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Punjabi University

School of Management Studies

Presented To:
Dr. Ratinder Kaur
Presented By:
Ahmad Rashed Najimi (19421202)



Performing Non Performing Assets

Assets (NPA)

Standard Sub -Standard Doubtful Loss

Assets Assets Assets Assets
Performing Asset

• An account does not disclose any

problems and carry more than normal
risk attached to the business

• All loan facilities which are regular !

non P e r f o r m i n g A s s e t s

• Non Performing Asset means a loan or

an account of borrower, which has been
classified by a bank or financial institution
as sub-standard, doubtful or loss asset,
in accordance with the directions or
guidelines relating to asset classification
issued by RBI.
• Earlier assets were declared as NPA
after completion of the period for the
payment of total amount of loan and 30
days grace.

• In present scenario assets are declared

as NPA if none of the installment is paid
till 180 days i.e. six months in respect of a
term loan.
With effect form March 31, 2004 a non-performing
asset (NPA) shell be 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' for a period of more than

90 days, in respect of an overdraft/ cash Credit(OD/CC),

the bill remains overdue for a period of more than 90 days

in the case of bills purchased and discounted,
cAtegories o f
 Standard Assets : Arrears of interest and the principal
amount of loan does not exceed 90 days at the end of
financial year

 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 more than 12 months

• D1 i.e. up to 1 year : 20% provision is made by the

• D2 i.e. up to 2 year : 30% provision is made by the
 • D3 i.e. up to 3 year : 100% provision is made by the bank

Loss Assets : where loss has been identified by the bank

or internal or external auditors or the RBI inspection but
reAsons behind r i s e in nPA
• Lack of proper pre-enquiry by the bank
for sanctioning a loan to a customer.

• Non performance of the business or the

purpose for which the customer has taken the
• Willful defaulter.

• Loans sanctioned for agriculture purposes.

• Change in govt. policies leads to NPA.

Ef f Ec t s o f NPA oN b ANks
• Restriction on flow of cash done by bank
due to the provisions of fund made against

• Drain of profit.

• Bad effect on goodwill.

• Bad effect on equity value.

f A c t o r s ImPActINg r I s E IN
External factors :
• Ineffective legal framework &
weak recovery tribunals
• Lack of demand / economic recession
or slowdown
• Change in Govt. policies
• Wilful defaults by customers
• Alleged political interferences
f A c t o r s ImPActINg r I s E IN
Internal factors :
• Defective Lending process
• Inappropriate / non –use of technology like
MIS , Computerization
• Improper SW OT analysis
• Inadequate credit appraisal system
• Managerial deficiencies
• Absence of regular industrial visits &
• Deficiencies in re-loaning process
• Alleged corruption
• Inadequate networking & linkages b / w
Why LoAN A c c o u N t s g o

Defective Sanction
Lack of Planning No post-sanction
Diversion of supervision, etc
Funds Disputes Delay in releases
Directed lending
within Slow decision
No contribution making process
Improper monitoring
Industrial Relations
Natural Calamities
tyPEs o f
• Gross N PNPA
A :
Gross NPAs are the sum total of all
loan assets that are classified as
NPAs as per R B I guidelines as on
Balance Sheet date. Gross N P A
reflects the quality of the loans made
by banks. It consists of all the non
standard assets like as sub-standard,
doubtful, and loss assets.
• Gross NPAs Gross NPAs
Gross Advances
• Net NPA:
Net NPAs are those type of NPAs in
which the bank has deducted the
provision regarding NPAs. Net NPA
shows the actual burden of banks.

Net NPAs Gross = NPAs – Provisions

Gross Advances -
• NPA arises due to a number of factors or causes like:-
• Speculation : Investing in high risk assets to earn high income.
• Default : Willful default by the borrowers.
• Fraudulent practices : Fraudulent Practices like advancing loans to
ineligible persons, advances without security or references, etc.
• Diversion of funds : Most of the funds are diverted for unnecessary
expansion and diversion of business.
• Internal reasons : Many internal reasons like inefficient management,
inappropriate technology, labour problems, marketing failure, etc. resulting
in poor performance of the companies.
• External reasons : External reasons like a recession in the economy,
infrastructural problems, price rise, delay in release of sanctioned limits by
banks, delays in settlements of payments by government, natural
calamities, etc.
• State Bank of India
Net NPAs : Rs 12,347.90 crore
Gross NPAs : Rs 25,326.29 crore

• The gross non-performing assets (NPAs) of public sector

banks increased by 20 per cent during June-September 2011.
• Standard & Poor's, which had in September downgraded
standalone ratings of State Bank of India, said high credit
risks in the Indian banking sector reflects that the country has
a weak payment culture and legal system that often result in
low recoveries and delayed settlement of foreclosures.
ICICI B a n k
• 2. ICICI Bank
• Net NPAs: Rs 2,407.36 crore
Gross NPAs: Rs 10,034.26 crore
• ICICI Bank has the highest NPAs among private
sector banks. ICICI Bank has slightly improved its
net bad debts to 0.90 per cent from 0.91 per cent in
the earlier quarter.
• Indian banks face challenges like increase in
interest rates on saving deposits, a tighter monetary
policy, restructured loan accounts and increasing
infrastructure loans.
1998 7.31 10.21 3.69 5.33 3.30
1999 7.30 10.38 3.22 3.66 2.88
2000 6.07 9.57 1.14 5.63 2.42
2001 7.33 8.96 2.88 6.32 NA
2002 6.65 8.52 1.53 4.71 2.04
2003 5.33 6.69 3.36 2.39 1.53
2004 5.63 5.32 5.48 3.46 3.46
2005 4.5 3.86 5.21 2.39 2.39
2006 3.48 0.98 2.21 1.29 1.29
2007 2.65 0.2 1.65 1.39 1.39
2008 1.87 0.29 0.72 0.98 0.98
2009 1.32 0.28 0.78 0.72 0.87
BANKS (in Rs. Crores)
percentage of total assets)
Non Performing

Substandard Assets Doubtful Assets Loss Assets

 Sub-Standard Assets: An asset which has remained
NPA for a period less than or equal to 12 months.

 Doubtful Assets: An asset that has remained in the

substandard category for a period of 12 months.

 Loss Assets: An asset 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
• Standard Assets
• Direct advances to agriculture and SME at
• CRE at 1%
• Other loans and advances at 0.40%
• Substandard Asset
• A general provision of 15% on total
outstanding The ‘unsecured exposures’ which
are ‘substandard’ to attract additional
provision of 10%, i.e., a total of 25% on the
outstanding balance.
• Doubtful Assets
• 100% of the extent to which the
advance is not covered by the
realisable value of the security
• For the secured portion, provision to be
made as follows, depending upon the
period for which the asset has
remained doubtful
• Loss Assets
• Write Off or provision of 100% of
NPA MANAgeMeNt S t r A t e g i e S

• Indian B a n k s are pursuing variety of

strategies to control NPAs, which can be
studied under two broad categories as
under :

– a. Preventive Management
– b. Curative Management
NPA MANAgeMeNt S t r A t e g i e S
a. Preventive Management - It is rightly
said that prevention is better than cure.
• Developing ‘ K n o w Yo u r Client’ profile
• Monitoring Early Warning Signals
• Installing Proper Credit Assessment and
R i s k Management Mechanism
• Reduced Dependence on Interest
• Generating Watch-list/Special Mention
NPA MANAgeMeNt S t r A t e g i e S
b. Curative Management
• Re-phasement of loans
• Pursuing Corporate Debt Restructuring (CDR
• Encouraging rehabilitation of potentially viable
• Encouraging acquisition of sick units by healthy
• Entering compromise schemes with borrowers
/ Entering one time settlement
NPA MANAgeMeNt S t r A t e g i e S
• Using L o k Adalats for compromise
settlement for smaller loans in “doubtful”
and “loss” category.
• Using Securitization & SARFAESI Act
• Using Asset Reconstruction Company
• Approaching Debt Recovery Tribunals
• Recovery Action against Large NPAs
• Circulation of Information of Defaulters-
Strengthening Database of Defaulters
S SCBs FY 2007-08 2008-09 2009-10 2010-11
No 2006-07
1 Gross NPAs 2.5 2.3 2.3 2.4 2.3
2 Net NPAs 1.0 1.0 1.1 1.1 0.9

3 Fresh NPA 1.7 1.8 2.1 2.2 2.0

Rate (%)
4 Net 9.2 7.8 8.6 9.1 10.0
Worth (%)
S Private FY 2007-08 2008-09 2009-10 2010-
No Banks 2006-07

1 Gross 2.1 2.4 2.9 2.7 2.3

NPAs (%)
2 Net NPAs 0.9 1.1 1.3 1.0 0.6

3 Net 7.8 6.1 7.5 5.3 3.2

Worth (%)
S PSBs FY 2007-08 2008-09 2009-10 2010-11
No 2006-07

1 Gross NPAs 2.7 2.2 2.0 2.2 2.3


2 Net NPAs 1.1 1.0 0.9 1.1 1.1


3 Net 12.1 11.2 11.4 13.5 13.4

Worth (%)