This document discusses NPA (non-performing assets) management. It defines NPAs as loans that are overdue by over 90 days. It categorizes NPAs as substandard, doubtful, and loss assets and outlines the different provisioning rates banks must hold against each category. The document also discusses the types (gross and net NPA), causes, effects of rising NPAs on banks, and strategies banks use to prevent and cure high NPA levels like debt restructuring and asset reconstruction companies.

1. NPA Management
Prepared By:
Simran Khilwani
Prateek Kakkar

2. 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.

3. 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.

4. With effect form March 31, 2004 a non-performing asset (NPA)
shall 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,
Introduction

5. 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 : 25% provision is made by the bank
• D2 i.e. from 1 year to 2 years : 40% provision is made by the bank
• D3 i.e. more than 3 years : 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 not been written off wholly.

6. 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.

7. Effects of NPA on banks & FI
• Restriction on flow of cash done by bank due to
the provisions of fund made against NPA.
• Drain of profit.
• Bad effect on goodwill.
• Bad effect on equity value.

8. 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

9. 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

10. • 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

11. 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

12. 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

13. NPA Management Strategies
B. Curative Management:
• Re-phasement of loans
• Pursuing Corporate Debt Restructuring (CDR)
• Encouraging acquisition of sick units by healthy units
• Using Lok Adalats for compromise settlement for smaller
loans in “doubtful” and “loss” category.
• Using Securitization & SARFAESI Act
• Using Asset Reconstruction Company (ARC)
• Approaching Debt Recovery Tribunals (DRTs).
• Recovery Action against Large NPAs

14. Rates Of Provisions
Assets
Non-
Performing
Assets
Secured
Sub-
Standard
Assets (15%)
Doubtful
Assets
Up to 1 year
(25%)
1 year to 2
year (40%)
Above 3
years (100%)
Loss Assets
(100%)
Unsecured
Sub-
Standard
Assets (25%)
Doubtful
Assets
(100%)
Performing
Assets
Standard
Assets
(0.40%)