NPA
is a classification used by financial institutions that refer to loans that are
in jeopardy of default. Once the borrower has failed to make interest or
principle payments for 90 days the loan is considered to be a non-performing
asset. Non-performing assets are problematic for financial institutions since
they depend on interest payments for income. Troublesome pressure from the
economy can lead to a sharp increase in non-performing loans and often results
in massive write-downs.
With
a view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt the ‘90 days’ overdue’ norm for
identification of NPA, from the year ending March 31, 2004. Accordingly, with
effect from March 31, 2004, a non-performing asset (NPA) shall 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,
- Interest and/or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purposes, and
- Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.
- Non submission of Stock Statements for 3 Continuous Quarters in case of Cash Credit Facility.
- No active transactions in the account (Cash Credit/Over Draft/EPC/PCFC) for more than 90 days.
Category:-
Banks are required to classify
non-performing assets further into the following three categories based on the
period for which the asset has remained non-performing and the realisability of
the dues:
- Sub-standard assets: a sub standard asset is one which
has been classified as NPA for a period not exceeding 12 months.
- Doubtful Assets: a doubtful asset is one which has
remained NPA for a period exceeding 12 months.
- Loss assets: where loss has been identified by the
bank, internal or external auditor or central bank inspectors but the
amount has not been written off, wholly or partly.
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