npa

MANAGEMENT OF NON-PERFORMING ASSETS

Omika Bhalla

Presented by Mr. S. Ravi 2

DEFINITION OF NPASA NPA is 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” in respect of an overdraft/ cash creditThe bill remains overdue for a period of more than 90 days in the case of bills purchased and discountedThe installment or interest remains overdue for two crop seasons in case of short duration crops and for one crop season in case of long duration crops


CATEGORIES OF NPASubstandard 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 12 monthsLoss 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.


PROVISIONING NORMSStandard Assets – general provision of a minimum of 0.25% Substandard Assets – 10% on total outstanding balance, 10 % on unsecured exposures identified as sub-standard & 100% for unsecured “doubtful” assets.Doubtful Assets – 100% to the extent advance not covered by realizable value of security. In case of secured portion, provision may be made in the range of 20% to 100% depending on the period of asset remaining sub-standardLoss Assets – 100% of the outstanding


FACTORS CONTRIBUTING TO NPAS

Poor Credit disciplineInadequate Credit & Risk ManagementDiversion of funds by promotersFunding of non-viable projects In the early 1990s PSBs started suffering from acute capital inadequacy and lower/ negative profitability. The parameters set for their functioning did not project the paramount need for these corporate goals.The banks had little freedom to price products, cater products to chosen segments or invest funds in their best interest



Audit and control functions were not independent and thus unable to correct the effect of serious flaws in policies and directionsBanks were not sufficiently developed in terms of skills and expertise to regulate the homogenus growth in credit and manage the diverse risks that emerged in the process



Inadequate mechanism to gather and disseminate credit information amongst commercial banks


IMPACT OF NPAS ON OPERATIONS

Drain on ProfitabilityImpact on capital adequacyAdverse effect on credit growth as the banker’s prime focus becomes zero percent risk .Excessive focus on Credit Risk ManagementHigh cost of funds due to NPAs


NPA MANAGEMENT – PREVENTIVE MEASURES

Formation of the Credit Information Bureau (India) Limited (CIBIL)Release of Wilful Defaulter’s List. RBI also releases a list of borrowers with aggregate outstanding of Rs.1 crore and above against whom banks have filed suits for recovery of their fundsReporting of Frauds to RBINorms of Lender’s Liability – framing of Fair Practices Code with regard to lender’s liability to be followed by banks, which indirectly prevents accounts turning into NPAs on account of bank’s own failure


Risk assessment and Risk management RBI has advised banks to examine all cases of wilful default of Rs.1 crore and above and file suits in such cases.Reporting quick mortality cases

NPA MANAGEMENT – PREVENTIVE MEASURES


NPA MANAGEMENT - RESOLUTION

Compromise Settlement SchemesRestructuring / ReschedulementLok AdalatCorporate Debt Restructuring CellDebt Recovery Tribunal (DRT)Proceedings under the Code of Civil ProcedureBoard for Industrial & Financial Reconstruction (BIFR)National Company Law Tribunal (NCLT)Sale of NPA to other bank

npa

Economy & Finance