1. Overview
  2. Non-Performing Assets (NPA)
  3. Features of the NPA
  4. Process of the NPA
  5. Types of NPA
  6. Recovery/Non-recovery of NPA
  7. Recent Developments ways to tackle NPA 


Assets are one thing that you just own, which means you’re the legal owner of the quality. Similarly, bank assets are those things that a bank owns. It may be property (like land, equipment, buildings, etc.) or money property. Banks usually have four sorts of assets – Physical Assets, Loans/Advances, Reserves, and Investments. Let’s see regarding Non-performing quality in detail below

Non-Performing Assets (NPA)

If the receiver (of a loan/advance from a bank) is unable to repay the interest and principal repayments to the bank, for a substantial quantity of your time, then the loan/advance is going to be referred to as non-performing. Since loans/advances are assets of the bank, they’ll be called Non-performing Assets (NPA). In the Indian context, if the receiver has did not build interest or principal payments for ninety days (3 months), then the loan/advance is taken into account terrorist organization.

Features of the NPA

  • Nonperforming assets (NPAs) are recorded on a bank’s record when a chronic amount of non-payment by the receiver.
  • NPAs place a monetary burden on the lender; a major variety of NPAs over an amount of your time might notify regulators that the money fitness of the bank is in danger.
  • NPAs may be classified as substandard quality, uncertain quality, or loss quality, betting on the length of your time due and the chance of compensation.
  • Lenders have choices to recover their losses, as well as the occupancy of any collateral or commercialism off the loan at a major discount to a group agency.

Process of the NPA

Nonperforming assets are listed on the record of a bank or different institution. When a chronic amount of non-payment, the loaner can force the receiver to liquidate any assets that were pledged as a part of the debt agreement. If no assets were pledged, the loaner may write-off the quality as a foul debt so sell it at a reduction to a group agency.

In most cases, debt is classed as nonperforming once loan payments haven’t been created for an amount of ninety days. Whereas ninety days is that commonplace, the number of the period could also be shorter or longer betting on the terms and conditions of every individual loan. A loan may be classified as a nonperforming quality at any purpose throughout the term of the loan or at its maturity.

Types of NPA

Although the foremost common nonperforming assets are term loans, there are different sorts of nonperforming assets furthermore.

  • Overdraft and money credit (OD/CC) accounts left out-of-order for quite ninety days
  • Agricultural advances whose interest or principal instalment payments stay due  for 2 crop/harvest seasons for brief period crops or due  one crop season for long period crops
  • Expected payment on the other kind of account is due  for quite ninety days

Recovery/Non-recovery of NPA

Interests earned on loan repayments are the foremost vital financial gain of a bank. Therefore, thanks to default in compensation, banks can suffer losses. Though by commercialism the collateral securities (if any) against the loan – banks might recover the loan quantity, the method of commercialism the securities (with the assistance of quality Reconstruction firms, and that they can charge a fee) could be a tedious and future job, and even the seizure of mortgage or hypothecation, etc is a troublesome method. Moreover, if the corporate or individual receiver becomes bankrupt, then the loss is going to be ruinous for the loaner bank. Even in some cases, there may well be some corrupted bank officers United Nations agency would sanction loans to creditworthy borrowers for bribes, or ministerial/political pressures

Recent Developments ways to tackle NPA 

  • Insolvency and Bankruptcy Code (IBC) – With the RBI’s push for the IBC, the resolution method is anticipated to quicken whereas continued to exercise management over the standard of the assets. There’ll be changes within the provision demand, with the need for the upper proportion of provisions progressing to build the books higher.
  • Credit Risk Management – This involves credit appraisal and observance of responsibility and credit by playing numerous analyses on profit and loss accounts. Whereas conducting these analyses, banks ought to conjointly do a sensitivity analysis and may build safeguards against external factors.
  • Tightening Credit observance – A correct and effective Management system (MIS) has to be enforced to watch warnings. The MIS ought to ideally sight problems and set out timely alerts to management so necessary actions may be taken.
  • Amendments to Banking Law provide run batted in additional power where state of affairs permits the run batted in simply to examine a loaner however doesn’t give them the ability to line up associate oversight committee. With the change to the law, the run batted in are going to be able to monitor giant accounts and build oversight committees.
  • More “Haircuts” for Banks – For quite it slow, PSU lenders have started golf shot aside an outsized portion of their profits for provisions and losses thanks to a terrorist organization. Things are therefore serious that the run batted in might raise them to make a much bigger reserve and therefore, report lower profits. 
  • Stricter NPA recovery– It’s conjointly mentioned that the govt. has to amend the laws and provide additional power to banks to recover terrorist organizations instead of playing the sport of “wait-and-watch.”
  • Corporate Governance problems – Banks, particularly the general public sector ones, ought to return up with correct steerage and framework for appointments to senior-level positions.
  • Accountability – Lower-level executives are usually created responsible today; but, major selections are created by senior-level executives. Hence, it becomes important to form senior executives responsible if Indian banks are to tackle the matter of NPAs.

About the Author

BankReed Admin

Banking Professional with 16 Years of Experience. The idea to start this Blogging Site is to Create Awareness about the Banking and Financial Services.

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