NPA is defined as an progress for which involvement or refund of principal or both remain outstanding for a period of more than two quarters. An plus which ceases to bring forth income for the bank. Interest debited to the borrower history has to be realized by the bank.Refers to the amount of non-performing loans ( NPL ) and existent and other belongingss owned and acquired ( ROPOA ) .
An NPA or non-performing plus is a categorization used by fiscal establishments that refers to loans that are in hazard of being in default. NPA is defined as an progress for which involvement or refund of principal or both remain outstanding for a period of more than two quarters. The degree of NPA act as an index demoing the bankers recognition hazards and efficiency of A allotment of resource.
Asset Categorization: –
The RBI has issued guidelines to Bankss for categorization of assets into four classs: –
Standard NPA: –
These are loans which do non hold any job are less hazard
Substandard NPA ; –
The history holder comes in this class when they dont pay three installment continuously after 90 yearss and up to 1year.
For this class bank has made 10 % proviso of financess from their net income to run into the losingss generated NPA.
Loss Assetss: –
iˆˆ Identified as undependable by internal inspector of bank or hearers or by RBI.
iˆˆFor these 100 % proviso is made.
iˆˆWhen history holder comes in this class their history can be written off by the Bankss.
iˆˆAfter this the assets are handed over to recovery agents for sale.
All those assets which are considered as non-performing for period of more than 12 months are called as Doubtful Assets.
Provision on types of assets: –
Provision is apportioning money every twelvemonth to run into possible future loss.
types of assets
Causes of NPA: –
NPA arises due to a figure of factors or causes like: –
Guess: Investing in high hazard assets to gain high income.
Default: Willful default by the borrowers.
Deceitful patterns: Deceitful Practices like progressing loans to ineligible individuals, progresss without security or mentions, etc.
Diversion of financess: Most of the financess are diverted for unneeded enlargement and recreation of concern.
Internal grounds: Many internal grounds like inefficient direction, inappropriate engineering, labor jobs, selling failure, etc. ensuing in hapless public presentation of the companies.
External grounds: External grounds like a recession in the economic system, infrastructural jobs, monetary value rise, hold in release of sanctioned bounds by Bankss, holds in colonies of payments by authorities, natural catastrophes, etc.
Factors taking to NPAs
Lack of proper pre-enquiry by the bank for approving a loan to a client.
Non public presentation of the concern or the intent for which the client has taken the loan.
Loans sanctioned for agribusiness intents.
Change in authorities policies leads to NPA
Compare the information of Non Performing Assets of ICICI bank and PNB for the past five old ages ; –
Punjab National Bank ( PNB ) is the 3rd largest banking entity in the state with 6.6 % portion of the entire non-food recognition expenses at the terminal of FY11. Strong growing and stellar borders has pegged the bank amongst the frontrunners in the PSU banking infinite. This has helped it maintain its cervix above its equals and increase its market portion.
With 7.2 % portion of India ‘s entire non-food recognition expenses and 9 % of the banking system ‘s sedimentations in FY11, ICICI Bank is the 2nd largest bank in the state after SBI in footings of plus size. The bank has lost its portion of the banking sector ‘s progresss from 10.2 % in FY07 to 6.8 % in FY11. At the terminal of March 2011, the bank had assets of over US $ 104 bn ( Rs 4.7 trillion ) and a franchise of over 5,700 ATMs and 1,800 subdivisions spread across the state. Retail assets constituted 33 % of progresss in FY11 as against 65 % in FY07. The bank is concentrating on loan inception in the big corporate, SME and agribusiness sections and on non-fund based merchandises and services. Besides the bank itself being the market leader across retail loan portfolios, its subordinates ICICI Life Insurance, ICICI General Insurance and ICICI AMC are leaders in their several concerns.
Gross saless per portion
Net incomes per portion
Cash flow per portion
Dividends per portion
Dividend output ( eoy )
Book value per portion
Shares outstanding ( eoy )
Price / Gross saless ratio
Avg P/E ratio
P/CF ratio ( eoy )
Price / Book Value ratio
Avg Mkt Cap
No. of employees
Avg. cyberspace profit/employee
Net Gross saless
Gross net income
Net income before revenue enhancement
Anterior Period Items
Extraordinary Inc ( Exp )
Net income after revenue enhancement
Net working cap to gross revenues
Inventory Employee turnover
Net fixed assets
“ Free ” militias
Long term debt
Debt to equity ratio
Gross saless to assets ratio
Tax return on assets
Tax return on equity
Tax return on capital
Exports to gross revenues
Imports to gross revenues
Gross net income border
Effective revenue enhancement rate
Net net income border
Measures to Solve Problems of NPA: –
The jobs of NPA have been having greater attending since 1991 in India. The Narasimham Committee recommended a figure of stairss to cut down NPA. In the 1990 ‘s the Government of India ( GOI ) introduced a figure of reforms to trades with the jobs of NPA.
Major stairss taken to work out the jobs of Non-Performing Assets in India: –
Debt Recovery Tribunals ( DRTs )
Narasimham Committee Report I ( 1991 ) recommended the puting up of Particular Courts to cut down the clip required for settling instances. Accepting the recommendations, Debt Recovery Tribunals ( DRTs ) were established. There are 22 DRTs and 5 Debt Recovery Appellate Tribunals. This is deficient to work out the job all over the state ( India ) .
2. Securitization Act 2002
Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 is popularly known as Securitizations Act. This act enables the Bankss to publish notices to defaulters who have to pay the debts within 60 yearss. Once the notice is issued the borrower can non sell or dispose the assets without the consent of the loaner. The Securitizations Act farther empowers the Bankss to take over the ownership of the assets and direction of the company. The loaners can retrieve the dues by selling the assets or altering the direction of the house. The Act besides enables the constitution of Asset Reconstruction Companies for geting NPA. Harmonizing to the commissariats of the Act, Asset Reconstruction Company of India Ltd. with eight stockholders and an initial capital of Rs. 10 crores has been set up. The eight stockholders are HDFC, HDFC Bank, IDBI, IDBI Bank, SBI, ICICI, Federal Bank and South Indian Bank.
3. Lok Adalats
Lok Adalats have been found suited for the recovery of little loans. Harmonizing to RBI guidelines issued in 2001. They cover NPA up to Rs. 5 hundred thousand, both suit filed and non-suit filed are covered. Lok Adalats avoid the legal procedure. The Public Sector Banks had recovered Rs. 40 Crores by September 2001.
4. Compromise Colony
Compromise Settlement Scheme provides a simple mechanism for recovery of NPA. Compromise Settlement Scheme is applied to progresss below Rs. 10 Crores. It covers suit filed instances and instances pending with tribunals and DRTs ( Debt Recovery Tribunals ) . Cases of Willful default and fraud were excluded.
5. Credit Information Bureau
A good information system is required to forestall loans from turning into a NPA. If a borrower is a defaulter to one bank, this information should be available to all Bankss so that they may avoid imparting to him. A Credit Information Bureau can assist by keeping a information bank which can be assessed by all loaning establishments.