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Non Performing Asset

 

In recent time, financial institutions are very worried on continuous increasing trend of Non-Performing Assets (NPA). Every financial institution try to arrest NPA and keep the same as low as possible since NPA always eat the profit of the organization.
 

Non Performing Assets (NPA)

 
Non Performing Asset (NPA) is an asset, including a leased asset which ceases to generate Income for the financial organization. NPA includes loan & advance where
 
1) Interest and/or Installment of Principle remain overdue for a period of more than 90 days in respect of a term loan
 
2) Cash Credit/overdraft account become ‘out of order’
 
3) Purchased and discounted bill is remain overdue for a period of more than 90 days
 
4) The installment of principal or interest thereon remains overdue for two crop seasons for short duration crops,
 
5) The installment of principal or interest thereon remains overdue for one crop season for long duration crops,
 
6) The amount of liquidity facility remains outstanding for more than 90 days,
 
7) In respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.
 
 

Out of Order

 
When the outstanding amount of Cash Credit/ overdraft account is continuously over the sanction limit/ drawing power limit, then the account should treated as ‘Out of Order’. Also Cash Credit/ overdraft account can become ‘Out of Order’ if there is no credit in account since last 90 days or credits are not enough to recover the interest amount which is due in same period even though the outstanding amount is less than the sanction amount/ drawing power.
 

Overdue

 
Once any credit facility is offered by bank, there is fixed date of interest & principle payment, if the interest or principle or both are unpaid on the scheduled date, then the credit facility is ‘Overdue’.
 

Asset Classification

 
As per Reserve Bank of India, every bank should classify Non-Performing Asset under following three categories. Categories of NPA are decided on the basis of time period for which the asset is remained NPA.
 
Substandard Asset:
 
Once an asset is Non-Performing Asset for less than or equal to 12 months, is called Substandard Asset.
 
Doubtful Asset:
 
Once an asset is substandard for a period of 12 months and collection or liquidation of the account is questionable or impossible is classified as Doubtful.
 

Loss Asset:

 

When the bank or internal or external auditor or inspector of RBI has identified an asset as loss asset but the amount has not been written off whole, then such asset is called Loss Asset.