Presented By :-

CA Gokul B. Rathi

098500 41311

CA Gokul B Rathi

1

Is an account which does not disclose any problems & carries not more than normal risk attached to the business.

All loan facilities which are regular !

CA Gokul B Rathi

2

NPA is defined as a loan or an advance in respect of which the interest &/or installment of principal remains “overdue” for a period of more than 90 days in respect of a term loan or remains “out of order” for a period of more than 90 days in respect of an Overdraft /Cash Credit.

Any amount due to the Bank under any credit facility, if not paid by the due date fixed by the bank, becomes ‘overdue’.

An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank.

CA Gokul B Rathi

3

• A loan granted for short duration crops will be treated as NPA if the installment of principal or interest thereon remains overdue for two crop seasons. A crop season for each crop means the period upto harvesting of the crops raised.

• A loan granted for long duration crops will be treated as NPA if the installment of principal or interest thereon remains overdue for one crop season. ( Long duration crops = crop season longer than 1 year & short duration crops means which are not long duration crops )

• A bill purchased & discounted will be NPA if it remains

overdue for a period of more than 90 days from the date it is due.

• Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.

CA Gokul B Rathi

4

Non Performing Asset: -

An account should be treated as ‘out of order’ if the outstanding balance remains continuously in excess of sanctioned limit /drawing power. Even if the outstanding in the account is within limit/DP, but there are no credits continuously for 90 days or credits are not enough to cover interest debited, the account should be treated as ‘out of order’ .

CA Gokul B Rathi

5

OUT OF ORDER: -

NPA identification is an ongoing process. An asset should be classified as NPA within a month of its’ becoming NPA & provisions for NPA should be done on quarterly basis rather than at year end only.

CA Gokul B Rathi

6

NPA Identification – A Regular Exercise: -

Record of recovery should be seen before any a/c is treated as NPA. However, solitary entry at the year end which brings the account in order on year end but the a/c again becomes irregular subsequently, such a/c should be treated as NPA. An a/c should not be treated as NPA just because of some temporary deficiencies which are rectified subsequently.

An a/c should be classified as NPA when there is threat of loss or recoverability of advance is in doubt.

Recovery in the a/c should be from genuine sources & not because of grant of additional credit facilities to the borrower.

CA Gokul B Rathi

7

Temporary Deficiencies:- Temporary Deficiencies:-

When a loan a/c of a borrower is treated as NPA, all the other loan a/cs of the borrower, even if they are otherwise regular, should be treated as NPA as NPA classification should be borrower wise & not facility wise.

When various advance a/cs of a borrower are in different categories of NPA, then the provisioning shall be as per the lowest category applicable.

CA Gokul B Rathi

8

Borrower wise & not Facility wiseBorrower wise & not Facility wise

Agricultural Loans in areas suffering from Natural Calamities,

Housing Loan to Staff

Credit facilities guaranteed by Central would become NPA only if the guarantee is repudiated by the Govt. State Govt. Guaranteed Advances are treated at par with other advances.

Project financing - For Infrastructure & Non infrastructure sectors

Gold Loans – For Agricultural purposes & for non – Agricultural purposes

Loans against FDs / IVPs / KVPs / Life Policies are not treated as NPA if adequate margin is available.

Investments where Interest/Principal is overdue beyond 90 days

CA Gokul B Rathi

9

Special Purpose Advances: -Special Purpose Advances: -

For Infrastructure Projects –

1) NPA before DCCO, if 90 days overdue if not restructured2) NPA if fails to commence commercial operations within

2 years from original DCCO, even if regular, if not restructured

For non Infrastructure Sector: -

1) NPA before DCCO, if 90 days overdue if not restructured2) NPA if fails to commence commercial operations within

6 months original from DCCO, even if regular, if not restructured

CA Gokul B Rathi

10

Project Loans: -Project Loans: -

Three Stages: -

a) Before commencement of commercial production /operation.

b) After commencement of commercial production /operation but before the asset has been classified as Sub-standard.

c) After commencement of commercial production /operation but before the asset has been classified as Sub-standard or Doubtful.

CA Gokul B Rathi

11

Restructuring of Advances: -Restructuring of Advances: -

Standard Asset to be classified as Substandard upon restructuring

NPA Account upon restructuring would slip into further lower category

All restructured accounts treated as NPA upon restructuring are eligible for upgradation to Standard if satisfactory performance is observed during specified period. If satisfactory performance not observed during specified period, Asset Classification to be with reference to the Pre Restructuring Repayment Schedule

Any additional finance granted on restructuring to be treated as Standard Asset upto a period of 1 year after 1st installment becomes due as per Restructuring Package. If satisfactory performance not observed during the specified period, additional finance would be placed in the same category as other accounts

CA Gokul B Rathi

12

Restructuring of Advances: -Restructuring of Advances: -

Gross NPA are the sum total of all loan assets that are classified as NPAs as per RBI guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans made by banks. It consists of all the non standard assets, i.e. sub-standard, doubtful & loss assets.

If Gross NPA of any Co-operative Bank is more than 10%of Gross Advances in any year, it comes under Supervisory Action Framework of RBI.

Net NPA = Gross NPA – Provision for BDDR

CA Gokul B Rathi

13

Standard Assets :- Advance account which does not disclose any problem & does not carry more than normal business risk.

Substandard Assets – Which has remained NPA for a period less than or equal to 12 months.

Doubtful Assets – Which has remained NPA for a period more than 12 months.

Loss Assets – where loss has been identified by the bank or internal or external auditors or the RBI inspection, salvage value of security is negligible & the entire asset is proposed to be w/off after necessary approvals.

CA Gokul B Rathi

14

Asset Classificati

on

Particulars Provision

Required %

Standard Direct Advances to Agriculture & SME Sectors

0.25

Commercial Real Estate Advances 1.00

All other Loans & Advances not included in above

0.40

Sub-standard Secured Exposure 15

Unsecured Exposure for Escrow A/cs available in case of Infrastructure lending, infrastructure loan accounts

20

Other Unsecured Exposure 25

CA Gokul B Rathi

15

Provisioning Norms: -Provisioning Norms: -

Asset Classificati

on

Particulars Provision Required %

Doubtful - Secured Unsecured

D1 (Upto 1 year) 25 100

D2 (One to Three years)

40 100

D3 (More than 3 years)

100 100

Loss Loss Asset 100

CA Gokul B Rathi

16

Provisioning Norms: -Provisioning Norms: -

Income from NPA Accounts is booked only when actually received & is not accounted for on accrual basis. Even in case Govt. guaranteed advances, interest is to be recognized only when realized.

Interest on Advances against FDRs, KVPs, NSCs, IVPs & LIC Policies is to be accounted when due if sufficient margin is available in the account.

Fees & Commission earned on rescheduling is to be recognized on accrual basis over the period covered by reschedulement.

CA Gokul B Rathi

17

When an account becomes NPA, interest, fees, commission, etc, debited to account but is not actually realized needs to be reversed or provided for.

When Bills Purchased & Discounted becomes NPA at the close of any year, interest accrued on such bills in the previous year should be reversed or provided for if not realized already.

In case of Govt. Guaranteed Advances, interest debited but not realized needs to be provided for.

In case of Equipment Leasing undertaken by the Bank, interest component in the Lease account which has become NPA needs to be reversed if unrealized.

Interest & Other Income on NPA Accounts realized out of additional credit facilities cannot be taken to Income.

CA Gokul B Rathi

18

BORROWER-SIDE

Lack of Planning Diversion of Funds Disputes within No contribution No modernization Improper monitoring Industrial Relations Natural Calamities

BANKER – SIDE

Defective Sanction No post-sanction

supervision, etc Delay in releases Directed lending Slow decision

making process

CA Gokul B Rathi

19

CA Gokul B Rathi

20

CA Gokul B Rathi

21

CA Gokul B Rathi

22

To recover their bad Debt quickly & efficiently.

33 Debt Recovery Tribunal & 5 Debt Recovery Appellate Tribunal

It is the special court established by Central Government for the purpose of recovering money belonging to the banks or financial institutions.

The judges of this court are the retired judges of High Courts.

In this court, only the recovery cases of Rs.10 Lacs & above can be filed.

CA Gokul B Rathi

23

DEBT RECOVERY TRIBUNALS (DRT): - DEBT RECOVERY TRIBUNALS (DRT): -

The Act provides three alternative methods for recovery of non-performing assets, namely: -

- Securitization - Asset Reconstruction  - Enforcement of Security without the

intervention of the Court.

Bad loans with outstanding above Rs. 1.00 Lac.

NPA loan accounts where the amount is less than 20% of the Principal & Interest are not eligible to be dealt with under this Act.

CA Gokul B Rathi

24

SARFAESI Act: - SARFAESI Act: -

This Act empowers the Bank:

To issue demand notice to the defaulting borrower & guarantor, calling upon them to discharge their dues in full within 60 days from the date of the notice.  

To give notice to any person who has acquired any of the secured assets from the borrower to surrender the same to the Bank.  

To ask any debtor of the borrower to pay any sum due or becoming due to the borrower.  

Any Security Interest created over Agricultural Land cannot be proceeded with.

CA Gokul B Rathi

25

CDR mechanism will cover only multiple banking accounts / syndication / consortium accounts .

An outstanding exposure of banks & institutions to the extent of Rs.20 Crore & more.

CA Gokul B Rathi

26

CDR Mechanism: -CDR Mechanism: -

Verify the previous year’s audited NPA Statement to confirm that all the Accounts which were NPA last year have been covered in Current Year Statement except those which are closed or upgraded.

If closed, whether from genuine sources. If upgraded, whether from proper recovery in the account.

Tally the number of accounts.

Verify whether unrealized Interest has been reversed in respect of accounts which have slipped during the year.

CA Gokul B Rathi

27

Verify that proper classification has been done with reference to Date of NPA.

Whether valuation report for Immovable Properties is on record & it is within 3 years. See that, valuation is taken as per Valuation Report at Distress Value.

In case of depreciable assets, depreciation has been considered at the time of valuation.

Securities shown are properly under lien of the Bank.

CA Gokul B Rathi

28

All the accounts related to particular borrower have been treated as NPA under lowest category applicable & provision made accordingly.

In case of D1 & D2 accounts, unsecured portion is provided for @ 100%.

Verify overdue/overdrawn/SMA accounts to ensure that all NPA A/cs have been covered in the Statement & provided for.

Ensure that a/cs are not upgraded after restructuring except cases covered by special regulatory treatment.

Ensure that OIR as per Balance Sheet tallies with that as per NPA Statement.

CA Gokul B Rathi

29

CA Gokul B Rathi

30