Nonperforming Assets

31-01-2009 1apurvgourav@gmail.com

Non Performing Asset means a loan or an 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.

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Earlier assets were declared as NPA after completion of the period for the payment of total amount of loan and 30 days grace.

In present scenario assets are declared as NPA if none of the installment is paid till 180 days i.e. six months in respect of a term loan.

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With effect form March 31, 2004, a non-performing asset (NPA) shell be 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' for a period of more than 90 days, in respect of an overdraft/ cash Credit(OD/CC),

the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, 4

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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

any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.

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There are three major types of NPA:Sub-standardSub-standard : The account holder

comes in this category when they don’t pay three installment continuously after 90 days and upto 1year. for this category bank has made 10% provision of funds from their profit to meet the losses generated from NPA.

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Doubtful NPADoubtful NPA : under doubtful NPA there are three sub categories :

D1 i.e. up to 1 year : 20% provision is made by the banks

D2 i.e. up to 2 year: 30% provision is made by the bank

D3 i.e. up to 3 year : 100% provision is made by the bank.

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Loss Assets Loss Assets : under this 100% provision is made. When account holder comes in this category their account can be written off by the banks.

After this the assets are handed over to recovery agents for sale

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Lack of proper pre-enquiry by the bank for sanctioning a loan to a customer.

Non performance of the business or the purpose for which the customer has taken the loan.

Willful defaulter. Loans sanctioned for agriculture

purposes. Change in govt. policies leads to NPA.

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Restriction on flow of cash done by bank due to the provisions of fund made against NPA.

Drain of profit. Bad effect on goodwill. bad effect on equity value.

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   YEARS SBI PNB ICICI UTI SCB1996 7.31 10.21 3.69 5.33 3.301997 7.30 10.38 3.22 3.66 2.881998 6.07 9.57 1.14 5.63 2.421999 7.33 8.96 2.88 6.32 NA2000 6.65 8.52 1.53 4.71 2.042001 5.33 6.69 3.36 2.39 1.532002 5.63 5.32 5.48 3.46 3.462003 4.5 3.86 5.21 2.39 2.392004 3.48 0.98 2.21 1.29 1.292005 2.65 0.2 1.65 1.39 1.392006 1.87 0.29 0.72 0.98 0.982007 1.32 0.28 0.78 0.72 0.8711

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The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 empowers Banks / Financial Institutions to recover their non-performing assets without the intervention of the Court.

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The Act provides three alternative methods for recovery of non-performing assets, namely: -

Securitisation Asset Reconstruction  Enforcement of Security without the

intervention of the Court.

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The provisions of this Act are applicable only for NPA loans with outstanding above Rs. 1.00 lac.

NPA loan accounts where the amount is less than 20% of the principal and interest are not eligible to be dealt with under this Act

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It is the special court established by central government for the purpose of bank or any financial institutions recovery.

The judges of this court are the retired judges of high court.

In this court only the recovery cases of 10 lakhs and above can be filed.

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Banks have a specific cell for NPA, which is called as Stress Asset Recovery Cell.

This cell continuously works on “How Recoveries Can Be Done”.

Bank does its recovery by sending notices, by bidding, and by taking a legal action.

“DECREE” is a paper of court or the permission given by the court to sell the land or any asset.

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This is the account which is made before NPA.

When a customer’s account comes under this account then immediate follow up is done by the respective bank.

Warning signals are given by the bank.(when a bank has a doubt on a customer

although they have standard accounts, sr stock statement etc)

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When bank has a doubt on the intension of the customer it ask for the whole money to be paid back even, if he has not paid two or three installments.

Notices are sent to the customer. On recalled assets bank can take legal

action also.

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Recovery agent : they are agents hired by the banks for the recovery of the non-performing assets at 10% commission.

Enforcement agent: they are the agents hired by the bank after filing the case in court. They are hired under SARFAESISARFAESI act at 10% commission.

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Self help group(SHG): SHG is a group of 10 to 15 people in rural areas which is appointed by the banks especially SBI as recovery agent for govt. sponsered scheme like PMRY etc.

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The Asset Reconstruction Company Limited(ARCIL),

India’s first ARC with an initial equity of Rs.10 crore with ICICI bank, IDBI and SBI to pick up 24.5% stake each(and remaining to be acquired by HDFC, IDBI Bank and UTI Bank).

The second asset reconstruction company (ARC), ASREC (India) in the country is set to be operational soon

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