The Non Performing Assets Finance Essay

Non Performing Asset means an plus or history of borrower, which has been classified by bank or fiscal establishment as sub -standard, dubious or loss plus, in conformity with the way or guidelines associating to assets categorization issued by RBI.

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An plus, including a leased plus, becomes non-performing when it ceases to bring forth income for the bank.

A ‘non-performing plus ‘ ( NPA ) was defined as a recognition installation in regard of which the involvement and/ or installment of principal has remained ‘past due ‘ for a specified period of clip.

With a position to traveling towards international best patterns and to guarantee greater transparence, it has been decided to follow the ’90 yearss ‘ overdue’ norm for designation of NPAs, from the twelvemonth stoping March 31, 2004. Consequently, with consequence from March 31, 2004, a non-performing plus ( NPA ) shall be a loan or an progress where ;

Interest and/ or installment of chief remain delinquent for a period of more than 90 yearss in regard of a term loan,

The history remains ‘out of order ‘ for a period of more than 90 yearss, in regard of an Overdraft/Cash Credit ( OD/CC ) ,

The measure remains delinquent for a period of more than 90 yearss in the instance of measures purchased and discounted,

Interest and/or installment of chief remains delinquent for two harvest seasons but for a period non transcending two half old ages in the instance of an progress granted for agricultural intents, and

Any sum to be received remains delinquent for a period of more than 90 yearss in regard of other histories.

Classs of Non Performing Assetss:

Standard Assetss: -Standard assets are the 1s in which the bank is having involvement every bit good as the chief sum of the loan on a regular basis from the client. Here it is besides really of import that in this instance the arrears of involvement and the chief sum of loan do non transcend 90 yearss at the terminal of fiscal twelvemonth. If plus fails to be in class of standard plus that is sum due more than 90 yearss so it is NPA.

Sub-Standard Assetss: – A sub criterion plus would be one, which has remained NPA for a period less than or equal to 12 month.

The undermentioned characteristics are exhibited by sub standard assets:

the current net worth of the borrowers / surety or the current market value of the security charged is non plenty to guarantee recovery of the dues to the Bankss in full ;

the plus has well-defined recognition failings that the settlement of the debt are characterized by the distinguishable possibility that the Bankss will prolong some loss, if lacks are non corrected.

Doubtful Assetss: – A loan classified as doubtful has all the failings inherent in assets that were classified as sub-standard, with the added feature that the failings make aggregation or settlement in full, – on the footing of presently known facts, conditions and values – extremely questionable and unlikely.

An plus would be classified as dubious if it remained in the sub-standard class for 12 months.

Loss Assetss: – A loss plus is one which considered bad and of such small value that its continuation as a bankable plus is non warranted- although there may be some salvage or recovery value. Besides, these assets would hold been identified as ‘loss assets ‘ by the bank or internal or external hearers or the RBI review but the sum would non hold been written-off entirely.

Factors / Causes for the Rise in NPA

Analysis

For the intent of analysis and comparing between ICICI Bank and Punjab National Bank, we take their NPA and for understanding we farther bifurcate the non executing assets in gross NPA and net NPA, sedimentation – investing – progresss.

Deposit – Investing – Progresss is the first in the analysis because due to these we can understand the where the bank stands in the competitivemarket.

ICICI BANK

— — — — — — — -in Rs. Crores — — — — — — —

Particulars

Mar’12

Mar’11

Mar’10

Mar’09

Mar’08

Deposits

255,499.96

225,602.11

202,016.60

218,347.82

244,431.05

Investing

159,560.04

134,685.96

120,892.80

103,058.31

111,454.34

Progresss

253,727.66

216,365.90

181,205.60

218,310.85

225,616.08

PUNJAB NATIONAL BANK

— — — — — — — -in Rs. Crores — — — — — — —

Particulars

Mar’12

Mar’11

Mar’10

Mar’09

Mar’08

Deposits

379,588.48

312,898.73

249,329.80

209,760.50

166,457.23

Investing

122,629.47

95,162.35

77,724.47

63,385.18

53,991.71

Progresss

293,774.76

242,106.67

186,601.21

154,702.99

119,501.57

When we compare the ICICI Bank nad Punjab National Bank, we can understand the more figure of people prefer to take PNB for sedimentation. But when we compare the investing ICICI Bank hs more deposit-investment figures.

There are two constructs related to non-performing assets:

Gross: – Gross refers to all NPAs on a bank ‘s balance sheet irrespective of theprovisions made. It consists of all the non standard assets, viz. substandard, dubious, and loss assets.

Internet: – Internet NPA is gross NPA lupus erythematosus commissariats.

The commissariats the Bankss have to do against the NPA harmonizing to the cardinal bank guidelines, are rather significant.Here, we can see that there are immense difference between gross and netNPA.

While gross NPA reflects the quality of the loans made bybanks, net New people’s army shows the existent load of Bankss.

The requirementsfor commissariats are: –

100 % for loss assets

100 % of the unbarred part plus 20-50 % of the secured part, depending on the period for which the history has remained in thedoubtful class

10 % general proviso on the outstanding balance under the deficient class.

Punjab National Bank

Net New people’s army: Rs 2,038.63 crore

Gross NPAs: Rs 4,379.39 crore

ICICI Bank

Net New people’s army: Rs 2,407.36 crore

Gross NPAs: Rs 10,034.26 crore

ICICI Bank has the highest New people’s army among private sector Bankss.

Graphical Comparison of Gross and Net NPA ‘s

Particulars

Gross NPA

Net New people’s army

ICICI Bank

Rs 10,034.26 crore

Rs 2,407.36 crore

PNB

Rs 4,379.39 crore

Rs 2,038.63 crore

All the figures in Rs Crore. ( March 2011 )

Measures to cut down the degree of NPA… ? ? ? ?

It is really necessary for bank to maintain the degree of NPA every bit low as possible. Because NPA is one

sort of obstruction in the success of bank and affects the public presentation of Bankss negatively so, for that the direction of NPA in bank is necessary.

Some of the step that direction can take to convey down the degree of NPA: –

Framing moderately good documented loan policy and regulations.

Sound recognition assessment on well-settled banking norms with accent on decrease in Gross NPAs instead so Net NPAs

Gluing of sale notice/ wall postings on the house pledged as security.

Recovery attempt should get down from the month of default with prompt legal action.

Position of delinquent histories is reviewed on a hebdomadal footing to collar slippage of fresh history to NPA.

Half annual balance verification certifications should be obtained from the borrowers.

A commission is constituted at Head Office, to reexamine irregular histories.

Due to take down recognition hazard and consequent higher profitableness, greater encouragement should be given to little borrowers.

Recovery competition system should be extended among the staff members. The retrieving highest sum should be felicitated.

Adopting market intelligence for make up one’s minding the credibleness of the borrowers.

Creation of a separate „Recovery DepartmentaˆY with Particular Recovery Officer.

Decision

The Indian banking sector is confronting a serious job of NPA. The extent of NPA is relatively high in Bankss. To better the efficiency and profitableness, the NPA has to be scheduled. Assorted stairss have been taken by authorities to cut down the NPA. It is extremely impossible to hold zero per centum NPA. But at least Indian Bankss can seek viing with foreign Bankss to keep international criterion.

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