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Non Performing Assets (NPAS)

In the last 20 years, banks have expanded

their areas of coverage. Today, banks have
covered almost all corners of the country. As
the growth of banking sector is developing
rapidly certain weaknesses have developed in
recent years. One of them is

When an asset stops generating
income for the bank then it is said to
be a Non performing Asset.
Apart from internal and external

In terms of current RBI guidelines
with effect from 31.3.2004 a Non
Performing Asset (NPA) shall be an
advance where :
Interest and/or installment of
principal remain overdue for a
period of more than 90days in
respect of a Term Loan.
The account remains Out of Order
for a period of more then 90 days, in
respect of an Overdraft/Cash Credit.

The bill remains overdue for a period
of more than 90 days, in the case of
bills purchased and discounted.
Interest and/or installment of principal
remains overdue for 2 harvest
seasons but for a period not exceeding
one year in the case of an advance
granted or agricultural purpose, and
Any amount to be received remains
overdue or a period of more than 90
days in respect of other accounts.

Causes of NPA
The factors which are responsible for NPA are
follows :
Improper selection of Borrowers
Socio political measures for financing
some people by way of target fulfilling
under the Governments Poverty
Alleviation Programmes and other popular
Lack of income generation due to natural
calamities and other uncertainties like
infrastructural bottleneck, etc.

Causes of NPA
Inefficient management.
Mismanagement/ or misutilization of
funds by the borrowers.
Mentality of the people and
attitude to default willfully.
Lack of proper follow up by the
bank and failure to take punitive
action against willful defaulters.
Improper project planning by
businessman and assessment by
banks before granting loans.

Causes of NPA
Banks failure to appreciate the acts
of good re payers.
Non action/Non cooperation of
government agencies in recovery of

Early symptoms by which one can

recognize a performing asset
turning into NPA.

Operational and Physical
Attitudinal Changes

Non payment of the very first installment
in the case of term loan
Bouncing of cheque due to insufficient
balance in the accounts
Irregularity in installment
Unpaid overdue bills
Declining current ratio
Payment which does not cover the
interest and principal amount is diverted
to sister concern or parent company.

Operational and Physical

If the information is received that the
borrower has either initiated the process
of winding up or not doing the business.
Overdue receivables
Stock statement not submitted on time.
External non controllable factor like
natural calamities in the city where
borrower conducts his business.
Frequency changes in plan
Non payment of wages

Attitudinal Changes
Use of personal comfort, stock and
shares by borrower
Avoidance of contact with bank
Problems with/between partners.

Changes in Government Policies
Death of Borrower
Competition in the market