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TERM PAPER

ONNON PERFORMIN

ASSETS

SUBMIMITTED BY:ANANT JAIN

ROLL No. :1033

SEMESTER :IV (BBA)

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INTRODUCTION

Action for enforcement of security interest can be

initiated only if the secured asset is classified as

Nonperforming asset.

Non performing asset means an asset or account

of borrower ,which has been classified by bank or

financial institution as sub standard , doubtful or

loss asset, in accordance with the direction or guidelines relating to assets classification

issued by RBI .

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CONTD

Accordingly as from 31 MARCH01, a Non performing assetshell be an advance where

Interest and/or instalment of principal remain overdue for aperiod of more than 180 days in respect of a term loan,

The account remains out of order for a period of more than180 days ,in respect of an overdraft/cash credit (OD/CC)

The bill remains overdue for a period of more than 180 daysin case of bill purchased or discounted.

Interest and/or principal remains overdue for two harvest

season but for a period not exceeding two half years in caseof an advance granted for agricultural purpose ,and

Any amount to be received remains overdue for a period ofmore than 180 days in respect of other accounts

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FACTORS FOR RISE

IN NPAs

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EXTERNAL FACTORS

Ineffective recovery tribunal

Wilful defaults

Natural calamities Industrial sickness

Lack of demand

Change of Govt. policies

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INTERNAL FACTOR

Defective lendingprocess

Principles of safety

Principle of liquidity

Principles of profitability

Inappropriatetechnology

Improper swotanalysis

Poor creditappraisal system

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CONTD

Managerial inefficiency

Absence ofregular industrial visit

Re loaningprocess

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PROBLEMS DUE TO NPA

Owners do not receive a market return on there capital.in the worst case, if the banks fails, owners loose theirassets. In modern times this may affect a broad pool ofshareholders.

Depositors do not receive a market return on saving. Inthe worst case if the bank fails, depositors loose theirassets or uninsured balance.

Banks redistribute losses to other borrowers by charginghigher interest rates, lower deposit rates and higherlending rates repress saving and financial market,which hamper economic growth.

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CONTD

Non performing loans epitomise bad investment. Theymisallocate credit from good projects, which do not receivefunding, to failed projects. Bad investment ends up inmisallocation of capital, and by extension, labour and

natural resources. Non performing asset may spill over the banking system and

contract the money stock, which may lead to economiccontraction. This spill over effect can channelize throughliquidity or bank insolvency: a) when many borrowers fail topay interest, banks may experience liquidity shortage. This

can jam payment across the country, b) illiquidity constraintsbank in paying depositors .c) undercapitalised banksexceeds the banks capital base.

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LITRETURE STUDY

A loan or lease that is not meeting its stated principal andinterest payments. Banks usually classify as nonperformingassets any commercial loans which are more than 90 daysoverdue and any consumer loans which are more than 180

days overdue. More generally, an asset which is notproducing income.

A debt obligation where the borrower hasnot paid any previously agreed upon interest and principalrepayments to the designated lender for an extended periodof time. The nonperforming asset is therefore not yieldingany income to the lender in the form of principal and interestpayments.

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REFERENCE

Financial management by I.M Pandey

Liquidity management by oxforduniversity

press Wekipedia

Business times

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