Non Performing Assets

Non-Performing Assets (NPA):-

Generally, Assets / Advances for which principal or interest payment remained overdue* for more than 90 days, of term loan, bills purchased / discounted, etc or the account remain Out of Order** in case of overdraft/ cash credit are known as non-performing assets.

*(Any amount due to bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank)

** (An account should be treated as ‘out of order’ if the outstanding balance remains continuously in excess of the sanctioned limit / drawing power. And in case if O/s balance in the principal operating account is less than the sanctioned limit / drawing power, but there is no credits continuously for 90 days as on the date of balance sheet or credits are not enough to cover the interest debited during, these accounts are treated as ‘out of order’)

For example: Assume a company with 100000 rupees loan with interest payments of 5000 rupees per month fails to make a payment for three months. The bank requires categorizing the loan as NPA to meet regulatory requirements.

NPAs are further classified into:

1.   Standard assets

2.   Substandard assets

3.   Doubtful assets

4.   Loss assets

Standard assets:

Assets which have been remained NPA for a period of 12 months or less.

Substandard assets:

Assets which have been remained NPA for a period e more than 12 months.

Doubtful assets:

Assets which have been remained NPA for more than 18 months.

Loss Assets:

Assets which have identified either by the bank or auditor that such asset required to be fully written off.

Types of Non-Performing Assets:-

Nature of Asset / Advance	Situation when considered as NPA
1.   Agricultural Advance	Installment of principal or interest remains overdue for two crop season*** for short duration crops and in case of long duration crop loans, installment remains overdue for more than one crop season.
2.   Overdraft and Cash credit	If these accounts are left out of order for more than 90 days.
3.   Term Loans	Installment of principal or interest remains overdue for more than 90 days.

***(The crop season for each crop, which means the period up to harvesting of the crops raised, would be determined by the State Level Bankers’ committee in each state)

Assets classification is to be borrower wise and not facility wise:-

NPA should be determined borrower wise and not facility wise. Even of any one of the credit facilities granted to borrower is non-performing, all the facilities granted to that borrower will be regarded as NPA irrespective of the performing status of other facilities.

Provisioning Norms:-

Type of Assets	Provisioning Norms
a)   Standard Assets	Generally, 0.4%
b)   Sub Standard Assets:               (i)  Secured Portion               (ii) Unsecured Portion	10% 20%
c)   Doubtful Assets:         (i) Secured Portion              1.For up to one year             2.For up to three years             3.For more than three years     (ii) Unsecured Portion	20% 30% 100% 100%
d)   Loss Assets	100%

Income Recognition:-

Income from NPA should be recognized only when it is actually realized i.e., on realization basis. And any income recognized before the asset was classified NPA and remaining unrealized should be reversed.

Disclaimer: 

The contents of this article are solely for informational purpose. It does not constitute any professional advice. The author does not represent that the contents of the article are accurate or complete. Neither the Site/Blog 'Your Instasolv' and the author accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.