NON PERFORMING ASSETS(npa):
TYPE, REASONS & SOLUTIONS
FOR NPA'S MANAGEMENT
INTRODUCTION:
Non-Performing Assets (NPA) - Meaning
Non-Performing Assets are popularly known as NPA. Commercial Banks assets
are of various types.
All those assets which generate periodical income are called as Performing
Assets (PA) .
While all those assets which do not generate periodical income are called as Non-
Performing Assets (NPA) .
If the customers do not repay principal amount and interest for a certain period of
time then such loans become non-performing assets (NPA). Thus non-performing
assets are basically non-performing loans.
In India, the time frame given for classifying the asset as NPA is 180 days as
compared to 45 days to 90 days of international norms.
India and Non-Performing Assets
In India, NPA were very high in the beginning of 90's. Over a period of time there
is considerable decline in the NPA's of all banks . In the case of public sector
banks, gross non-performing assets were 9.4% in 2002-03 and it declined to 7.8%
in 2003-04. The net NPA during the same period declined from 4.5% to 3%.
Types of NPA
NPA have been divided or classified into following four types:-
1. Standard Assets : A standard asset is a performing asset. Standard assets
generate continuous income and repayments as and when they fall due. Such
assets carry a normal risk and are not NPA in the real sense. So, no special
provisions are required for Standard Assets.
2. Sub-Standard Assets : All those assets (loans and advances) which are
considered as non-performing for a period of 12 months are called as Sub-
Standard assets.
3. Doubtful Assets : All those assets which are considered as non-performing for
period of more than 12 months are called as Doubtful Assets.
4. Loss Assets : All those assets which cannot be recovered are called as Loss
Assets.
These assets can be identified by the Central Bank or by the Auditors.
CAUSES OF NPA
NPA arises due to a number of factors or causes like:-
1. Speculation : Investing in high risk assets to earn high income.
2. Default : Willful default by the borrowers.
3. Fraudulent practices : Fraudulent Practices like advancing loans to ineligible
persons, advances without security or references, etc.
4. Diversion of funds : Most of the funds are diverted for unnecessary expansion
and diversion of business.
5. Internal reasons : Many internal reasons like inefficient management ,
inappropriate technology, labour problems, marketing failure, etc. resulting in poor
performance of the companies.
6. 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.
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7. Industrial Crisis:- Industries depend on banks to fulfill their projects. If industry
is in crisis, it is bound to hit the banking sector and their NPA will rise.
Present NPA Scenario:-
RBI’s financial stability report said the gross NPA ratio of all banks increased to
9.1% by September 2016 from 7.8% in March 2016. Public Sector Banks are
worst hit as their gross NPA increased to 12.5% by March 2017 from 11.8% in
September 2016.
Impact of NPA:-
1. Bank’s profit will come down which they earn in the form of interest.
2. Banks will become reluctant to lend thus affecting their borrowers.
3. Affects the liquidity position of banks.
4. Service to good customers may get affected.
5. Adversely affect the bank balance sheet.
SOLUTION TO NPA:-
1. SARFAESI Act:-
The act improves the banks/Financial Institutions (FIs) t0 recover their NPA
through acquiring and disposing of the secured assets in NPA account with
outstanding amount of Rs. 1 Lakh and above.
2. DRT Act:-
The act provides setting up of Debt Recovery Tribunals and Debt Recovery
Appellate Tribunals for expedition and exclusive disposal of suits filed by
banks/FIs for recovery of their dues in NPA account with outstanding amount of
Rs. 10 Lakh and above.
3. Lok Adalat:-
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Lok Adalat mechanism offers mutually acceptable way of settlement of disputes.
Govt has advised PSBs to utilize this mechanism to its fullest potential for
recovery in NPA cases.
From time to time many Norms have been framed to get a hold over rising NPA.
And these Norms have been proved to be beneficial. But out of all these,
SARFESI Act, 2002 and DRT Act proved to be most beneficial among all.
CONCLUSION: Looking at the giant size of the banking industry, there can be
hardly any doubt that the menace of NPAs needs to be curbed. It poses a big
threat to the macro-economic stability of the Indian economy. An analysis of the
present situation brings us to the point that the problem is multi-faceted and has
roots in economic slowdown; deteriorating business climate in India; shortages in
the legal system; and the operational shortcoming of the banks. Therefore, it has
to be dealt at multiple levels. The government can’t be expected to rescue the
state-run banks with tax-payer’s money every time they fall into a crisis. But, the
kind of attention with which this problem has been received by policymakers and
bankers alike is a big ray of hope. Right steps, timely and concerted actions and a
revival of the Indian economy will put a lid on NPAs. Prevention, however, has to
become a priority than mere cure.
