NON PERFORMING

ASSETS
Introduction, Example, Types, Provisions,
Causes, Impact, Current Situation &
Conclusion.
BASICS:
Classificati
on of
Assets
Performing
Assets
Non-
Performing
Assets
DEFINATIONS:
Performing Assets
(PA):
Generates Periodical
Income.

Non-Performing
Assets (NPA):
Does not Generate
Periodical Income.

NPA DEFINATION:
A 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 credit,

The bill remains overdue for a period of more
than 90 days in the case of bills purchased
and discounted.

EXAMPLE:
TYPES OF NPAs

Sub-Standard Assets : NPA < 12 months,
Insufficient Assets of Borrower.

Doubtful Assets : NPA >12 months, Recovery
is Doubtful.

Loss Assets : Cannot be Recovered.

PROVISIONS ON TYPES OF
NPAs:
CAUSES:
Speculation : Investing in high risk assets to earn
high income.

Default : Willful default by the borrowers.

Fraudulent practices : Advancing loans to
ineligible persons, advances without security or
references, etc.

Diversion of funds : Unnecessary expansion and
diversion of business.

CAUSES:

Internal reasons :
Inefficient manageme
nt,
Inappropriate
technology,
labour problems,
marketing failure, etc.




External reasons :
Recession in the
economy,
Infrastructural
problems,
Delays in settlements
of payments by
government,
Natural calamities,
etc.

IMPACT OF NPA ON BANKS:
Reduced Interest Income
Impact on Capital
Adequacy
Excessive focus on Credit
Risk Management
High cost of funds due to
NPAs
Adverse Effect on Credit
Growth
Banks Rating gets Affected

CURRENT SITUATION:
CONCLUSION:
NPAs represent high level of risk & low level of
credit appraisal.

There are many preventive measures
available which can be adopted to stop an
Asset or A/C becoming NPA.

There are some certain guidelines made by
RBI for NPAs which are adopted by banks.