DEFINITION OF NPASA 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
CATEGORIES OF NPASubstandard Assets – Which has remainedNPA for a period less than or equal to 12months.Doubtful Assets – Which has remained inthe sub-standard category for a period of12 monthsLoss Assets – where loss has beenidentified by the bank or internal orexternal auditors or the RBI inspection butthe amount has not been written offwholly. Presented by Mr. S. Ravi 3
PROVISIONING NORMSStandard Assets – general provision of aminimum of 0.25%Substandard Assets – 10% on totaloutstanding balance, 10 % on unsecuredexposures identified as sub-standard & 100%for unsecured “doubtful” assets.Doubtful Assets – 100% to the extent advancenot covered by realizable value of security. Incase of secured portion, provision may bemade in the range of 20% to 100% dependingon the period of asset remaining sub-standardLoss Assets – 100% of the outstanding Presented by Mr. S. Ravi 4
FACTORS CONTRIBUTING TO NPASPoor Credit disciplineInadequate Credit & Risk ManagementDiversion of funds by promotersFunding of non-viable projectsIn the early 1990s PSBs started suffering fromacute capital inadequacy and lower/ negativeprofitability. The parameters set for theirfunctioning did not project the paramount needfor these corporate goals.The banks had little freedom to price products,cater products to chosen segments or investfunds in their best interest Presented by Mr. S. Ravi 5
FACTORS CONTRIBUTING TO NPASAudit and control functions were notindependent and thus unable to correct theeffect of serious flaws in policies and directionsBanks were not sufficiently developed in termsof skills and expertise to regulate thehomogenus growth in credit and manage thediverse risks that emerged in the process Presented by Mr. S. Ravi 6
FACTORS CONTRIBUTING TO NPASInadequate mechanism to gather anddisseminate credit information amongstcommercial banks Presented by Mr. S. Ravi 7
IMPACT OF NPAS ON OPERATIONSDrain on ProfitabilityImpact on capital adequacyAdverse effect on credit growth as thebanker’s prime focus becomes zero percentrisk .Excessive focus on Credit Risk ManagementHigh cost of funds due to NPAs Presented by Mr. S. Ravi 8
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
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
NPA MANAGEMENT - RESOLUTIONCompromise Settlement SchemesRestructuring / ReschedulementLok AdalatCorporate Debt Restructuring CellDebt Recovery Tribunal (DRT)Proceedings under the Code of Civil ProcedureBoard for Industrial & Financial Reconstruction(BIFR)National Company Law Tribunal (NCLT)Sale of NPA to other bank Presented by Mr. S. Ravi 11
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