Non Performing Assets: Any amount which is withdrawn from any financial institution in any form such as loan or credit it has to be paid in given time period as stipulated in the contract.
If the payment is not made in such stipulated period then it will result in non performing asset. The details of terms and conditions for any loan to be non performing asset and other relevant details have been easily explained in this article.
What are Non Performing Assets?:
The term NPA was firstly introduced in the banks by Reserve Bank of India for only purpose to reflect the true and the correct profit and the loss of the Financial Institutions.
As the NPAs result in the loss of the profit of the financial institutions. So this affects the financials of the financial institutions which would was not fair on the part of the RBI.
So the banking and lending institutes included the term NPA and asked the banks to classify the normal customers and the non performing customers.
Now as they started using the concept of NPA, they need to clarify the meaning of NPA and how it is useful to them. So they defined the NPA as under:
The customer account will be classified as NPA if any of the following happens:
- The account of the customer remains out of order for a period of 90 days in case of Cash Credit facility or the Overdraft facility.
- Installment payment or the interest payment there on is overdue for a period of more than 90 days and the customer is not able to repay the term loan installments.
- If the derivative overdue is not paid within 90 days from the due date of payment in the derivative contract.
- The amount overdue on any liquidity facility availed by the customer and the payment of the same is not made within 90 days.
- In case of agricultural facilities, there may be 2 possibilities:
- In case of long duration crops the installment or interest remains outstanding for one crop season.
- In case of short duration crops the installment or interest remains outstanding for two crop season.
Now what would the RBI do to get the true and fair picture of the banks or the financial instruments.
They did the compulsory provisions to be made for the different classification of the NPA which would save them from the loss of the money and utilize the same when needed.
Provision for Standard Asset:-
Standard Assets are the assets which does not have any problems and which does not carry more than normal risk attached to the business.
- Direct advances to the agricultural enterprise – 0.25 %
- Advances to Customer Real Estate Sector – 1.00 %
- All others – 0.40 %
Provision for Sub Standard Asset:-
Sub Standard Asset is which has been classified as NPA for a period not exceeding 12 months.
- Secured Exposures – 15 %
- Unsecured Exposures – 25 %
- Unsecured Exposures in case of Infrastructure loan accounts – 20 %
Provision for Doubtful Asset:-
Doubtful Asset is which has been classified as NPA for a period exceeding 12 months.
- Secured Exposures:
- Doubtful upto 1 year – 25 %
- Doubtful from 1 year to 3 years – 40 %
- Doubtful for more than 3 years – 100 %
- Unsecured Exposures – 100 %
Provision for Loss Asset:-
Loss Assets are which are considered as uncollectible except some abnormal situation and litigations, otherwise it is always considered uncollectible and so 100 % provision is required for this kind of Asset.