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PRESENTED BY:-

MANISHA NAYAK

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WHATISA NON-PERFORMING ASSET?

In general language, it can be said as an asset which is not

producing income.

A loan that is not meeting its stated principal and interest

payments. Banks usually classify as non-performing assets any

commercial loans (used to finance a company)which are more

than 90 days overdue and any consumer loans (for personal

needs) which are more than 180 days overdue.

Wikipedia says a credit facility in respect of which the interest

and/or installment of principal has remained past due for a

specified period of time.

It is a category used by all financial institutions that refer to loans

that are in risk of default.

Once the borrower has failed to make interest or principal

payments for 90 days the loan is considered to be a non-

performing asset.

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CRITERIONSFORA NPA

From the year ending March 31, 2004, it has been decided to

adopt the 90 days overdue norm to identify NPA.

So, a NPA shall be a loan or 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.

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

the case of bills purchased and discounted,

Interest and/or installment of principal remains overdue fortwo harvest seasons but for a period not exceeding two half

years in the case of an advance granted for agricultural

purposes, and

Any amount to be received remains overdue for a period of

more than 90 days in respect of other accounts.

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CATEGORIESOF NPA

It is categorized based on the period for which the asset

has remained non-performing:

Sub-standard Assets

Doubtful Assets

Loss Assets

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SUB-STANDARD ASSET

With effect from 31 March 2005, a substandard asset is one,

which has remained NPA for a period less than or equal to 12

months.

In this asset bank have to maintain 10% of its reserves

In such cases, the current net worth of the borrower/guarantor or the current market value of the security charged

is not enough to ensure recovery of the dues to the banks in

full. In other words, such an asset will have well defined credit

weaknesses that put at risk the bankruptcy of the debt and are

characterized by the distinct possibility that the banks willsustain some loss, if deficiencies are not corrected.

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DOUBTFULASSETS

With effect from March 31, 2005, an asset is

classified as doubtful if it has remained in the sub-

standard category for a period of 12 months.

A loan classified as doubtful has all the

weaknesses natural in assets that were classified

as substandard, with the added characteristic that

the weaknesses make collection or liquidation in

full, on the basis of currently known facts,

conditions and values highly questionable andimprobable.

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LOSS ASSETS

A loss asset is one 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.

In other words, such an asset is considered

uncollectible and of such little value that its

maintenance as a bankable asset is not warranted

although there may be some recover or

recovery value. Only those advances are classified as loss assets,

where no security is available.

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