Non Performing Assets
Non Performing Assets concept was introduced by reserve bank of India on 1 April 1991. These are to be identified on balance sheet date only.
- In case government guarantee is invoked such an account is called as Non Performing Assets.
- In case of advances granted for agricultural purpose where interest / installment is in arrear for more than 2 quarters from the date of interest/ installment being due for repayment the advances shall be treated as Non Performing Assets.
- In case where there are threats of recovery on account such as frauds committed by borrowers are classified as doubtful assets and remained as Non Performing Assets.
Thus an asset is classified as Non Performing Assets if due in the form of principal and interest are not paid by the borrower for a period of 180 days. However, with a view to moving toward international best practices and to ensure greater transparency it has been decided to adopt the 90 days overdue norm for identification of Non Performing Assets from the year ending March 31, 2004. Non Performing Assets shall be loan or advances where:
1. Interest / installment of principal remain overdue for a period more than 90 days in case of term loan.
2. The account remains overdue for a period more than 90 days in case of overdraft.
3. The bill remains overdue for a period more than 90 days in case of bill discounted.
4. Any amount to be received remains overdue for a period more than 90 days in case of bill purchase.
Where there is doubt of recoverability of advances the assets should be classified as NPA. Loan and advances given by bank are classified as;
(a) Standard assets:- it is one which does not disclose any problem , does not carry more than normal risk such an asset is not non performing. The advances against term deposits, national saving certificate, indira vikas patra, kisan vikas patra and LIC policies are classified as standard assets. A provision of 0.25% has to be made with effect from 31 march, 2000.
(b) Sub standard assets:- it is one which is classified as NPA for a period not exceeding 2 years. But from 31 march, 2001 a sub standard asset is one which remain NPA for a period not exceeding 18 months. A provision of 10% has to be made with effect from 31 march, 2000.
(c) Doubtful assets:- it is one which is classified as NPA for a period exceeding 2 years. But from 31 march, 2001 a doubtful asset is one which remain NPA for a period exceeding 18 months. A provision of 20% has been made up to 1 year, 1 to 3 year 30%, more than 3 year 50% with effect from 31 march, 2000.
(d) Loss asset:- it is one where loss has been identified by the bank or internal or external auditors. The entire asset should be written off and a provision of 100% has been made.
It is a fact that banks and financial institutions in India are facing the problem of NPA’s which is becoming more and more unmanageable. In order to bring the situation under control, some steps have been taken. The securitization and reconstruction of financial assets and enforcement of security interest act, 2002 was passed by parliament for the elimination or reduction of NPA’s.