Performance evaluation Parameters of

banks :NPA
Batch – 19, Date-27.06.2021 (3.30PM to 5.00PM)
Faculty: Dr. Bhagyashree Kunte
Students Name & Roll No.
Sr.No. Student Name Roll No

1 Ram Sakharam Pawar  191618

2 Ramchandra Patharvat 191619
3 Sonali Sukhadeo Rathod 191620
4 Rati Makarand Kelkar 191621
5 Ravi Bhatia 191622
6 Ravikumar Sudhakar Khasale 191623
7 Ravindra Vitthal Kumbherde 191624 
8 Rupali Ashok Wadtile 191625
9 Sagar Mohan Shahane 191627
10 Priyanka Sadashiv Sakhare 191629
11 Sandhyarani K. Kumbhar 191631
12 Sarika Ghanashyam Sable 191633
13 Sandip Shashikant Chavan 191630
14 Raju Ashok Weakey 191617
Contents:
Sr.No. Topic Page No.
1 Introduction 4
2 Asset Classification 5
3 Performing & Non-Performing Assets 6
4 Concept Of NPA 7
5 Objectives of Study 8
6 Categories of NPA 9
7 Types of NPA 10
8 Reasons behind rise in NPA 11
9 Effects of NPA on Banks & FI 12
10 Impact of NPA on the Operations of Banks 13
11 Factors Impacting Rise in NPA’s 14
12 Causes 15
13 NPA Management Strategies 16
14 Conclusion 17
Introduction

 Earlier asset 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 instalment is paid till 180 days i.e. Six
months in respect of term loan.
 With effect from 31st March 2004, a non performing asset (NPA) shell be a loan or an advance
where;
 Interest and / or instalment of principle remain overdue for a period of more than 90 days in
respect of 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.
Asset Classification

 Performing Assets
 Non Performing Assets
 Standard Assets
 Sub-Standard Assets
 Doubtful Assets
 Loss Assets
Performing & Non Performing Assets

 Performing Assets
 An account does not disclose any problem and carry more than normal risk attached to the
business.
 All Loan facilities which are regular

 Non Performing Assets

 A Loan or account of borrower, which has been classified by a bank or financial institution as sub-
standard, doubtful or loss asset, in accordance with the direction or guidelines relating to asset
classification issued by RBI.
Concept Of NPA
An asset is classified as Non-performing Asset (NPA) if due in the form of principal and interest are not paid by
the borrower for a period of 180 days. However, with effect from March 2004, default status would be given to a
borrower if dues are not paid for 90 days. If any advance or credit facilities granted by banks to a borrower becomes
non-performing, then the bank will have to treat all the advances/credit facilities granted to that borrower as non-
performing without having any regard to the fact that there may still exist certain advances / credit facilities having
performing status.
Though the term NPA connotes a financial asset of a commercial bank, which has stopped earning an expected
reasonable return, it is also a reflection of the productivity of the unit, firm, concern, industry and nation where that
asset is idling. Viewed with this perspective, the NPA is a result of an environment that prevents it from performing
up to expected levels.
 THE DEFINITION OF NPAS
The definition of NPAs in Indian context is certainly more liberal with two quarters norm being applied for
classification of such assets. The RBI is moving over to one-quarter norm from 2004 onwards.  
NPA is defined as a credit facility in respect of which the interest and / or installment of principal has remained
‘past due’ for a specified period of time.
An asset including a leased asset, becomes NPA when it ceases to generate income for the bank
Objectives of Study

 To understand the concept of NPAs.

To investigate the impact of NPAs on profitability of the banks.
To analyze the reasons for an asset turning into a non performing assets.
Categories of NPA
 Standard assets :
 Arrears of Interest and the principal amount of loan does not exceed 90 days at the end of
financial year.
 Substandard assets:
 Which has remained NPA for a period less than or equal to 12 months
 Doubtful assets :
 Which has remained in the Sub-Standard category for a period of more than 12 months
 D1 i.e. up to 1-year : 20% provision is made by the bank
 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
 Loss assets:
 Where loss has been identified by the bank or internal or external auditors or the RBI inspection
but the amount has been written off wholly.
Types of NPA

 Gross NPA:
 Gross NPA are the sum total of all loan assets that are classified as NPAs as per RBI
guidelines as on Balance sheet date.
 Gross NPA reflects the quality of the load made by banks.
 It consists of all the loan standard assets like as sub-standard, doubtful, and loss assets.
 Net NPA:
 Net NPAs are those type of NPAs in which the bank has deducted the provision regarding
NPAs. Net NPA shows the actual burden of banks.
Reasons behind rise in NPA

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

 Non performing of the business or the purpose for which the customer has taken the loan
 Wilful defaulter
 Loan sanctioned for agriculture purpose.
 Change in govt. policies leads to NPA.
Effects of NPA on Banks & FI

 Restriction on flow of cash done by bank due to the provisions if fund made against NPA.
 Drain of Profit
 Bad effect on goodwill.
 Bad effect on equity value.
Impact of NPA on the Operations of Banks

Profitability -NPA means booking of money in terms of bad asset, which occurred due to wrong choice of client. Because
of the money getting blocked the prodigality of bank decreases not only by the amount of NPA but NPA lead to opportunity
cost also as that much of profit invested in some return earning project/asset. So NPA does not affect current profit but also
future stream of profit, which may lead to loss of some long-term beneficial opportunity. Another impact of reduction in
profitability is low ROI (return on investment), which adversely affect current earning of bank.
Liquidity-Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead to borrowing money
for shortest period of time which lead to additional cost to the company. Difficulty in operating the functions of bank is
another cause of NPA due to lack of money.
Involvement of Management-Time and efforts of management is another indirect cost which bank has to bear due to
NPA. Time and efforts of management in handling and managing NPA would have diverted to some fruitful activities,
which would have given good returns. Now days, banks have special employees to deal and handle NPAs, which is
additional cost to the bank.
Credit Loss-If a bank is facing problem of NPA, then it adversely affects the value of bank in terms of market for credit. It
will lose its goodwill and brand image and credit which have negative impact to the people who are putting in their money
in the banks (C.S. Balasubramaniam, 2011).
Factors Impacting Rise in NPA’s
 External Factors:
 Ineffective legal framework & weak recovery tribunals
 Lack of demand / economic recession or slowdown.
 Change in Govt. Policies
 Wilful defaults by customers
 Alleged political interferences.
 Internal Factors:
 Defective Lending process
 Inappropriate / non-use of Technology like MIS, Computerization
 Inadequate credit appraisal system & Managerial deficiencies
 Absence of regular Industrial visits & Monitoring
 Deficiencies in re-loaning process
 Alleged corruption
 Inadequate networking and linkage b/w banks.
Causes
 Speculation : Investing in high risk assets to earn high income.
 Default : Wilful default by the borrowers
 Fraudulent practices : Fraudulent Practices like advancing loans to ineligible persons,
advances without security or references, etc.
 Diversion of Funds : Most of the funds are diverted for unnecessary expansion and
diversion of business.
 Internal reasons: Many internal reasons like inefficient management, inappropriate
technology, labour problems, Marketing failures, etc. resulting in poor performance of
the companies.
 External reasons: External reasons like in the company, infrastructure problems, price
rise, delay in release of sanctioned limits by banks, delay in settlements of payments by
government, natural calamities, etc.
NPA Management Strategies
 Indian Banks are pursuing variety of strategies to control NPAs, which can be studied
under two broad categories as under:
 A) Preventive Management :
It is rightly said that prevention is better than cure.
 Developing ‘Know Your Client’ profile (KYC)
 Monitoring early warning signals
 Installing proper Credit Assessment and Risk Management mechanism
 Reduced dependence on Interest.
 Generating watch list / Special Mention Category.
 B) Curative Management :
 Using Lok Adalats for compromise settlement for smaller loans in ‘doubtful’ and ‘Loss’ category
 Pursing Corporate Debt Restructuring (CDR)
 Recovery action against Large NPAs
 Encouraging acquisition of sick units by healthy units
 Entering compromise schemes with borrowers/ Entering one time settlement
Conclusion

 A strong banking sector is important for a flourishing economy. The failure of the banking sector
may have an adverse impact on other sectors. NPAs reflect the overall performance of the banks.
The NPAs have always been a big worry for the banks in India. The Indian banking sector faced a
serious problem of NPAs. . A high level of NPAs suggests high probability of a large number of
credit defaults that affect the profitability and liquidity of banks. The extent of NPAs has
comparatively higher in public sectors banks. To improve the efficiency and profitability, the NPAs
have to be scheduled. Various steps have been taken by government to reduce the NPAs. It is
highly impossible to have zero percentage NPAs. But at least Indian banks should take care to
ensure that they give loans to creditworthy customers.
Thank You…!