The document discusses Non-Performing Assets (NPAs) in banking, defining categories such as performing, sub-standard, doubtful, and loss assets, along with criteria for their classification according to RBI guidelines. It outlines the causes for the rise in NPAs, including poor loan assessment and external economic factors, while also presenting both preventive and curative management strategies for handling NPAs. Additionally, it explores various recovery mechanisms such as Debt Recovery Tribunals, the SARFAESI Act, and the Corporate Debt Restructuring process aimed at improving banks' asset quality.

1. NPA Management

2. Fig 1: Asset Classification
Assets
Performing
Assets
Standard
Assets
Non Performing Assets
(NPA)
Sub -Standard
Assets
Doubtful
Assets
Loss
Assets

3. Performing Asset
• An account does not disclose any
problems and carry more than normal
risk attached to the business
• All loan facilities which are regular !

4. Non Performing Assets
• Non Performing Asset means a loan or
an account of borrower, which has been
classified by a bank or financial
institution as sub-standard, doubtful or
loss asset, in accordance with the
directions or guidelines relating to asset
classification issued by RBI.

5. With effect form March 31, 2004 a non-performing asset
(NPA) shell be 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' 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,
Banks should classify an account as NPA only if the interest
charged during any quarter is not serviced fully within 90
days from the end of the quarter
Introduction

6. 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 and provision is made for 10% of the
secured portion and 20% of the unsecured portion of the
outstanding.
 Doubtful Assets : Which has remained in the sub-standard
category for a period of 12 months. Provisioning is made at
100% of the unsecured portion of the outstanding and for
secured portion
• 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

7. • 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. In other words such an
assets is considered uncollectable and
of such little value that it’s continuance
as a bankable assets is not warranted
although there may be some salvage
value .

8. Reasons behind rise in NPA
• Lack of proper pre-enquiry by the bank for
sanctioning a loan to a customer.
• Non performance of the business or the purpose
for which the customer has taken the loan.
• Willful defaulter.
• Loans sanctioned for agriculture purposes.
• Change in govt. policies leads to NPA.

10. Factors Impacting Rise In NPAs
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

11. Factors Impacting Rise In NPAs
Internal factors :
• Defective Lending process
• Inappropriate / non –use of technology like MIS ,
Computerization
• Improper SWOT analysis
• Inadequate credit appraisal system
• Managerial deficiencies
• Absence of regular industrial visits & monitoring
• Deficiencies in re-loaning process
• Alleged corruption
• Inadequate networking & linkages b/w banks

12. BANKER – SIDE
Defective Sanction
No post-sanction
supervision, etc
Delay in releases
Directed lending
Slow decision
making process
BORROWER-SIDE
Lack of Planning
Diversion of Funds
Disputes within
No contribution
No modernization
Improper monitoring
Industrial Relations
Natural Calamities
Why Loan accounts go bad ?

13. Causes
• NPA arises due to a number of factors or causes like:-
• Speculation : Investing in high risk assets to earn high income.
• Default : Willful 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 failure, etc. resulting
in poor performance of the companies.
• External reasons : External reasons like a recession in the economy,
infrastructural problems, price rise, delay in release of sanctioned limits by
banks, delays in settlements of payments by government, natural
calamities, etc.

14. TYPES OF NPA
• Gross NPA :
Gross NPAs 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 loans made by banks. It consists of
all the non standard assets like as sub-
standard, doubtful, and loss assets.
• Gross NPAs Gross NPAs
Gross Advances

15. • 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.
Net NPAs Gross = __NPAs – Provisions__
Gross Advances - Provisions

16. SBI
• State Bank of India
Net NPAs : Rs 12,347.90 crore
Gross NPAs : Rs 25,326.29 crore
• The gross non-performing assets (NPAs) of public sector
banks increased by 20 per cent during June-September 2011.
• Standard & Poor's, which had in September downgraded
standalone ratings of State Bank of India, said high credit
risks in the Indian banking sector reflects that the country has
a weak payment culture and legal system that often result in
low recoveries and delayed settlement of foreclosures.

17. ICICI Bank
• 2. ICICI Bank
• Net NPAs: Rs 2,407.36 crore
Gross NPAs: Rs 10,034.26 crore
• ICICI Bank has the highest NPAs among private
sector banks. ICICI Bank has slightly improved its
net bad debts to 0.90 per cent from 0.91 per cent in
the earlier quarter.
• Indian banks face challenges like increase in
interest rates on saving deposits, a tighter monetary
policy, restructured loan accounts and increasing
infrastructure loans.

18. NET NON PERFORMING
ASSETS
YEARS SBI PNB ICICI UTI SCB
1998 7.31 10.21 3.69 5.33 3.30
1999 7.30 10.38 3.22 3.66 2.88
2000 6.07 9.57 1.14 5.63 2.42
2001 7.33 8.96 2.88 6.32 NA
2002 6.65 8.52 1.53 4.71 2.04
2003 5.33 6.69 3.36 2.39 1.53
2004 5.63 5.32 5.48 3.46 3.46
2005 4.5 3.86 5.21 2.39 2.39
2006 3.48 0.98 2.21 1.29 1.29
2007 2.65 0.2 1.65 1.39 1.39
2008 1.87 0.29 0.72 0.98 0.98
2009 1.32 0.28 0.78 0.72 0.87

19. 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
– b. Curative Management

20. NPA Management Strategies
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

22. NPA Management Strategies
b. Curative Management
• Re-phasement of loans
• Pursuing Corporate Debt Restructuring (CDR
• Encouraging rehabilitation of potentially viable units
• Encouraging acquisition of sick units by healthy units
• Entering compromise schemes with borrowers /
Entering one time settlement
• Recovery Action against Large NPAs
• Circulation of Information of Defaulters-
Strengthening Database of Defaulters

24. LOK ADALAT
• To settle disputes involving account in
“doubtful” and “loss” category.
• Outstanding balance of Rs.5 lakhs for
compromise settlement.
• Proved to be quite effective for speedy
justice and recovery of small loans.
• Progress through this channel is expected
to pick up in the coming years

25. DEBT RECOVERY TRIBUNALS (DRT)
• To recover their bad Debt quickly and efficiently.
• 33 Debt Recovery Tribunal and 5 Debt Recovery Appellate
Tribunal
• It is the special court established by central government for the
purpose of bank or any financial institutions recovery.
• The judges of this court are the retired judges of high court.
• In this court only the recovery cases of Rs.10 lakhs and above
can be filed.

26. SARFAESI Act
• SECURITIZATION AND RECONSTRUCTION OF
FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY
INTEREST ACT 2002
• The Act provides three alternative methods for recovery of
non-performing assets, namely: -
Securitisation
Asset Reconstruction
Enforcement of Security without the intervention of the
Court.
• NPA loans with outstanding above Rs. 1.00 lac.
• NPA loan accounts where the amount is less than 20% of the
principal and interest are not eligible to be dealt with under
this Act

27. This Act empowers the Bank:
• To issue demand notice to the defaulting borrower
and guarantor, calling upon them to discharge their
dues in full within 60 days from the date of the notice.
• To give notice to any person who has acquired any of
the secured assets from the borrower to surrender the
same to the Bank.
• To ask any debtor of the borrower to pay any sum due
or becoming due to the borrower.
• Any Security Interest created over Agricultural Land
cannot be proceeded with.

28. ARCIL
• A company which is set up with the objective of taking over
distressed assets (NPA) from banks or financial institutions and to
reconstruct or re-pack these assets to make those assets saleable.
• To buy out troubled loans from banks and make special efforts at
recovering value from the assets, if necessary by special
legislation, with special powers for recovery.
• Restructuring of weak banks to divest the bad loan portfolio.
• India’s first ARC with an initial equity of Rs.10 crore with ICICI bank,
IDBI and SBI.
• Incorporated as a public limited company on February 11, 2002

29. OBJECTIVES
• Unlocking capital for the banking system and the economy
• Creating a vibrant market for distressed debt assets
/securities in India offering a trading platform for Lenders
• To evolve and create significant capacity in the system for
quicker resolution of NPAs by deploying the assets optimally
• www.arcil.co.in

30. CORPORATE DEBT
RESTRUCTURING (CDR)
• For the revival of the corporate as well as for the safety
of the money lent by the banks and FI.
• Based on the experience in other countries like the U.K.,
Thailand,Korea, etc.
• Objective was to ensure timely and transparent
mechanism for restructuring of the corporate debts
• CDR mechanism will be a voluntary system based on
debtor creditor agreement and inter-creditor agreement.

31. • CDR mechanism will cover only multiple banking
accounts / syndication / consortium accounts .
• An outstanding exposure of Rs.20 crore and above by
banks and institutions.

32. S
No
SCBs FY
2006-07
2007-08 2008-09 2009-10 2010-11
1 Gross NPAs
(%)
2.5 2.3 2.3 2.4 2.3
2 Net NPAs
(%)
1.0 1.0 1.1 1.1 0.9
3 Fresh NPA
Generation
Rate (%)
1.7 1.8 2.1 2.2 2.0
4 Net
NPAs/Net
Worth (%)
9.2 7.8 8.6 9.1 10.0

33. S
No
Private
Banks
FY
2006-07
2007-08 2008-09 2009-10 2010-11
1 Gross
NPAs (%)
2.1 2.4 2.9 2.7 2.3
2 Net NPAs
(%)
0.9 1.1 1.3 1.0 0.6
3 Net
NPAs/Net
Worth (%)
7.8 6.1 7.5 5.3 3.2

34. S
No
PSBs FY
2006-07
2007-08 2008-09 2009-10 2010-11
1 Gross NPAs
(%)
2.7 2.2 2.0 2.2 2.3
2 Net NPAs
(%)
1.1 1.0 0.9 1.1 1.1
3 Net
NPAs/Net
Worth (%)
12.1 11.2 11.4 13.5 13.4