1. A PRESENTATION ON
NON-PERFORMING ASSETS

2. Introduction
The economic progress of a nation and
development of banking is invariably
interrelated.
The Indian Banking sector accounts a major
portion of financial intermediation and
acknowledged for formulation of monetary
policy and facilitator for payment systems.
The Banking sector is an indispensable
financial
service
sector
supporting
development plans through channelizing
funds for productive purpose, intermediating
flow of funds from surplus to deficit units and
supporting financial and economic policies of

3. Even
though bank serves social objective
through its priority sector lending, mass branch
networks
and
employment
generation,
maintaining asset quality and profitability is
critical for them.
A major threat to banking sector is prevalence of
Non-Performing Assets (NPAs). NPA represent
bad loans, the borrowers of which failed to satisfy
their repayment obligations.
This affects operational efficiency which in turn
affects profitability, liquidity and solvency position
of banks.
 NPA also affect the psychology of bankers in
respect of their disposition of funds towards

4. Definition of NPA & its categories
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, overdraft/ cash credit, bills purchased
and discounted.
Categories:
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

5. Provisioning Norms
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.
Substandard

6. Causes of NPA:
Willful
defaults,
fraud,
disputes,
misappropriation of funds etc.,
Improper selection of borrowers/activities.
Non-compliance
of sanction terms and
conditions.
Poor debt management by the borrower, leading
to financial crisis.
Inability of the corporate to raise capital through
the issue of equity or other debt instrument from
capital markets.
Diversion
of
funds
for
expansion/modernization/setting
up
new
projects.

7. Growth Rate of Net NPA
Year
SBI &
Nationali
Associat
zed
es
Banks
Public
Sector
Private
Sector
Foreign
Banks
200007
-3.84
-7.94
-6.53
3.88
10.15
200811
23.70
26.09
24.17
30.07
7.21

8. Impact of NPA
It leads to the credit risk management
assuming priority over other aspects of bank’s
functioning. The bank’s whole machinery
would thus be pre-occupied with recovery
procedures rather than concentrating on
expanding business.
The most notable impact of NPA is change in
banker’s sentiments which may hinder credit
expansion to productive purpose. Banks may
incline towards more risk-free investments to
avoid and reduce riskiness, which is not
conducive for the growth of economy
The interest income of banks will fall and it is

9. Banks
profitability is affected adversely
because of the provision of doubtful debts and
consequent write off as bad debts.
 Return on Investment (ROI) is reduced.
The cost of capital will go up.
 The assets and liability mismatch will widen.
 The Economic Value Additions (EVA=Net
operating profit – cost of capital) of banks
is reduced.
 It limits recycling of the funds.
The capital adequacy ratio is disturbed as
NPAs are entering into the calculation.

10. Management of NPA
Essential
components of sound NPA
management are:
1. Quick identification of NPAs
2. Their containment at a minimum level
3. Ensuring minimum impact of NPAs on the
financials
4. Evaluation and assessment of the proposal
5. Timely monitoring and evaluation and
6. Proper assessment of exit decision.

11. Other measures
Commercial
banks have envisaged new
concepts like income recognition, prudential
accounting norms and capital adequacy ratio
etc..,
The traditional measures tried to protect the
interests of deposits through maintaining
adequate capital in liquid form.
Creation of additional benches and enhancing
the capacity of DRT (debt recovery tribunal)
can be rationalized and delays could be
avoided.
 In order to reduce the balance of NPAs, they
constantly review and monitor the accounts

12. Conclusion
NPA is a virus affecting banking sector. It
affects profitability, liquidity and solvency, in
addition posing threat on quality of asset and
survival of banks. It still remains a major
concern for banks in India. The increased
level of additions to NPA remained as an area
of concern as it indicates the real efficiency of
credit risk management. The recessionary
pressures faced by the banking sector is an
important reason for the growth of NPA
indicators, it should be managed to maintain a
healthy and viable banking environment

13. THANK YOU