NPA: Non Performing Assets

Non Performing Asset means an asset or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by RBI. In simple words the non performing assets are the lending by the bank that bank considers to be defaulted and no future payment will be received. Under the guidelines of RBI, the action for enforcement of security interest can be initiated only if the secured asset is classified as Non Performing Asset. In case of unsecured assets that turn non-performing assets, the bank has very limited options in their hands.

An amount due under any credit facility is treated as “past due” when it has not been paid within 30 days from the due date. Due to the improvement in the payment and settlement systems, recovery climate, up gradation of technology in the banking system, etc., it was decided to dispense with ‘past due’ concept, with effect from March 31, 2001. Accordingly, as from that date, a Non performing asset (NPA) shell is an advance where:

1. Interest and /or installment of principal remain overdue for a period of more than 180 days in respect of a Term Loan,

2. The account remains ‘out of order’ for a period of more than 180 days, in respect of an overdraft/ cash Credit (OD/CC),

3. The bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted.

4. Interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose.

5. Any amount to be received remains overdue for a period of more than 180 days in respect of other accounts.

With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the ’90 days overdue’ norm for identification of NPAs from the year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a non-performing asset (NPA) shell be a loan or an advance where;

  1. Interest and /or installment of principal remain overdue for a period of more than 90 days in respect of a Term Loan,
  2. The account remains ‘out of order’ for a period of more than 90 days, in respect of an overdraft/ cash Credit(OD/CC),
  3. The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,
  4. Interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose, and
  5. Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.

Out of order

An account should be treated as ‘out of order’ if the outstanding balance remains continuously in excess of the sanctioned limit/ drawing power. In case where the outstanding balance in the principal operating account is less than the sanctioned limit/ drawing power, but there are no credits continuously for six months as on the date of balance sheet or credits are not enough to cover the interest debited during the same period, these account should be treated as ‘out of order’.

Overdue

Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank.

Your views matter a lot for a healthy discussion.

3 Responses to “NPA: Non Performing Assets”

  1. Great blog! I am loving it!! Will be back later to read some more. I am bookmarking your feeds also

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