DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name :Sreenivasa Rao B.
Designation :Lecturer in CCP
Branch :Commercial and Computer Practice
Institute :S.U.V.R&S.R GPW,Ethamukkala
Semester :VI SEMESTER
Subject name :Banking II
Subject code :CCP 604 (B)
Major topic :Loans and Advances – Short Term
& Long Term
Duration :50 minutes
Sub topic :Non- performance Assets
Teaching aids :PPT
CCP604(B).18 1
Objectives
On completion of this period you would be
able to
 Classify various Assets.
 Define Non-performing Asset.
 Explain the measures to be taken by a banker to
control the Non–performing Assets(NPAs).

CCP604(B).18 2
 Non-performing Assets

 Do you know about the meaning of Non – Performing

Asset?

 Name the assets, which will become non–performing

assets.

CCP604(B).18 3
Recap

 The various methods of creating charge

 Hypothecation
 Definition of hypothecation
 Feature of hypothecation
 Draw backs & precautions of
hypothecation

CCP604(B).18 4
Introduction
 The main source of income earned by the banks
through lending of loans and advances to the
needy sector or public and charge interest
thereon. The interest will be their profit or
income.
 In this process, due to various reasons the banks
will fail to earn profits, due to increasing non-
performing assets.

CCP604(B).18 5
Asset Classification

The assets of banks have been classified as –

 Standard Assets
 Substandard Assets
 Doubtful Assets and
 Bad assets

CCP604(B).18 6
a. Standard Asset :

An asset which provides good income and which

could be realized easily is a standard asset

b. Sub-standard Asset :

When there is a delay in earning and realization, it

becomes a sub-standard asset

CCP604(B).18 7
c. Doubtful Asset :

When there is a default in the payment, it is

doubtful asset

d. Bad Asset :

Bad asset is one which is to be written off

CCP604(B).18 8
Performing Assets :
Performing assets are such assets which
provides good income and which could be
realized easily

Non- Performing Assets – Meaning

An asset becomes non-performing asset when
income from it is not received by the bank as
per the scheduled period.

CCP604(B).18 9
The following are the causes for an asset to become
a Non-performing asset -

 Delay in earning income

 Delay in realization of assets

 Default in payment of dues

 As per the latest guidelines, Term Loans, Cash

Credits and Overdraft, Bills purchased and
discounted become Non-Performing Assets if they
are out of order for more than 180 days

CCP604(B).18 10
Measures taken by the Banker to control Non-
Performing Assets (NPAs):

1. Extension/ Rephasing Repayment Program:

The accounts where only past payment

Is received despite the best efforts and further
recovery is not possible due to the factors beyond
the control of the party, the proposal of extension of
repayment program should be considered

CCP604(B).18 11
2. Appropriation of subsidy or exercise of
right of Set-off:

 In some of the sponsored schemes, the

amount of subsidy is kept in deposit
accounts to be appropriated after a
specified long-in-period

 In such cases where subsidy is available

and the account is likely to be appropriated
in the loan account and necessary action
should be initiated for recovery/write off of
the balance amount

CCP604(B).18 12
3. Rehabilitation support:
In case some of the units can be revived by
providing them financial support in the shape of
additional facilities or concessions in various
charges, the bank can consider the same duly
examining the merits of the case and the
commitment of the management

CCP604(B).18 13
4. Compromise or Scaling of Dues:

In case where the recovery is not

forthcoming due to unavoidable
circumstances, it is advisable to take
appropriate measures to rehabilitate
such borrowers, who are not willful
defaulters. Possibility of scaling of dues
with the borrower for lump sum payment
should be explored

CCP604(B).18 14
5. R.R.Act:

In case where continued and willful default

is observed, such cases should be referred to
Revenue Authorities to recover the same under
R.R.Act

CCP604(B).18 15
6. Filing of Suits/Execution of decrees:

Suits should be filed after closing all the trials

for recovery of the loan amount

Execution of decrees should be filed promptly

and followed up closely

CCP604(B).18 16
7. Banks should ensure that loans are diversified
across several customer segments

8. To improve the quality of credit monitoring

system a separate credit manager is being
designated

CCP604(B).18 17
9. Monitoring early warning signals and taking
immediate appropriate remedial action.

10. Knowing a client’s profile thoroughly and

preparing a credit report by paying frequent visits
to the client.

CCP604(B).18 18
 Summary

 Performing Assets are those assets which will

earn good income

 Non-performing assets are those assets which do

not earn good income and delay in realization

 The measures to reduce the non-performing

assets include –

 Extension/Rephrasing Repayment Programme,

Appropriation of subsidies, Rehabilitation
support, Scaling of dues, Filing of Suits, Loans
diverted to different Sectors/areas etc.
CCP604(B).18 19
Quiz

1) The assets which do not generate income are called as –

a) Good assets
b) Performing assets
c) Non-performing assets
d) Standard Assets

CCP604(B).18 20
Frequently asked questions

1. What is meant by Non-performing assets?

4. What are the measures taken by the banker to control

Non-performing assets?

CCP604(B).18 21