Know About NPA -Non Performing Assets

NON PERFORMING ASSETS:

WHEN AN ACCOUNT IS TREATED AS NPA?

Nature of loan		When it becomes NPA?
	Term Loan		Interest and installment of principal remaining overdue for a period of more than 90 days
	CC/OD		Account  remaining ‘out of order’ for 90 days
	Bills (purchased/discounted)		Remaining overdue for a period of more than 90 days
	Agri Advance		Installment of principal or interest  remaining overdue for two cropping seasons for short term crops & one cropping season for long term crops

NPA due to technical reasons

·         Review/renewal of regular or adhoc limit not done within 180 days from the due date/date of adhoc limit

·         Drawings allowed against stock/book debts statement older than 180 days (drawings in the account based on drawing power calculated from stock statements older than 3 months is deemed as irregular drawings and if such irregular drawing is permitted in the account for a continuous period of 90 days even though the unit is working/financial position is satisfactory)

What is overdue? In case of	To be considered as overdue :
Excesses over limit/drawing power	From date of such excesses
Term Loans & Loans repayable on demand	From due date of installments
Temporary overdrafts	If amount  is remaining outstanding for more than 7 days
Bills	From due date       In case of sight bills, if it remains unpaid on presentation
Interest remaining unadjusted	From the last day of the quarter, irrespective of interest charged at monthly intervals.

What is “Out of order”?

•      O/s balance remaining continuously in excess of sanctioned limit/DP

•      In cases where outstanding balance is less than sanctioned limit/drawing power, but there are no credits continuously for 90 days as on date of balance sheet or credits are not enough to cover the interest debited during the same period.

ASSET CLASSIFICATION:

All NPAs are to be classified into following 3 categories:

Sub standard Asset	NPA less than or equal to 12 months
Doubtful asset	NPA exceeding 12 months
Loss Asset	A loss asset is one where loss has been identified by bank or auditors. Such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

INCOME RECOGNITION:

No income to be recognized in NPA accounts.  Any unrecovered interest should be reversed to the account immediately on classification of account as NPA.  Further, unrealized interest has to be controlled in Dummy Ledger.

PROVISIONING:

STANDARD ASSETS:	Direct advance to agri. & SME	0.25%
	Residential housing loans beyond Rs.20 lacs	1.00%
	Personal loans/capital market exposures, commercial real estate/loans to NBFCs	2.00%
	All other loans not included above	0.40%
SUB STANDARD ASSETS:	Secured exposure	15%
	Unsecured exposure	25%
	Unsecured exposures in respect of infrastructure loan accounts where certain safeguards such as escrow accounts are available	20%
DOUBTFUL ASSETS	Unsecured portion	100%
	Secured portion – doubtful up to 1 yea  Doubtful 1 to 3 years doubtful 3 years +	25%
		40%
		100%
LOSS ASSETS		100%

Note:  ECGC and CGTMSE covered portion is to be treated as secured portion while working out the provision.

Other guidelines on Classification of NPA

ð  Central government guaranteed a/cs – to be treated as NPA only if the govt. repudiates its guarantee when claimed.

ð  State govt. guaranteed a/cs – Irrespective of invocation, a/c to be classified as NPA if principal / interest is overdue for more than 90 days.

ð  Loan against NSCs/KVP/IVP/LIC – Not NPA up to surrender value.

ð  Advances under consortium – based on record of recovery of the individual Bank.

ð  Asset classification is borrower wise and not facility wise.

ð  Multiple facilities – one a/c NPA, then all a/cs NPA.

ð  Classification is based only on recoveries and not on value of securities or net worth of party and or guarantors.

ð  In case of fraud a/cs, the a/c straight away classified as doubtful or loss asset.

ð  Accounts regularized near balance sheet date – is an NPA account if inherent weakness is observed.

ð  Temporary deficiencies should be handled with care. 

ð  Sub standard suit filed accounts may continue to be in sub standard if suit is filed for the reason that document is getting time barred or some other reason.

ð  In case of serious credit impairment due to erosion in value of security/fraud, account should be straight away classified as doubtful or loss without going through various stages of asset classification.  Erosion in value of security can be reckoned as significant when realizable value of security is less than 50% of value assessed by the bank.