A non-performing asset (NPA) is a credit facility in which the interest and/or principal payment of the bond financing has remained “past due” for a specified period of time. NPA is a term used by financial institutions to refer to loans at risk of default. Once the borrower has not paid interest or principal for 90 days, the loan is considered a non-performing asset of the lender. Non-performing assets are worrying for financial institutions because their income depends on interest payments. Troublesome economic pressure can lead to a sharp increase in NPAs and often results in massive write-downs. Say no to plagiarism. Get a tailor-made essay on “Why violent video games should not be banned”? Get an original essay Keeping in mind international best practices and ensuring greater transparency, it was decided to adopt the standard of “90 days late” for identification of NPAs, with effect from the financial year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a non-performing asset (NPA) is a loan or advance in which: Interest and/or principal payment remains overdue for a period of more than 91 days for a term loan, The account remains “out of service” for a period of more than 90 days, for an Overdraft/Credit of Cash (OD/CC), The invoice remains overdue for a period of more than 90 days in the case of tickets purchased and discounted, Interest and/or principal installments remain due for two harvest seasons but for a period not not exceeding two half years in the case of an advance granted for agricultural purposes, and Any amount payable received remains overdue for a period of more than 90 days for other accounts. Non-submission of stock statements for 3 continuous quarters in case of cash credit facility. No active transactions in the account (Cash Credit/Overrun/EPC/PCFC). for more than 91 days.Types of NPA:The following highlights the seven main types of non-performing assets.The types are:Term loansCash loans and overdraftsAgricultural advancesExempt assetsAdvances under rehabilitation schemesTake-out financeAdvances covered under guarantees of DICGC/ECGC.Term Loans: A term loan facility will be treated as NPA for the year ending March 31, 1998 and beyond if the interest or principal payment remains overdue for more than 90 days . Cash Credit and Overdrafts: A Cash Credit and Overdraft account will be treated as NPA if the account remains in default for a period exceeding 90 days. An account is treated as "out of service": one of the following conditions is met: (a) The outstanding balance remains continuously above the penalty limit/while in power. (b) Although the outstanding balance is less than the sanctioned limit/drawing power: (1) There are no continuous credits for more than 90 days on the balance sheet date; or (2) Credits during the above period are not sufficient to cover interest charged during the same period of more than 90 days. (c) In addition, any amount owed to the bank under an overdue credit facility if not paid when due. date fixed by the bank.Agricultural advances: From September 30, 2004, advances granted for agricultural purposes become NPA if the interest and/or principal payment remains overdue for two agricultural seasons in the case of short-duration crops and a long-term loan granted. crops will be treated as NPA, if payment of principal or interest remains overdue during a crop season. The cultures of whichthe agricultural season lasts more than a year, that is to say until the harvest period of the cultivated crops, will be termed as “long duration” crops. and other crops will be treated as “short-term” crops. These NPA names would also be applicable for agricultural term loans. In respect of other agricultural loans and term loans extended to non-farmers, identification of NPAs would be done on the basis of non-agricultural advances which are, at present, 90 days overdue norm. Exempt assets: Certain categories of advances have been exempted from treatment as non-performing for the purposes of determining income and/or provisioning, even if they meet the above criteria. In summary, they are as follows: Advances secured by term deposits. National Savings Certificates, Vikas Patras, Kisan Vikas Patras and Surrender Value of Life Insurance Policies. Advances guaranteed by the Government of India and/or State Governments. But this exemption is only for the purposes of asset classification and provisioning norms and not for revenue recognition purposes. This means that revenue relating to the installation will not be recognized until it is actually received. Additionally, in the case of state government guarantees, this exemption is only available when the guarantees have not been invoked. State government guaranteed accounts which have been invoked upon conversion into NPA shall be treated at par with other advances for the purposes of asset classification, revenue recognition and provisioning norms. Advances under rehabilitation programs: when additional facilities are granted to a unit under the approved rehabilitation programs. by the Board for Industrial and Financial Reconstruction (BIFR) or by term loan institutions or by the bank (alone or as part of a consortium), it is appropriate to continue to provide for contributions under credit facilities existing. facilities, there is no need to make a provision for a period of one year from the date of disbursement in respect of additional facilities sanctioned under the rehabilitation programs approved by the BIFR/Establishment of term loan. Similarly, no provision shall be made for a period of one year in respect of additional facilities extended to a sick small industrial unit in accordance with a rehabilitation/nursing program drawn up by the bank itself or in under a consortium agreement. After the period of one year, the bank, in consultation with its auditors, would take a view whether there is any need to make any provisions regarding the additional facilities sanctioned. Takeaway Finance: In case of takeaway finance, if on the basis of recovery record the account is classified by their lending bank as NPA, they should make provisions for loan losses as per the guidelines . The provision must be recovered when the account is taken over by the acquiring institution. When taking over the account, the acquiring institution must set aside provisions in accordance with the guidelines. Advances covered by DICGC/ECGC guarantees: In the case of advances guaranteed by Expert Credit Guarantie Corporation (ECGC) or by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a provision must be made only for the balance exceeding the amount guaranteed by these companies. Revenue recognition: Revenue from non-performing assets (NPAs) is not recognized on an accrual basis, but is recognized as revenue only when it isactually received. Therefore, banks should not charge or take into account interest on NPAs. This will also apply to government-backed accounts. However, interest on advances on fixed deposits, National Savings Certificates (NSC), Indira Vikas Patras (IVP), Kisan Vikas Patras (KVP) and life insurance policies can be charged to the account of income on the due date, provided that adequate margin is available in the accounts. Fees and commissions received by banks following renegotiations or reschedulings of unpaid debts must be recognized on an accrual basis over the period covered by the renegotiated or rescheduled credit extension. Resumption of income: If applicable, advance, including invoices. purchased and discounted, becomes NPA, the entire interest accrued and credited to the income account during past periods, reversed if the same is not realized. This will also apply to government-backed accounts. With respect to NPAs, accrued fees, commissions and similar income should cease to accrue during the current period and should be reversed against past periods, if not recovered. Leased assets: the finance charge component financial products [as defined in “AS 19 Leases” issued by the Council of the Institute of Chartered Accountants of India (ICAI)] on the leased asset which accrued and was credited to the income account before the asset becomes non-performing, and remains unrealized, must be reversed or provisioned in the current accounting period. Allocation of recovery in NPAs: Interest earned on NPAs may be taken to the income account provided that the credits in the interest accounts are not from new/additional credit facilities extended to the borrower concerned. The categories of non-performing assets of NPANs can be classified into three categories. depending on the length of time the asset remained non-performing and the recovery of contributions: Substandard assets As of March 31, 2005, a substandard asset would be one that remained as a non-performing asset for a period of less than greater than or equal to 12 months. Substandard assets have credit weaknesses that jeopardize debt liquidation and it is also possible to incur losses if deficits are not corrected. Doubtful Assets Since March 31, 2005, an asset is classified as doubtful if it has remained as a substandard asset for a period of 12 months. A loan classified as impaired has all the characteristics of weakness as defined for substandard assets; it also has additional features that weakness results in liquidation or full recovery, based on currently known conditions, facts and values ​​which are highly doubtful and questionable. Loss assets A loss asset is an asset for which a loss has been identified by the bank's internal department. auditors and external auditors of RBI, but the amount has not been fully written off. These types of assets are also considered uncollectible and of little value, so their retention or continuation as a bankable asset is not guaranteed or acceptable, although there may be some salvage value or recovery. Substandard asset* Has remained NPA for a period of not less than or equal to one year.*In such cases, the current net worth of the borrower or guarantor or the market value of the security applied for is not sufficient to ensure the recovery of the bank's contributions; *It is likely to suffer a certain loss if the..