nA

nonerformlng AsseLs
I|ash!!!! Ist Nov'2011
CuallLy AsseLs llfL earnlng lClCl bank Lhe counLry's second largesL 8ank reporLed a
CrowLh of 22 on lLs neL proflL ?o? on Lhe back of a slgnlflcanL drop of 30 ln
provlslon for 8ad loans
nA???
An AsseL ls classlfled as nA when lL ceases Lo generaLe lncome for Lhe bank be LhaL lnLeresL
paymenL or LhaL of prlnclpal
1he narslmhan CommlLLee recommendaLlons lnLroduced lndlan banklng Lo Lhe followlng concepLs
whlch seL Lhe Lone for Lhe nA managemenL
A)lncome 8ecognlLlon
8)AsseL classlflcaLlon
1SubSLandard (once nA for 12 monLhs)
2uoubLful (remalns subsLandard for 12 monLhs)
3Loss (when recognlzed )
C) rovlslonlng
Jhy nA ls a "
W lL LhreaLens Lhe very exlsLence of Lhe banks and flnanclal lnsLlLuLlons
W Lrodes proflLablllLy Lhrough provlslonlng requlremenLs
W 8educe lnLeresL lncome
W LlmlL recycllng of funds creaLes serlous asseLllablllLy mlsmaLch and also llquldlLy shorLage
W Loslng ouL ln Lhe compeLlLlon
SLaLlsLlcs of nA (Source 88l JebslLe)
scr|pt|on of th data Attachmnt
1 Appendlx 1able lv1 Cff8alance SheeL Lxposure of
Scheduled Commerclal 8anks ln lndla
2 Appendlx 1able lv2 (A) nonerformlng AsseLs of ubllc
SecLor 8anks SecLorwlse
3 Appendlx 1able lv2 (8) nonerformlng AsseLs of
rlvaLe SecLor 8anks SecLorwlse
4 Appendlx 1able lv2 (C) nonerformlng AsseLs of
lorelgn 8anks SecLorwlse
3 Appendlx 1able lv3 (A) nonerformlng AsseLs ln
Advances Lo Jeaker SecLlons ubllc SecLor 8anks
6 Appendlx 1able lv3 (8) nonerformlng AsseLs ln
Advances Lo Jeaker SecLlons rlvaLe SecLor 8anks
MicrosoL Fxcel
97-2003 WorksheeL
MicrosoL Fxcel
97-2003 WorksheeL
MicrosoL Fxcel
97-2003 WorksheeL
MicrosoL Fxcel
97-2003 WorksheeL
MicrosoL Fxcel
97-2003 WorksheeL
MicrosoL Fxcel
97-2003 WorksheeL
8easons for nA
8easons
for nA
1
4
3
2
1oor credlL appralsal %@h succss
of nIC ||s |n th fact that th hav a robust
r|sk assssmnt mchan|sm)
2Lack of osL CredlL Supervlslon
3Lack of credlL hlsLory
lnformaLlon %Non shar|ng of h|stor|ca|
data amongst banks vn CI8IL startd as |at
as 2004) resulLlng ln W|||fu|
fau|t
41oo much dependence on
credlL raLlng agencles Lo measure
credlL rlsk and asslgn a
probablllLy of defaulL%Crd|t rat|ng |s
not foo|proof)
3LxLernal facLors %s|ow|ng growth and
r|s|ng |ntrst rats mans add|t|ona|
pnd|tur |n an nv|ronmnt of s|ow
growth fa|||ng sa|s |mpact rvnu)
3
nA ManagemenL
W 1he banks can noL shy away from lendlng [usL because Lhere ls Lhe rlsk of an asseL golng nA parLlcularly
ln a counLry llke lndla whlch promlses so much growLh ln Lhe days ahead hence more and more demand
for credlL So Lhe need ls LhaL 8anks be more vlgllanL clrcumspecL and puL ln place Lhe besL rlsk
managemenL pracLlces
W Lven whlle chooslng Lhe Lools Lo manage nA lL has Lo be kepL ln mlnd LhaL thr |s a th|n d|v|d btwn
||||qu|d|t and |nso|vnc A shorL reprleve resLrucLurlng can help ln Lhe former 8uL lL can qulckly end up
ln Lhrowlng good money afLer bad lf Lhe buslness ls essenLlally lnsolvenL As Lhe economlc slowdown
lnLenslfles banks wlll lncreaslngly have Lo Lake a [udgmenL call
W 1he LempLaLlon Lo evergreen loans and paper over deep seaLed problems ln order Lo show lower nAs
and hence make lower loss provlslons musL be schwd As Lhe experlence of Luropean and uS banks
has shown when lL comes Lo deallng wlLh nAs lL ls beLLer Lo nlp Lhe problem ln Lhe bud lnsLead of
walLlng for lL Lo escalaLe Lo a polnL where lL ls llkely Lo blow up ln your face
Concluslon
8eferences
1wwwrblorg
2mosplnlcln
3 wwweconomlcLlmescom