it is a presentation on Non Performing Assests.

1. MANAGEMENT OF
NON-PERFORMING ASSETS
Omika Bhalla

2. DEFINITION OF NPAS
A NPA is a loan or an 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” 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
The installment or interest remains overdue for
two crop seasons in case of short duration crops
and for one crop season in case of long duration
crops
Presented by Mr. S. Ravi 2

3. CATEGORIES OF NPA
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
12 months
Loss Assets – 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.
Presented by Mr. S. Ravi 3

4. PROVISIONING NORMS
Standard Assets – general provision of a
minimum of 0.25%
Substandard Assets – 10% on total
outstanding balance, 10 % on unsecured
exposures identified as sub-standard & 100%
for unsecured “doubtful” assets.
Doubtful Assets – 100% to the extent advance
not covered by realizable value of security. In
case of secured portion, provision may be
made in the range of 20% to 100% depending
on the period of asset remaining sub-standard
Loss Assets – 100% of the outstanding
Presented by Mr. S. Ravi 4

5. FACTORS CONTRIBUTING TO NPAS
Poor Credit discipline
Inadequate Credit & Risk Management
Diversion of funds by promoters
Funding of non-viable projects
In the early 1990s PSBs started suffering from
acute capital inadequacy and lower/ negative
profitability. The parameters set for their
functioning did not project the paramount need
for these corporate goals.
The banks had little freedom to price products,
cater products to chosen segments or invest
funds in their best interest
Presented by Mr. S. Ravi 5

6. FACTORS CONTRIBUTING TO NPAS
Audit and control functions were not
independent and thus unable to correct the
effect of serious flaws in policies and directions
Banks were not sufficiently developed in terms
of skills and expertise to regulate the
homogenus growth in credit and manage the
diverse risks that emerged in the process
Presented by Mr. S. Ravi 6

7. FACTORS CONTRIBUTING TO NPAS
Inadequate mechanism to gather and
disseminate credit information amongst
commercial banks
Presented by Mr. S. Ravi 7

8. IMPACT OF NPAS ON OPERATIONS
Drain on Profitability
Impact on capital adequacy
Adverse effect on credit growth as the
banker’s prime focus becomes zero percent
risk .
Excessive focus on Credit Risk Management
High cost of funds due to NPAs
Presented by Mr. S. Ravi 8

9. NPA MANAGEMENT – PREVENTIVE MEASURES
Formation of the Credit Information Bureau
(India) Limited (CIBIL)
Release of Wilful Defaulter’s List. RBI also
releases a list of borrowers with aggregate
outstanding of Rs.1 crore and above against
whom banks have filed suits for recovery of
their funds
Reporting of Frauds to RBI
Norms of Lender’s Liability – framing of Fair
Practices Code with regard to lender’s
liability to be followed by banks, which
indirectly prevents accounts turning into
NPAs on account of bank’s own failure
Presented by Mr. S. Ravi 9

10. NPA MANAGEMENT – PREVENTIVE MEASURES
Risk assessment and Risk management
RBI has advised banks to examine all cases
of wilful default of Rs.1 crore and above and
file suits in such cases.
Reporting quick mortality cases
Presented by Mr. S. Ravi 10

11. NPA MANAGEMENT - RESOLUTION
Compromise Settlement Schemes
Restructuring / Reschedulement
Lok Adalat
Corporate Debt Restructuring Cell
Debt Recovery Tribunal (DRT)
Proceedings under the Code of Civil Procedure
Board for Industrial & Financial Reconstruction
(BIFR)
National Company Law Tribunal (NCLT)
Sale of NPA to other bank
Presented by Mr. S. Ravi 11