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NPA classification 

NPA classification 
Highlights

Non-performing assets (NPAs) for most public sector banks in FY16 saw a drastic jump compared to FY15. For public sector banks (PSBs), matters are far...

Non-performing assets (NPAs) for most public sector banks in FY16 saw a drastic jump compared to FY15. For public sector banks (PSBs), matters are far worse, and NPAs were as high as 11.8% in September, according to RBI’s latest Financial Stability Report (FSR).

If restructured loans are added, total stressed assets for the banking system rose from 11.5% to 12.3% between March and September 2016. The picture gets worse since loans that are overdue between 30 and 60 days (SMA1) and between 61 and 90 days (SMA2) can also become NPAs with increased corporate stress—there is an overlap between SMA loans and restructured loans.

A ‘non-performing asset’ (NPA) was defined as a credit facility in respect of which the interest and/ or instalment of principal has remained ‘past due’ for a specified period of time. With effect from March 31, 2001, an NPA shall be an advance where: interest and/or instalment of principal remain overdue for a period of more than 180 days in respect of a Term Loan; the account remains ‘out of order’ for a period of more than 180 days, in respect of an Overdraft/Cash Credit (OD/CC); the bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted; interest and/or instalment 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 180 days in respect of other accounts.

A sub-standard asset was one, which was classified as NPA for a period not exceeding two years. With effect from 31 March 2001, a sub-standard asset is one, which has remained NPA for a period less than or equal to 18 months. With effect from 31 March 2001, an asset is to be classified as doubtful, if it has remained NPA for a period exceeding 18 months. A loss asset is one 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 wholly. The entire loss asset should be written off. There are varying provision requirements for other assets depending on the period.

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