NON PERFORMING ASSETS

Non performing asset

Definition
A loan or lease that is not meeting its stated principal and interest payments. Banks usually classify as nonperforming assets any commercial loans which are more than 90 days overdue and any consumer loans which are more than 180 days overdue. More generally, an asset which is not producing income.

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In order to reflect a bank's actual financial health in its balance sheet and as per the recommendations made by the Committee on Financial System (Chairman Shri M. Narasimham), the Reserve Bank has introduced, in a phased manner, prudential norms for income recognition, asset classification and provisioning for the advances portfolio of the banks. Broadly, the policy of income recognition should be objective and based on record of recovery rather than on any subjective considerations. Likewise, the classification of assets of banks has to be done on the basis of objective criteria, which would ensure a uniform and consistent application of the norms. The provisioning should be made on the basis of the classification of assets into different categories. The requirements of the State Co-operative Societies Acts and / or rules made thereunder or other statutory enactments may continue to be followed, if they are more stringent than those prescribed hereby. With the introduction of prudential norms, the Health Code based system for classification of advances has ceased to be a subject of supervisory interest. As such, all related reporting requirements, etc. also ceased to be a supervisory requirement, but could be continued in the banks entirely at their discretion and the management policy, if felt necessary.

Asset Classification

Loans and advances of banks appear in their balance sheets on the side of Assets A loan or advance of a bank is defined as non-performing Asset(NPA) when it remains overdue or out of order for a period of More than 90 days

A loan or advance of a bank is defined as Doubtful When it has remained inSubstandard category for a period of at least 12 months

A Standard Asset of a bank is defined as an asset which is Not a no-performing asset (NPA) When will a loan be NPA?- 1) Interest and/or loan installments overdue for more than 90 days 2) A/c is out of order for more than 90 days in case of overdraft/ cash credit 3) Bill remains overdue for more than 90 days in BP/BD

Charging of interest at monthly rests would make overdue 90 days from previous quarter ending under NPA

A sub-standard asset is one which has remained NPA for a period less than or equal to 12 months

A Non-performing asset (NPA) is defined as a credit facility in respect of which the interest and/or instalment of principal has remained past due for a specified period of time.
Contents
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1 Identificat ion 2 Classifica tion 3 See also 4 Referenc es

[edit]Identification With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the 90 days overdue norm for identification of NPAs, from the year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a non-performing asset (NPA) shall be a loan or an advance where;

 Interest and/or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan, The account remains out of order for a period of more than 90 days, in respect of an Overdraft/Cash Credit (OD/CC), The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, Interest and/or instalment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purposes, and Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts. [edit]Classification Banks are required to classify non-performing assets further into the following three categories based on the period for which the asset has remained non-performing and the realisability of the dues: Sub-standard Assets Doubtful Assets Loss Assets

Banks should classify their assets into the following broad groups, viz
1. Standard Assets

2. Sub-standard Assets 3. Doubtful Assets 4. Loss Assets

Standard Assets Standard Asset is one which does not disclose any problems and which does not carry more than normal risk attached to the business. Such an asset should not be an NPA. Sub-standard Assets

1. With effect from March 31, 2005 an asset would be classified as sub-standard if it remained
NPA for a period less than or equal to 12 months. In such cases, the current net worth of the borrowers/ guarantors or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full. In other words, such assets will have well defined credit weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected

2. An asset where the terms of the loan agreement regarding interest and principal have been
re-negotiated or rescheduled after commencement of production, should be classified as substandard and should remain in such category for at least 12 months of satisfactory performance under the re-negotiated or rescheduled terms. In other words, the classification of an asset should not be upgraded merely as a result of rescheduling, unless there is satisfactory compliance of this condition.

Doubtful Assets With effect from March 31, 2005, an asset is required to be classified as doubtful, if it has remained NPA for more than 12 months. For Tier I banks, the 12-month period of classification of a substandard asset in doubtful category is effective from April 1, 2009. As in the case of sub-standard assets, rescheduling does not entitle the bank to upgrade the quality of an advance automatically. A loan classified as doubtful has all the weaknesses inherent as that classified assub-standard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. Note: Consequent to change in asset classification norms w.e.f. March 31, 2005 banks are permitted to phase the consequent additional provisioning over a five year period commencing from the year ended March 31, 2005, with a minimum of 10 % of the required provision in each of the first two years and the balance in equal instalments over the subsequent three years. Loss Assets A loss asset is one where loss has been identified by the bank or internal or external auditors or by the Co-operation Department or by the Reserve Bank of India inspection but the amount has not been written off, wholly or partly. In other words, such an asset is considered un-collectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value

==========================================Classification of Assets as NonPerforming An asset becomes non-performing when it ceases to generate income for the bank. Earlier an asset was considered as non-performing asset (NPA) based on the concept of 'Past Due'. A non performing asset (NPA) was defined as credit in respect of which interest and/ or

installment of principal has remained past due for a specific period of time. The specific period was reduced in a phased manner as under Year ended March, 31 1993 1994 1995 Specific period 4 quarters 4 quarters 4 quarters

An amount is considered as past due, when it remains outstanding for 30 days beyond the due date. However, with effect from March 31, 2001 the past due concept has been dispensed with and the period is reckoned from the due date of payment. With a view to moving towards international best practices and to ensure greater transparency, '90 days' overdue* norms for identification of NPAs have been made applicable from the year ended March 31, 2004. As such, with effect from March 31, 2004, a non-performing asset shall be a loan or an advance where:
1. Interest and/or installment of principal remain overdue for a period of more than 90 days in respect of a Term Loan. 2. The account remains 'Out of order'@ for a period of more than 90 days, in respect of an Overdraft/ Cash Credit (OD/CC). 3. The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, 4. In the case of direct agricultural advances as listed in Annex 1, the overdue norm specified at para 2.1.5 would be applicable. In respect of agricultural loans, other than those specified in Annex 1, identification of NPAs would be done on the same basis as non-agricultural advances. 5. Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.

* Any amount due to the bank under any credit facility, if not paid by the due date fixed by the bank becomes overdue An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit / drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'.

Tier I Banks ( for definition please see annex 4) were permitted to classify loan accounts including gold loans and small loan upto Rs 1 lakh as NPAs based on 180 days delinquency norm instead of the extant 90 days norm. This relaxation was in force upto March 31, 2009. For the above category of banks, an account would be classified as Non Performing Asset if the :
1. Interest and/or installment of principal remain overdue for a period of more than 180 days in respect of a Term Loan. 2. The account remains 'Out of order' for a period of more than 180 days, in respect of an Overdraft/Cash Credit (OD/CC). 3. The bill remains overdue for a period of more than 180 days, in the case of bills purchased and discounted. 4. Any amount to be received remains overdue for a period of more than 180 days in respect of other accounts.

The relaxations were given for the explicit purpose of enabling the UCBs concerned to transit to the 90 day NPA norm in the year 2009-10 by building up adequate provisions and strengthening their appraisal, disbursement and post disbursement procedures. 4 Tier II banks shall classify their loan accounts as NPA as per 90 day norm as hitherto.

Online banking
From Wikipedia, the free encyclopedia

Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by their retail or virtual bank, credit union orbuilding society.
Contents
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1 Featur es 2 History 3 Securit y

4 See also 5 Refere

nces

6 Extern al links

[edit]Features
E-banking solutions have many features and capabilities in common, but traditionally also have some that are application specific. The common features fall broadly into several categories

Transactional (e.g., performing a financial transaction such as an account to account transfer, paying a

bill, wire transfer, apply for a loan, new account, etc.)

Payments to third parties, including bill payments and telegraphic/wire transfers Funds transfers between a customer's own transactional account and savings accounts Investment purchase or sale Loan applications and transactions, such as repayments of enrollments

Non-transactional (e.g., online statements, cheque links, cobrowsing, chat)

Viewing recent transactions Downloading bank statements, for example in PDF format Viewing images of paid cheques

Financial Institution Administration Management of multiple users having varying levels of authority Transaction approval process

Features commonly unique to Internet banking include

Personal financial management support, such as importing data into personal accounting software.

Some online banking platforms support account aggregation to allow the customers to monitor all of their accounts in one place whether they are with their main bank or with other institutions.

Mobile banking (also known as M-Banking, mbanking, SMS Banking) is a term used for performing balance checks, account transactions, payments, credit applications and other banking transactions through a mobile device such as a mobile phone or Personal Digital Assistant (PDA). The earliest mobile banking services were offered over SMS. With the introduction of the first primitive smart phones with WAP support enabling the use of the mobile web in 1999, the first European banks started to offer mobile banking on this platform to their customers[1].

Mobile banking has until recently (2010) most often been performed via SMS or the Mobile Web. Apple's initial success with iPhone and the rapid growth of phones based on Google's Android (operating system) have led to increasing use of special client programs, called apps, downloaded to the mobile device.

THURSDAY, JANUARY 29, 2009

Banks to face High NPAs in 2009

With the commencing of 2009, Indian banks enjoying high profits, with stable credit growth and non interest income, will now have to face challenging times. Though banks are showing high profits in their balance sheet, but main figure to impact in coming quarters will be of NPAs (non-performing assets).

NPAs are also called non-performing loans, are loans, made by a bank or finance company, on which repayments or interest payments are not being made on time. In the current scenario of global meltdown, these are the real testing time for banks in terms of asset quality of their portfolio and for any new venture they are willing to undertake. The asset quality of Indian banks has shown substantial improvement in recent yearsmedian Net NPA improved 0.73 per cent as against 0.83 per cent in 07. However, 2008-09 and 2009-10 has the potential to reverse this trend.

As India witness slowdown in economic activity, banks will face a lower demand for loans. NPAs will also increase on account of borrowers finding it difficult to repay loans. Credit growth is expected to fall to 14% in 2009-10 , in comparison to 22% of last financial year. Rise in NPAs would mainly be attributed to export oriented small and medium enterprises(SMEs)which are hard hit due surging costs. The growth in credit in the industry in 2008 was in the range of 25-29 per cent on account of working capital requirements of small-, mid- and large-size industries, and the bankers expect an average 25 per cent rise in their credit in 2009. While state-owned banks were quick to respond to the recent signals from policymakers by reducing interest rates periodically, many Private Sector Banks (PSB) are yet to follow the suit, mainly owing to pressure on their margins.

In this challenging period banks need to prevent exacerbation in their NPAs. The challenges include: rapid shrinkage in corporate balance sheets, specifically those exposed to commodities and metals; funding of expansion and acquisition plans by highly-leveraged corporate; export-oriented firms facing a

slowdown in business due to weak global demand; and volatile currency movements impacting corporate cash flows.

Fresh NPA accumulation could rise to 3.5% of total loans (on 2-year lag), which though lower than the 4.5-5% levels seen in the previous cycle (in the late 90s), may still result in a 2-3 fold jump. Defaults are expected from retail segment like auto loans.

The worst-case scenario for India, which assumes GDP growth will reduce to 6 per cent over the next few years, is likely to create a major challenge for Indian banks. Should they be focusing on growth or should they focus on keeping NPAs under control? Banks may then have to extensively rely on refurbished and dynamic credit scoring models, de-centralized decision-making based on ground level relationship assessment and increasing use of tracking MIS to control their portfolio in these uncertain times. In comparison to global banks, Indian banks turn out quite strong from asset quality, diversified risk portfolio and low cost deposit base perspective. This is due to their effective management of the business and partly due to the conservative nature of our bankers and the regulator. The key question now facing the industry is: Is the Indian banking system safe and sound to fight this financial meltdown.
POSTED BY BHUMIKA AT THURSDAY, JANUARY 29, 2009 LABELS: SECTOR ANALYSIS

NEW DELHI, NOV 13: Bad loans of the listed banks in the country soared by 33.46 per cent to over Rs 1 lakh crore during the second quarter of this fiscal reflecting the impact of rising interest rates and a slowing growth. The gross non-performing assets of State Bank of India (SBI), the countrys largest bank, rose by 46 per cent to Rs 33,946 crore during the July-September quarter. However, ICICI Bank reported a modest 0.39 per cent increase in gross NPA to Rs 10,021 crore. According to an analysis of 37 listed banks in the country, the gross NPA have gone up to Rs 1.06 lakh crore during the September quarter from Rs 79,078 crore in the corresponding period last year. Analysts said the steep rise in interest rates over the past 18 months has led to a sharp increase in bad loans. The Reserve Bank of India has increased its lending (repo) rate 13 times since March, 2010 to tame inflation. The banks are also under pressure from loans outgoes to the sectors facing delays in execution of projects due to the uncertainty on various regulatory issues, thereby, raising concerns over the companies ability to timely repay loans.

Loans given to mining and power companies might become non performing assets (NPAs) for the banking sector as the delay in completion of projects on the back of regulatory hurdles can impact the corporate profits. Already, the rise in bad loans has not gone down too well with investors. Shares of SBI lost as much as 7 per cent on the day of its result. SBIs NPAs rose mainly from loans to export-oriented sectors, iron-steel, agro-based businesses and the government-sponsored schemes. Besides, the NPA of Punjab National Bank (PNB) rose by 29 per cent during the quarter to Rs 5,150 crore. Even global ratings firm Moodys has said that slowing economic growth could increase bad loans and impact profitability of companies. However, another global rating agency S&P has upgraded Indians banking sector, saying that domestic regulations are in line with international standards. RBI has also said that the Indian banking sector is not facing any stress and there is no indication of a systemic threat. Repeated rate hikes by the central bank has increased borrowing costs for corporates and slowed project investments. This is getting reflected in the index of industrial production which fell to 5 per cent in the AprilSeptember period from 8.2 per cent in the same period last year. RBI has projected that Indian economy will grow at 7.6 per cent this fiscal, which is lower than 8.5 per cent growth recorded in 2010-11.

Causes of NPA
NPA arises due to a number of factors or causes like:-

1. 2. 3. 4. 5. 6.

Speculation : Investing in high risk assets to earn high income. Default : Willful default by the borrowers. Fraudulent practices : Fraudulent Practices like advancing loans to ineligible persons, advances without Diversion of funds : Most of the funds are diverted for unnecessary expansion and diversion of business. Internal reasons : Many internal reasons like inefficient management, inappropriate technology, labour External reasons : External reasons like a recession in the economy, infrastructural problems, price rise,

security or references, etc.

problems, marketing failure, etc. resulting in poor performance of the companies. delay in release of sanctioned limits by banks, delays in settlements of payments by government, natural calamities, et