NPA – Non-Performing Asset
A Non-performing asset (NPA) is defined as If any loan amount interest\principle\installment is due continuously for 90days or more days then it will be treated as NPA. NPA is not good for the banking industry.
Types of NPA: Non-Performing Asset
- Standard NPA
- Substandard NPA – 90 days to 365 days
- Doubtful NPA – 1 year to 3 year
- Loss NPA – more than 3 year
Standard NPA: Non-Performing Asset
Standard NPA is one that does not disclose any problems and which does not carry more than normal risk attached to the business.
Substandard NPA (Non-Performing Asset):
An NPA which has been classified as NPA for a period not exceeding 12 months is considered as sub-standard NPA.
Doubtful NPA (Non-Performing Asset):
Doubtful NPA is one which has remained NPA for a period exceeding 12 months.
Loss NPA (Non-Performing Asset):
An NPA which is considered uncontrollable and loss has been identified by the bank or internal or external auditors or the RBI inspection and the loss has not been written off is regarded as loss asset.
Gross NPA (Non-Performing Asset): Total amount of NPA
Net NPA: Gross NPA – Provision
Provision: If we set aside some money out of income to meet any expected/unexpected loss\expenditure which may arise in the future is known as a provision. Non-Performing Asset
Recovery of NPA:
- Lok Adalat: limit up to 20 lakh
Lok Adalats have been found suitable for the recovery of small loans. According to RBI guidelines issued in 2001. They cover NPA up to Rs. 20 lakhs, both suits filed and non-suit filed are covered. Lok Adalats avoid the legal process. Non-Performing Asset
2. DRT (Debt Recovery Tribular) – up to 10 lakh, Established in 1993 DRT is cover known as banks and financial institution with an outstanding 10 lakh rupees and more.
Narasimham Committee Report I (1991) recommended the setting up of Special Tribunals to reduce the time required for settling cases. Accepting the recommendations, Debt Recovery Tribunals (DRTs) were established
3. SARFASI ACT – up to 1 lakh, Act 2002 The loan with outstanding up to 1 lakh allows bank & financial institution to action product
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 is popularly known as the Securitisation Act. This act enables the banks to issue notices to defaulters who have to pay the debts within 60 days. Once the notice is issued the borrower cannot sell or dispose of the assets without the consent of the lender. The Securitisation Act further empowers the banks to take over the possession of the assets and management of the company. The lenders can recover the dues by selling the assets or changing the management of the firm. The Act also enables the establishment of Asset Reconstruction Companies for acquiring NPA. Non-Performing Asset
Can you guess Why NPA is bad for the bank?
- Reputation risk
- It decreases the profit
- Bank have to bear huge losses
- It prevents mobilization of fund
Important Question: Non-Performing Asset
Q: A term loan is said to be non-performing when interest and/ or installment of principal remain overdue for a period of more than _.
- 30 days
- 90 days
- 60 days
- 180 days
Q: Any loan for short duration crops is classified as NPA when the installment of principal or interest thereon remains overdue for _ crop seasons
Q: A substandard asset is one, which has remained NPA for a period less than or equal to _
- 6 months
- 12 months
- 18 months
- 24 months
Q: A __ is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly.
- Standard Asset
- Loss Asset
- By-stand Asset
- Loan Asset
Q: SARFAESI Act not applicable in_______
- House property
- agricultural land
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