principal or interestpayment remained overdue for a period of 90 days.According to RBI “An asset, including a leased asset, becomes non-performing when itceases to generate income for the bank. A ‘non-performing asset’ (NPA) wasdefined as a credit facility in respect of which the interest and/ orinstalment of principal has remained ‘past due’ for a specified period of time.The specified period was reduced in a phased manner as under: YEAR TIME PERIOD 1993 FOUR QUARTERS 1994 THREE QUARTERS 1995 TWO QUARTERS From 2004 90 days  Assets of the banks areclassified into different types, they arev STANDARD ASSET:Standard asset is one which does not disclose any problem and which does notcarry more than normal business risk.v SUBSTANDARD ASSET: Asubstandard asset can be defined as an asset which remained non-performingasset for less than or equal to 12 months.v DOUBTFULASSET: Ana asset is to beconsidered as Doubtful asset if it remains a substandard asset for more than 12months.

v LOSS ASSET: When an asset remainsNon performing asset for more than 36 months then it is said to be a lossasset. TYPES OF NON-PERFORMING ASSETS:v GROSS NPA: Gross non-performing assets consistsof all standard assets. Substandard assets, doubtful assets and loss assets.They are the loan assets classified as non-performing asset as per guidelinesof RBI.

The gross npa can be calculated using the below formula.                          v NET NPA: Net NPA can be defined as thedifference between Gross non-performing asset and the provision of made towrite off non-performing assets. REASONS THE GROWING NONPERFORMING ASSET:There two types ofreasons which are increasing non-performing asset. They are 1.    INTERNALFACTORS2.    EXTERNALFACTORSFollowing are theINTERNAL FACTORS which causes growth of NPA’sØ Business failure: A situation in which a company or other business isunable to generate sufficient revenue to cover its expenses. If thebusiness is unable to generate income, then it may not be able to pay the loanamount it has lent and hence after some time it is to be considered asnon-performing asset. Ø Funds borrowed for particular purpose but notused for the said purpose.

Forsuppose Anita has taken a loan to start a business, but instead of doingbusiness, she constructs a house with the loan amount.Thensuch type of loans may become irrecoverable and if it is not recovered within90days then it is to be treated as non-performing asset.Ø Project not completed on time Ø Willful defaults: Willful default is a conscious abstention by an obligorfrom doing that which reasonably and under the terms of the obligation he shouldhave done. The words “willful default” imply more thannegligence or carelessness. The word willful means intentional andthe word default means transgression.

Ø Management disputes, fraudsØ Inappropriate technology: Due to improper technology and managementinformation system, market driven decisions on real time basis cannot be taken.Proper MIS and financial accounting system is not implemented in the banks,which leads to poor credit collection.Ø Improper SWOT analysis:  SWOT analysis refers to the strength,weakness, opportunity, threat. Before lending a loan banker should consider allthese and then lend the loan.Ø Managerial deficiencies: The banker shouldfollow the principle of diversification of risk based on the famous maxim “donot keep all the eggs in one basket”, which means that the banker should notgrant advances to a few big farms only or to concentrate them in few industriesor in a few cities. For example, let us takethe example of IDBI bank, it has given Vijay Malaya a loan of 900 croresØ Poor credit appraisal system:  Deprived credit appraisal is an additionalfactor for the increase in NPAs, due to poor credit appraisal the bank givesadvances to those who are not able to repay it back. They should use bettercredit appraisal to reduce the NPAs.

Ø Defective lending process: capacity to pay depends upon, Tangible assets,Success in business. Willingness to pay depends on, Character, Honest,Reputation of borrower. The banker should, therefore take utmost care inensuring that the enterprise or business for which a loan is sought is a soundone and the borrower is competent of carrying it out successfully, he should bea person of integrity and good character.These are the internalfactors which are causing the non-performing assets.The EXTERNAL factorswhich are increasing non-performing assets are as follows:Ø INEFFECTIVE RECOVERY TRIBUNAL: Tribunal refersto a committee or board appointed to make decisions in a particular matter.There are set of number of recovery tribunals appointed by the government torecover the loans and advances. Because of negligence and ineffectiveness intheir work the bank suffers the consequences of bad loans.

Ø GOVERNMENT POLICIES: Banking sector gets newprinciples and policies for its operations with every new government.Ø WILLFULL DEFAULTS:  The word willful defaults refer morenegligence or carelessness. The following are somewillful defaulters BANK BORROWER DIRECTOR OUTSTANDING AMOUNT(CRORES) STATE BANK OF INDIA KINGFISHER AIRLINES VIJAY MALLYA 120139.99 AXIS BANK DECCAN CHRONICLE HOLDING LTD VENKATTRAM REDDY,T.VINAYAK,RAVI RUDY,P.


SUBRAMANIAN 7499  Ø NATURAL CALAMITIES: A major adverse eventresulting from natural process of the earth are called natural calamities.Because of irregularities of rainfall the farmers are not able to attain theproduction level. Thus they are not repaying the loans which are ultimatelyresulting as npa’s to the banks.

Ø INDUSTRIAL RECESSION: The industries which donot have appropriate project handling, effective management, adequateresources, and advanced technology such type of loan will end up with a lowrecovery. IMPACT OF GROWING NON PERFORMING ASSETS:v Banks will suffer low profit margins.v The shareholders of the bank will lose a lot ofMoney as banks themselves find difficult to survive in the market.v The rate of interest will go up badly whichwill directly impact the customers.v The funds are getting redirected from godprojects to the bad onesv Because of increasing non-performing assets inbanking sector, it causes less money available to fund other project’sv Banks will charge higher rate of interest on loansto maintain the profit margin.HOW TO OVERCOME GROWINGNON PERFORMING ASSETS:SECURATIZATION ANDRECONSTRUCTION OF FINANCIAL ASSET AND ENFORCEMENT OF SECURITY ACT: According tothis Act, if the borrower fails to pay his dues, then the banker can have thepossession of the assets of defaulting borrowers without giving any notice.LOK ADALAT: They canrecover the non-performing assets which are up to 5lakhs.Debt recovery tribunal:These are the group of people appointed by the government to recover the loans.Following are the DRT’sdetails in India: NAME OF THE PLACE YEAR OF ESTABLISHMENT Ahmedabad DRT-1 1994 BANGALORE DRT 1994 DELHI DRT-1 1994 JAIPUR DRT 1994 KOLKATA DRT-1 1994 CHENNAI DRT-1 1996 GUWAHTI DRT 1997 PATNA DRT 1997 JABALPUR DRT 1998 EMAKULUM DRT 1999 HYDERABAD DRT 1999 MUMBAI DRT-1 1999 ALLHABAD 2000 CHANDIGARH DRT-1 2000 CUTTACK DRT 2000 DELHI DRT-2 2000 MUMBAI DRT-2 2000 MUMBAI DDRT-3 2000 NAGAPUR DRT 2000 CHENNAI DRT-2 2001 KOLKATA DRT-2 2001 PUNE 2001 COIMBATORE DRT 2002 DELHI DRT-3 2002 KOLKATA DRT-3 2002 LUCKNOW DRT 2002 RANCHI 2002 VISHAKAPATNAM DRT 20002 CHANDIGARH DRT 2006 AHMEDABAD DRT-2 2007 EMUKULUM DRT-2 2016 BANGLORE DRT-2 2017 CHANDIGARH DRT-3 2017 DEHUNDRUN DRT 2017 HYDERABAD DRT-2 2017     TOTAL 38 DRT’s     


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