheduled payment, or has violated a loan condition of the debt contract. A default is a failure to pay back a loan, which in turn leads to losses to banks. A loan default occurs if the borrower is not competent to pay the installments or have taken loan with an intention of not paying back to the bank.
The rate of increase in NPAs has remained high in spite of large quantum of accounts being written-off or recovered under the one-time compromise settlement schemes of individual banks. It is important to see the volume of assets going through restructuring. There were cases facing stress and turning into NPAs, but prompt action has helped to prevent further slippage. However, the NPAs in personal loans
References: Hrishikes Bhattacharya “Banking strategy, credit appraisal & lending decisions”(oxford publication) Reddy and Appaniah –Business Finance – Himalaya Publication House, Mumbai 2006 Websites www.csb.co.in www.indianbanking.com