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MANGEMENT OF NPA.pptx
- 1. MANGEMENT OF NPA & INTEREST RATE STRUCTURE PRESENTING TO : MRS. POOJA MISHRA MAM PRESENTING BY : ANKUR SHUKLA : KSHITIZ AGRAWAL
- 2. Agenda Meaning of NPA Factors Contributing to NPA Corrective actions plan to arrest increasing NPAs Latest Measures by RBI MANGEMENT OF NPA Types Of NPA Conclusions SARFAESI ACT Types of interest rate Structure Meaning of Interest Rate Structure
- 3. Meaning Of NPA Non-Performing Assets or NPA are like a cancer worm that has been destroying the banking system of India slowly and steadily. NPA are bad loans with banks or other financial institutions whose interests and or principal amounts are overdue for a long time. This time is usually 90 days or more. Like any other business, banks also must run on profits, but NPA eats into that margin for banks.
- 4. Substandard Assets : A sub-standard asset was one, which was classified as NPA for a period not exceeding two years. With effect from 31 March 2001, a sub-standard asset is one, which has remained NPA for a period less than or equal to 18 months. Doubtful Assets : A doubtful asset was one, which remained NPA for a period exceeding two years. With effect from 31 March 2001, an asset is to be classified as doubtful, if it has remained NPA for a period exceeding 18 months. Loss Assets : This occurs when the NPA has been recognized as a loss by the bank, or the internal or external auditor or on Reserve Bank of India (RBI) inspection but the loan has not been forgiven completely. TYPES OF NPA
- 5. Factors Affecting NPAs • Banks’ lending to persons/corporations etc. who are not creditworthy and taking high risks. • Banks are not diminishing their losses by understanding their bank’s sufficiency on capital and loan loss reserves at a given time; • Promoter of Companies redirecting their funds elsewhere. Banks trying to fund non- viable projects. • In the initial part of the 1990s, Public Sector Banks started experiencing acute capital shortage and losses. The targets set for their operation did not project the utmost need for these corporate goals. • The banks had very little autonomy to price their products; offer products to preferred sectors or spend money for their own profits. For example, Banks were forced to lend to priority sector namely agriculture due to political pressure. • Deficient means to collect and distribute credit information amongst commercial banks;
- 6. Banks must identify early that there is going to be a non-payment and report it to the Central Repository of Information on Large Credits (CRILC). Before a loan account turns into an NPA, Non-Banking Finance Companies (NBFCs) must recognize emergent stress in the account by creating a sub-asset category i.e. ‘Special Mention Accounts’ (SMA) with the three sub-categories as given in the table, as per the RBI’s Prudential Framework for Resolution of Stressed Assets dated June 7th, 2019 Special Mention Accounts (SMA) Category Basis of Categorization Principal or interest payment or any other amount wholly or partly overdue between SMA - 0 1 - 30 DAYS SMA – 1 31 - 60 DAYS SMA - 2 61 - 90 DAYS Corrective Action Plan to Arrest increasing NPAs
- 7. •Lenders must be given incentives to agree to collectively and quickly plan– if a resolution plan is already under way, then there must be better regulatory treatment; if no agreement can be reached, then accelerated provisioning must be done. •Improvement in current restructuring process: large value restructurings must be independently evaluated mandatorily, with a focus on viable plans and a fair sharing of losses (and future possible upside) between promoters and creditors. •Future borrowing for non-cooperative borrowers with lenders must be made more expensive in resolution. LATEST MEASURES BY RBI
- 8. •Asset sales must be given more liberal regulatory treatment. •Sector-specific Companies/Private equity firms must be helped to play an active role in the stressed assets market. •Formation of Joint Lenders’ Forum: If an account is reported to Central Repository of Information on Large Credits (CRILC) as SMA-2, all lenders should form a lenders’ committee to be called Joint Lenders’ Forum (JLF) under a convener and frame a joint Corrective Action Plan (CAP) for early resolution of the stress in the account. This would also include: Rectification; Restructuring; Recovery of the asset. LATEST MEASURES BY RBI
- 9. SARFAESI ACT 2002 • The SARFAESI Act ensures the security interests in movable (tangible or intangible assets including accounts receivable) and immovable property without the court’s intervention. A Bank or a Financial Institution can send a legal notice to the borrower to pay back her liabilities within 6 days from the date of notice. • If the borrower is unable to do so, the Bank or Financial Institution (FI) can exercise all its rights under the SARFAESI Act. • The Bank or FI can also seize the management of the secured assets. • Any aggrieved person can appeal to the Debt Recovery Tribunal (DRT) within 45 days after depositing 75% of the amount claimed in the notice. Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest
- 10. INTEREST RATE STRUCTURE The term structure of interest rate can be defined as the graphical representation that depicts the relationship between interest rates (or yields on a bond) and a range of different maturities. The graph itself is called a “yield curve.” The term structure of interest rates plays an important part in any economy by predicting the future trajectory of rates and facilitating quick comparison of yields based on time.
- 11. TYPES OF INTERST RATE STRUCTURE #1 – Normal/Positive Yield The normal yield curve has a positive slope. This stands true for securities with longer maturities that have greater risk exposure as opposed to short term securities. So rationally, an investor would expect higher compensation (yield), thus giving rise to a normal positively sloped yield curve. #2 – Steep The steep yield curve is just another variation of the normal yield curve just that a rise in interest rates occurs at a faster for long-maturity securities than the ones with a short maturity. #3 – Inverted/Negative Yield An inverted curve forms when there is a high expectation of long-maturity yields falling below short maturity yields in the future. An inverted yield curve is an important indicator of the imminent economic slowdown.
- 12. #4 – Humped/Bell-Shaped This type of curve is atypical and very infrequent. It indicated that yields for medium-term maturity are higher than both long and short terms, eventually suggesting a slowdown. #5 – Flat A Flat curve indicates similar returns for long-term, medium-term, and short-term maturities.
- 13. GRAPHICAL REPRESANTATION OF INTEREST RATE STRUCTURE NORMAL / POSITIVE HUMPED / BELL FLAT STEEP INVERTED / NEGATIVE
- 14. 1-year MCLR is 8.85% 6-month MCLR is 8.65% 3-month MCLR is 8.55% Overnight MCLR is 8.15% 1-month MCLR is 8.40% New Interest Rates by RBI Presentation Title
- 15. CONCLUSION In conclusion it can be said that by taking preventive measures such as considering the corporate body’s credit score before lending; banks can go a long way in reducing their NPAs. Furthermore, after the advent of current legislations such as IBC, the existing one SARFAESI, along with RBI’s recommendations, after the loans have become an NPA, banks also have a post facto redressal mechanism which is speedier than regular long drawn recovery process in the courts. The term structure of interest rates is one of the most potent predictors of economic wellbeing. All recessions in the past have been linked to inverted yield curves, showing how important a role they play in the credit market. Yield curves aren’t ever constant. They keep changing, reflecting the current market mood, helping the investors and financial intermediaries stay on top of
- 17. Thank you