NPA is the acronym for NON PERFORMING ASSET. It is the assets of the banks which do not bring any return.
Types of Assets:-
1. Standard Asset:- The assets which generate regular income are called standard assets.
2. Sub-standard Asset:- The asset which is overdue for a period of more than 90 days but less than 12 months.
3. Doubtful Asset:- The asset which is overdue for a period of more than 12 months.
4. Loss Assets:- The assets which are doubtful and are considered as non-recoverable by banks.
Out of these types Sub-standard, Doubtful and Loss Assets are included under NPAs.
Causes of NPAs:-
1. Willful Defaults:- The Indian Public Sector Banks are worst hit by these defaults. It is a default in repayment obligation.
Kingfisher Airlines Ltd. Is one among many of those willful defaulters. Other are Beta Napthol, Winsome Diamonds & Jewellery Ltd., Rank Industries Ltd., XL Energy Ltd. etc.
2. Industrial Crisis:- Industries depend on banks to fulfill their projects. If industry is in crisis, it is bound to hit the banking sector and their NPA will rise.
3. Credit distribution Mis-management:- Often ill-minded borrowers bribe bank officials to get loans with an intention of default.
4. Lenient Lending Norms:- One of the main reasons of rising NPAs is the lenient Lending Norms especially for corporate honchos where their financial status and credit rating is not analysed properly.
Present NPA Scenario:-
RBI’s financial stability report said the gross NPA ratio of all banks increased to 9.1% by September 2016 from 7.8% in March 2016. Public Sector Banks are worst hit as their gross NPA increased to 12.5% by March 2017 from 11.8% in September 2016.
Impact of NPA:-
1. Bank’s profit will come down which they earn in the form of interest.
2. Banks will become reluctant to lend thus affecting their borrowers.
3. Affects the liquidity position of banks.
4. Service to good customers may get affected.
5. Adversely affect the bank balance sheet.
Solution to NPA:-
1. SARFAESI Act:- The act improves the banks/Financial Institutions (FIs) t0 recover their NPA through acquiring and disposing of the secured assets in NPA account with outstanding amount of Rs. 1 Lakh and above.
2. DRT Act:- The act provides setting up of Debt Recovery Tribunals and Debt Recovery Appellate Tribunals for expedition and exclusive disposal of suits filed by banks/FIs for recovery of their dues in NPA account with outstanding amount of Rs. 10 Lakh and above.
3. Lok Adalat:- Lok Adalat mechanism offers mutually acceptable way of settlement of disputes. Govt has advised PSBs to utilize this mechanism to its fullest potential for recovery in NPA cases.
From time to time many Norms have been framed to get a hold over rising NPA. And these Norms have been proved to be beneficial. But out of all these, SARFESI Act, 2002 and DRT Act proved to be most beneficial among all.