13-09-2012, 10:13 AM
MANAGEMENT OF NON-PERFORMING ASSETS
MANAGEMENT.ppt (Size: 172.5 KB / Downloads: 86)
DEFINITION OF NPAS
A NPA is a loan or an advance where;
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
CATEGORIES OF NPA
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.
PROVISIONING NORMS
Standard Assets – general provision of a minimum of 0.25%
Substandard Assets – 10% on total outstanding balance, 10 % on unsecured exposures identified as sub-standard & 100% for unsecured “doubtful” assets.
Doubtful Assets – 100% to the extent advance not covered by realizable value of security. In case of secured portion, provision may be made in the range of 20% to 100% depending on the period of asset remaining sub-standard
Loss Assets – 100% of the outstanding
FACTORS CONTRIBUTING TO NPAS
Poor Credit discipline
Inadequate Credit & Risk Management
Diversion of funds by promoters
Funding of non-viable projects
In the early 1990s PSBs started suffering from acute capital inadequacy and lower/ negative profitability. The parameters set for their functioning did not project the paramount need for these corporate goals.
The banks had little freedom to price products, cater products to chosen segments or invest funds in their best interest
CURRENT STATUS OF NPAS
All SCB’s average Net NPA Ratio for 2005-06 is 1.22 (As per RBI’s Statistics)
The banks have been able to report lower NPA percentage mostly by providing against or writing off NPAs.
The provision to certain extent was facilitated by higher profits on account of treasury management
The better Net NPA ratio was also facilitated by higher credit off take resulting in larger asset portfolio/ book size.
NPA MANAGEMENT – PREVENTIVE MEASURES
Formation of the Credit Information Bureau (India) Limited (CIBIL)
Release of Wilful 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
Norms of Lender’s Liability – framing of Fair Practices Code with regard to lender’s liability to be followed by banks, which indirectly prevents accounts turning into NPAs on account of bank’s own failure
Corporate Debt Restructuring
The objective of CDR is to ensure a timely and transparent mechanism for restructuring of the debts of viable corporate entities affected by internal and external factors, outside the purview of BIFR, DRT or other legal proceedings
The legal basis for the mechanism is provided by the Inter-Creditor Agreement (ICA). All participants in the CDR mechanism must enter the ICA with necessary enforcement and penal clauses.
The scheme applies to accounts having multiple banking/ syndication/ consortium accounts with outstanding exposure of Rs.10 crores and above.
The CDR system is applicable to standard and sub-standard accounts with potential cases of NPAs getting a priority.
Packages given to borrowers are modified time & again
Drawback of CDR – Reaching of consensus amongst the creditors delays the process