Non-Performing Assets, Asset Reconstruction Companies & Banks
What are non-performing assets (NPAs)?
Non-performing assets are bad loans. Any asset, including a leased asset, becomes non performing when it ceases to generate income for the bank. As per the guidelines issued by the Reserve Bank of India (RBI), banks classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter.
Are all loans where payment remains overdue classified as NPA?
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. The three categories are --Substandard Assets, Doubtful Assets and Loss Assets. If an account remains NPA for a period of 12 months it is classified under Substandard, if it remains Substandard for 12 months it is classified as Doubtful. A Loss Asset is one where loss has been identified by the internal or external auditors.
Can an account be termed as NPA if the loan is given through a consortium?
Yes, an account can be classified as NPA even if there are multiple lenders. The classification is based on the record of recovery of the individual member banks and other aspects having a bearing on the recoverability of the advances. The banks participating in the consortium should, therefore, arrange to get their share of recovery transferred from the lead bank in the consortium or get a consent from the lead bank for the transfer of their share of recovery, to ensure proper asset classification in their respective books.
Do banks have to keep aside extra funds for NPAs?
Banks have to keep aside extra funds, called provisioning in banking parlance, for standard assets as well. As per the norms, banks have to make a general provision of 0.40% for all loans and advances except that given towards agriculture and SME sector.
