PRESENTED BY:MANISHA NAYAK

WHAT IS A NON-PERFORMING ASSET?

In general language, it can be said as an asset which is not producing income. A loan that is not meeting its stated principal and interest payments. Banks usually classify as non-performing assets any commercial loans (used to finance a company)which are more than 90 days overdue and any consumer loans (for personal needs) which are more than 180 days overdue. Wikipedia says a credit facility in respect of which the interest and/or installment of principal has remained past due for a specified period of time. It is a category used by all financial institutions that refer to loans that are in risk of default. Once the borrower has failed to make interest or principal payments for 90 days the loan is considered to be a nonperforming asset.

CRITERIONS FOR A NPA

From the year ending March 31, 2004, it has been decided to adopt the 90 days overdue norm to identify NPA. So, a NPA shall be a loan or 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. The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, 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 purposes, and Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.

CATEGORIES OF NPA

It is categorized based on the period for which the asset has remained non-performing: Sub-standard Assets Doubtful Assets Loss Assets

SUB-STANDARD ASSET

With effect from 31 March 2005, a substandard asset is one, which has remained NPA for a period less than or equal to 12 months. In this asset bank have to maintain 10% of its reserves In such cases, the current net worth of the borrower/ guarantor or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full. In other words, such an asset will have well defined credit weaknesses that put at risk the bankruptcy of the debt and are characterized by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.

DOUBTFUL ASSETS
With effect from March 31, 2005, an asset is classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses natural in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values highly questionable and improbable.

LOSS ASSETS
A loss asset 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. In other words, such an asset is considered uncollectible and of such little value that its maintenance as a bankable asset is not warranted although there may be some recover or recovery value. Only those advances are classified as loss assets, where no security is available.