NPA

PRESENTED BY SAJAD AHMAD A-27 DANISH BASHIR A-24 ZUHAIB HUSSAN A-26 ROSHNI KUMARI A-28 RAHUL A-25

INTRODUCTION
NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a large number of credit defaults that affect the profitability and net-worth of banks and also erodes the value of the asset.

High NPA reduces the overall profits and shareholders value.

The problem of NPAs is not only affecting the banks but also the whole economy.

TYPES OF NPA
Standard Assets : Standard assets generate continuous income and repayments as and when they fall due. Such assets carry a normal risk and are not NPA in the real sense. Sub-Standard Assets : All those assets (loans and advances) which are considered as non-performing for a period of 12 months are called as Sub-Standard assets. Doubtful Assets : All those assets which are considered as nonperforming for period of more than 12 months are called as Doubtful Assets. Loss Assets : All those assets which cannot be recovered are called as Loss Assets.

Gross NPA and Net NPA

NET NPA is a advance which is considered irrecoverable, for bank has made provisions, and which is still held in banks books of account GROSS NPA is obtained by deducting items like interest due but not recovered, part payment received and kept in suspense account from Gross NPA.

CAUSES OF NPA
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 security or references, etc. Diversion of funds : Most of the funds are diverted for unnecessary expansion and diversion of business. Internal reasons : like inefficient management ,inappropriate technology, etc. resulting in poor performance of the companies. External reasons : like a recession in the economy, infrastructural problems, price rise, natural calamities, etc.

Causes responsible for increasing NPAs

One of the main causes of NPAs in the banking sector is the Directed loans system The huge amount of loan granted under the schemes like IRDP, SUME, JRY, PMRY etc., was totally unrecoverable by banks Loans given by banks are their assets and as the repayments of several of the loans were poor,

IMPACTS OF RAISING NPA

It affects the profitability and also liquidity of a bank . High NPA degrade a banks credit rating lowering its credibility as well as its ability to raise fresh capital. The interest income of banks reduced it is to be accounted only on receipt basis. The capital adequacy ratio is disturbed and cost of capital will go up. The economic value addition (EVA) by banks gets upset because EVA is equal to the net operating profit minus cost of capital

MEASURES TO CONTROL NPA

Regulatory measures :in which RBI defines the frame
work to monitor and regulate the increase of NPA loans in our country

Operational measures: Banks must establish an

appropriate credit assessment and risk management mechanism to ensure proper assessment of credit prior to the sanctioning of loans

SUGGESTION FOR REDUCING NPAS

A strong Banker-Borrower relationship should be improved. Forceful recovery by the banks, which is against corporate. Debt recovery will be much easier in a friendly atmosphere Supporting the borrowers in developing his entrepreneurial skills will establish a good relation between the borrowers. But also help the bankers to maintain a track of their resources. Commercial Banks should be allowed to come up with their own method to address the problem of NPAs.