Non Performing Assets :
Assets of Banks are Loans and advances given to customer. If those Loans and advances are not return back to Bank ,they are termed as Non Performing Assets. In real sense when customer fails to return either interest of loan or part of principle or both interest and principle ,Bank name it as Non Performing Assets.
Due Date : The date on which loans must be paid.
NPA is also called as Bad Loans.
RBI termed NPA as ,loan on which interest or installment of principal are remain overdue for a period of more than 90 days is called as NPA.
In terms of agriculture loans ,RBI classified NPA into two terms such as
1.Loan not paid for 2 crop season for short duration crop from due date such as jowar,paddy,ets.
2.Loan not paid for 1 crop season for long duration crop from due date.
What Is Standard Asset :
Standard Asset is an asset that is not classified as NPA. This means that ,a borrower pays the loan and its interest regularly and this asset does not creates any problem for bank in normal course.
Classification of NPAs
In order to identify the NPA in an accurate way ,RBI makes the banks to classify the NPA into four types as follows
1.Special Mention Account
2.Sub Standard Asset
3. Doubtfull Asset
These 4 classification are done once bank identified a loan as NPA.
1.Special Mention Account.
Banks classify Special Mention Account into three categories
a.Special Mention Account 0
b.Special Mention Account 1
c.Special Mention Account 2
a. Special Mention Account 0 :
Principal or interest payment are not over due for more than 30 days but account showing signs of developing stress.
b.Special Mention Account 1 :
Principle or Interest payment overdue between 31-60 days.
c.Special Mention Account 2:
Principle or interest payment overdue between 31-90 days.
So ,if a borrower doest not pay dues for 90 days ,the loan becomes Non Performing Asset and that account is termed as Special Mention Account.
Sub Standard Asset:
The loan money Or Account which remained as NPA for less than or equal to 18 months is termed as Sub Standard Asset.
Doubtfull Asset :
The loan money of Account which remained as NPA for more than 18 months is termed as Doubtfull Asset.
A loss asset is one where loss has been identified by the bank or internal or external auditors or RBI inspection but the amount that has not been written off wholly.
Such an Loss asset is considered to be noncollectable .
Example Of NPA :
# A man named “X” borrowed 1 lakh rs on 1st jan 2014 and due date to repay is 1 jan 2015.
# Man X now failed to repay on 1st jan 2015.Now X account becomes NPA for that bank and bank name that account in their Special Mention Account on April 29 2015( 90 Days ).
# If their is no repayment from the man X , bank will term X account as Substandard Account on september 29 ,2016 (18 Months ).
# The account become doubtful asset after September 29 ,2016 to the peroid of 3 years from sep 29 ,2016 or upto the time when auditor find it as loss asset.
What Is Restructured Loans ????
# Banks dont want NPA to become loss asset as every loss asset is a revenue loss for banks.So,in order to get the loan amount back to bank ,bank makes certain relaxation to the borrower .
# In such cases Banks arrange extended time period for repayment of loans or will reduce the interest of loan or Banks will convert certain amount into equity or Bank will make some additional payments or some combinations of these measures,
# Restructured loan also indicates bad asset quality of banks because banks are restructuring the past NPA .So if the borrower again fails to repay , the asset will become huge risk for banks.
# Corporate Debt Restructuring Mechanism Of Banks Allows restructuring of Loans.
What Is Written Off Assets ????
Bank written off the noncollectable amount from their balance sheet so that the loss asset for a bank shows Zero in their Balance Sheet.Written off doesn’t mean that borrower is pardoned or exempted from paying loan.
Balance Sheet : A Statement of all assets produced by banks.
For example , A man “X ” failed to pay 1 lakh rs on due and bank “A” term this asset as loss asset.As loss asset cannot be collectable ,bank may feel why to remain those account in their balance sheets.So bank will clear those account from their balance sheets is termed as write off or written off.
Now ,Finally What Is Stressed Assets ?????
Stressed Assets = NPAs + Restructured Loans +Written Off Assets.
Initially bank notify a loan as NPA .Inorder to get back the loan ,Bank will give some relaxation to borrowers and is termed as Restructured loans .The bank might written off some part of loan if they feel that they are noncollectable.These things collectively termed as Stressed Asset.
Bank have to notify the Stressed assets as their part of balance sheet .If restructured loans are not payed ,stressed asset will increase and again it is not healthy for Bank system.
Thus stressed asset is the powerful indicator of the Banking system.