2. Presented BY: Anu Mishra
M.B.A 3rd sem
Presented BY:Anu Mishra MBA 3rd Sem BU
B.U
2
3. Meaning
• A NPA is a loan or an advance where;
– A credit facility is considered non-performing when it
ceases to generate income for the bank.
– 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” in respect of an
overdraft/ cash credit
– The bill remains overdue for a period of more than 90 days
in the case of bills purchased and discounted
– The installment or interest remains overdue for two crop
seasons in case of short duration crops and for one crop
season in case of long duration crops
Presented BY:Anu Mishra MBA 3rd Sem BU 3
5. Classification of NPA
• Standard Assets - which do not disclose any
problem and do not carry more than the normal
risk attached to the business.
• 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
written off wholly or part.
Presented BY:Anu Mishra MBA 3rd Sem BU 5
6. Why Loan accounts go bad ?
BORROWER-SIDE BANKER – SIDE
• Lack of Planning • Defective Sanction
• Diversion of Funds • No post-sanction
supervision, etc
• Disputes within
• Delay in releases
• No contribution • Directed lending …
• No modernization • Slow decision making
• Improper monitoring process
• Industrial Relations
• Natural Calamities
Presented BY:Anu Mishra MBA 3rd Sem BU 6
7. Few Exception to NPA:
• Housing loans to staff members.
• Project finance.
• Credit facilities guaranteed by Government.
• Advances affected by natural calamity.
• NSCs,KVP,IVPs
Presented BY:Anu Mishra MBA 3rd Sem BU 7
8. IMPACT OF NPAS ON OPERATIONS
• Drain on Profitability.
• Impact on capital adequacy.
• Adverse effect on credit growth as the
banker’s prime focus becomes zero percent
risk and as a result turn lukewarm to fresh
credit.
• Excessive focus on Credit Risk Management.
• High cost of funds due to NPAs.
Presented BY:Anu Mishra MBA 3rd Sem BU 8
9. NPA MANAGEMENT – PREVENTIVE
MEASURES
• Formation of the Credit Information Bureau (India)
Limited (CIBIL)
• Release of Willful Defaulter’s List. RBI also releases a
list of borrowers with aggregate outstanding of Rs.1
crore and above against whom banks have filed suits
for recovery of their funds
• Reporting of Frauds to RBI
• Special mention accounts for early identification of
bad debts.
• Risk assessment and Risk management
Presented BY:Anu Mishra MBA 3rd Sem BU 9
An account is treated as ‘out of order’ if the balance outstanding is continuously in excess of the sanctioned limit or drawing power (whichever is lower) or where the outstanding balance in the principal operating account is within the sanctioned limit or drawing power, but there are no credits continuously for 90 days as on the date of balance sheet, or credits made are not enough to cover the interest debited during the same period
