Non – Performing Asset is a type of Bank loan . A loan is in areas when principal or Interest payment are late or missed. A loan is in default when the lender consider the loan agreement to be broken and the debtor is unable to meet his obligation.
Reserve Bank of India define NPA as any advance or loan that is overdue for more than 90 days . According to RBI Circular form in 2007 , An asset become non – performing when it ceases to generate income from the bank .
There are different types of non – performing Asset :-
(1) Standard Asset
The non – Performing Asset that have been past due for anywhere from 90 days to 12 month , with a normal risk level.
(2) Sub – Standard Asset
A sub – Standard Asset remain as an NPA for a period less than or equal to 12 month.
(3) Doubtful Asset
Doubtful Asset remain as an NPA for a period more than 12 month.
(4) Loss Asset
Loss Asset is considered as asset when it is ” uncollectible” or has such little value that it’s continuance as a bankable asset is normally suggested.
Note – As per the NBA provising norms, there is no separating providing to be made , however this will help in initiating resolution process for recovery. As per the Revised Framework for Resolution of stressed asset , released in June 2019, bank may start resolution banks or Insolvency & Bankruptcy Code (IBC) process within 30 days of default. If there’s is delay in the resolution process, then lenders have to make higher provisioning of 35% – first 20% for 180 days and then an additional 15% if no resolution is found within 365 days.
How Non – Performing Asset Work
Loan as , addressed above are not switched into the NPA Category until a considered period of Non – Payment has Passed.
After, a month , bank typically consider a loan overdue. It is not until the end of the grace period (typically 90 days of Non – payment ) that the loan then Non – Performing Asset . Lender consider all the factors that may make a borrower late on making interest and principal payment and extend a grace period.
Bank attempt to collect the outstanding debt by foreclosing on whatever property or asset has been used to secure the loan .
Significance of Non – Performing Asset
Non – Performing Asset is important for both the borrower and the lender to be aware of performing versus NPAs. It will then hamper their ability to obtain future borrowing. Phases with NPAs , the lender have option to recover their losses that includes taking possession of any collecte or selling of the loan at a significant discount to a collection agency .
Rules for Provision of Non – Performing Asset
As per criteria , NPAs installment and charged during any quarter is not serviced fully within 90 days from the end of the quarter . One month from the date on which the account would have been classified as NPA, cover the interest debited during the same period.
Guidelines issued by RBI
According to RBI’s announcement, the bad loan classification period now change from 90 days to 180 days for all such accounts.The account turn into NPAs after 90 days in overdue in making payment. The accounts are classified as standard before the 90-day period.
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