Non-performing Assets

Partha Sarathi Nayak Apollo Hospital Enterprise Limited INTRODUCTION: The economic fundamentals of a country will significantly improve when Nonperforming assets (NPAs) or Non-performing loans (NPLs) are transformed into productive uses by organizations or professionals with the expertise and systems to manage such distressed assets. At present Banks and financial institutions are saddle with the management of Non-performing loans, real estate properties and other fixed assts like NPAs for which they do not have time to manage nor they have resources for a proper resolution process. As a result financial institutions are diffident to make new loans to industrial and commercial enterprises as NPAs have put a strain on their resources. Therefore economic growth hindered due to non-availability of new loans. In the above context, the Indian economy is very much affected by mounting NPAs. In India nearly 1.10 lac crore of NPAs burden is taken by various Banks and Financial institutions. So for survival and to maintain a steady economic growth, it is indispensable to take effective measures to reduce the mounting NPAs. DEFINITION OF NPA When a borrower do not paid the dues i.e. both Principal & interest within a period of 180 days then the said loan amount will be treated as NPA (Non-performing Asset). But from March2004 a change has been made, i.e. if borrower do not paid the loan (i.e. both Principal & Interest) within a period of 90 days, then he will be declared as a defaulter and the loan is to be treated as Non-performing Asset. When any advance or credit facilities granted by bank to a borrower becomes nonperforming, then the bank will have to treat all the advances/credit facilities granted to that borrower as non-performing without having any regard to the fact that there may still exist certain advances / credit facilities having performing status.

TYPES OF ASSETS: Loans ,advances and credit facilities given by banks are classified as follows. 1.Standard Assets:- An asset of the Bank will be declared as standard when a loan or credit facility given by bank does not carry any risk. When a borrower repays his dues in time and in a proper way as per terms and conditions of loan. This type of loan or advances does not come under NPAs. 2.Sub-standard Assets:-When a loan or advance is not repaid by the borrower within a period of two years. It comes under Non-performing assets. In this case a certain provision is to be made by Financial institution i.e 10% of outstanding balance minus interest debited but not collected minus unrealized interest of the corresponding previous year in case of new NPAs identified during the year. 3. Doubtful Assets:-This is a unpaid loan exceeding 2 years and more. This type of NPAs is further classified to 3 types. Doubtful up to one year and Non-performing for 2-3 years. In this case a provision of 100% of unsecured portion of advance for DICGC/ECGC cover plus 20% of tangible security. Doubtful for more than one year but up to 3 years and Non-performing for 3 to 5 years. In this case a provision of 100% of unsecured portion of advanced after DICGC/ECGC cover plus 30% of tangible security. Doubtful assets for more than 3 years and Non-performing above 5 years. In this case a provision of 100% of unsecured portion of advance after DICGC/ECGC cover plus 50% of tangible security. 4. Loss Assets:- An assets will be treated as a Loss when there is modest chance of recovery. REASON FOR MOUNTING NPAs: Profitability is a major issue for any business enterprise including the banking industry. As legally banks are not allowed to book income on such accounts and at the same time banks are forced to make provisions on such assets as per RBI guidelines. So increasing

NPAs have a direct impact on banks profitability. Banks and financial institutions divert their funds by financing the business organizations to earn some profit by way of interest. But when the borrower fails to repay the loan, then the problem of NPAs arises before the bank. Also, with increasing deposits made by the public in the banking system, the banking industry cannot afford defaults by borrowers since NPAs affects the repayment capacity of banks. Keeping in view the gap of NPAs between Govt. & private financial institution, it seems the NPAs of Private Financial Institution is very less compared to Govt. financial institution. Only reason behind this is private sector follows strict measures before disbursement of a loan as well as takes stringent measures for recovery. CONCLUSION: Keeping in view the above severe fact and for the larger interest of the community. It is both duty of Government & Financial institution to check the rising problem of NPAs of different financial Institutions. If this predicament situation of loss of public money could be checked, then it will lead the nation as developed one. Some stringent & result orient measures should be taken in order to make a country economically strength.