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NPA

Management
Fig1:AssetClassification

Assets

Performing Non Performing Assets


Assets (NPA)

Standard Sub -Standard Doubtful Loss


Assets Assets Assets Assets
Performing Asset

• An account does not disclose any


problems and carry more than normal risk
attached to the business

• All loan facilities which are regular!


non P e r f o r m i n g A s s e ts

• Non Performing Asset means a loan or an


account of borrower, which has been
classified by a bank or financial institution
as sub-standard, doubtful or loss asset, in
accordance withthe directions or
guidelines relating to asset classification
issued by RBI.
introduction
• Earlier assets were declared as NPA after
completion of the period for the payment of
total amount of loan and 30 days grace.

• Then assets were declared as NPA if none


of the installment is paid till 180 days i.e.
six months in respect of a term loan.
introduction
With effect form March 31, 2004 a non-performing asset
(NPA) shell be a loan or an advance where;

interest and /or installment of principal remain overdue


for a
period of more than 90 days in respect of a Term Loan,

 the account remains 'out of order' for a period of more than 90


days, in respect of an overdraft/ cash Credit(OD/CC),

 the bill remains overdue for a period of more than 90 days in


the case of bills purchased anddiscounted,
C a t e g o r i e s o f NPA
 Standard As sets : Arrears of interest and the principal
amount of loan does not exceed 90 days at the end of financial
year

 Substandard Assets : Which has remained NPA for a period


less than or equal to 12 months.

 Doubtful Assets : Which has remained in the sub-standard


category for a period of more than 12 months

 Loss Assets : where loss has been identified by the bank or


internal or external auditors or the RBI inspection but the
amount has not been written off wholly.
Reasons behind rise in NPA

• Lack of proper pre-enquiry by the bank for


sanctioning a loan to a customer.
• Non performance of the business or the purpose
for which the customer has taken theloan.
• Willful defaulter.
• Loans sanctioned for a particular purpose and
used somewhere else. For e.g. Farming loan
• Change in govt. policies leads to NPA.
Effects of NPAs on Banks & FIs
• Restriction on flow of cash done by bank due
to the provisions of fund made against NPA.

• Drain of profit.

• Bad effect ongoodwill.

• Bad effect on equity value.


Factor comprising rise in NPAs:

External factors :
• Ineffective legal framework & we ak
recovery tribunals
• Lack of demand / economic recession or
slowdown
• Change in Govt. policies
• Wilful defaults by customers
• Alleged political interferences
Factor comprising rise in NPAs:
Internal factors :
• Defective Lending process
• Inappropriate / non –use of technology like
MIS , Computerization
• Improper SWO T analysis
• Inadequate credit appraisal system
• Managerial deficiencies
• Absence of regular industrial visits & monitoring
• Deficiencies in re-loaning process
• Alleged corruption
• Inadequate networking & linkages b / w banks
sbI
• State Bank of India

Net NPAs : Rs 12,347.90 crore


Gross NPAs : Rs 25,326.29 crore

• The gross non-performing assets (NPAs) of public sector


banks increased by 20 per cent during June-September 2011.
• Standard & Poor's, which had in September downgraded
standalone ratings of State Bank of India, said high credit
risks in the Indian banking sector reflects that the country has
a weak payment culture and legal system that often result in
low recoveries and delayed settlement of foreclosures.
ICICI Bank
• 2. ICICI Bank
• Net NPAs: Rs 2,407.36 crore
Gross NPAs: Rs 10,034.26 crore
• ICICI Bank has the highest NPAs among private
sector banks. ICICI Bank has slightly improved its
net bad debts to 0.90 per cent from 0.91 per cent in
the earlier quarter.
• Indian banks face challenges like increase in
interest rates on saving deposits, a tighter monetary
policy, restructured loan accounts and increasing
infrastructure loans.
NET NON PERFORMING
ASSETS
YEARS SBI PNB ICICI UTI SCB
1998 7.31 10.21 3.69 5.33 3.30
1999 7.30 10.38 3.22 3.66 2.88
2000 6.07 9.57 1.14 5.63 2.42
2001 7.33 8.96 2.88 6.32 NA
2002 6.65 8.52 1.53 4.71 2.04
2003 5.33 6.69 3.36 2.39 1.53
2004 5.63 5.32 5.48 3.46 3.46
2005 4.5 3.86 5.21 2.39 2.39
2006 3.48 0.98 2.21 1.29 1.29
2007 2.65 0.2 1.65 1.39 1.39
2008 1.87 0.29 0.72 0.98 0.98
2009 1.32 0.28 0.78 0.72 0.87
NPA Managing Strategies

• Indian B a n k s are pursuing variety of


strategies to control NPAs, which can be
studied under two broad categories as
under :

– a. Preventive Management
– b. Curative Management
NPA Managing Strategies
a. Preventive Management - It is rightly
said that prevention is better than cure.
• Developing ‘ K n o w Y o u r Client’ profile
(KYC)
• Monitoring Early Warning Signals
• Installing Proper Credit Assessment and
R i s k Management Mechanism
• Reduced Dependence on Interest
• Generating Watch-list/Special Mention
Category
NPA Managing Strategies
b. Curative Management
• Re-phasement of loans - New loan that replaces the outstanding
balance on an older loan, and is paid over a longer period, usually with a lower
instalment amount.
• Pursuing Corporate Debt Restructuring (CDR)- some of a
company's debt may be forgiven by creditors in exchange for an equity
position in the company
• Encouraging rehabilitation of potentially viable units
• Encouraging acquisition of sick units by healthy units
• Entering compromise schemes with borrowers/
Entering one time settlement
NPA Managing Strategies
• Using L o k Adalats for compromise settlement
for smaller loans in “doubtful” and “ l o s s ”
category.
• Using Asset Reconstruction Company
(ARC) - acquisition by securitisation company or reconstruction
company of any right or interest of any bank or financial institution in
any financial assistance for the purpose of realisation of such financial
assistance
• Approaching Debt Recovery Tribunals
(DRTs).
• Recovery Action against Large N P A s
• Circulation of Information of Defaulters-
Strengthening Database of Defaulters

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