What Is NPA ? What are its effects ? How to Controle or Reduce NPA ?

What is NPA ?

It Stands for Non Performing Assets. It means an assets of Bank which is not performing over the periods of time. Bank is an financial institute which advance loans or credit facility. These Loans or Credit Facility are assets to Banks and when borrower (who took loans from bank) do not return principal amount as well as interest amount on time ( usually 90 days) then these loans become Non Performing Assets to bank.It means an assets which has stopped  generating not only additional income but also fails to recover its principal amount.

The former RBI Deputy Governor "Subir Gokarn" Compared Bank's bad loans or NPA to "Cancer"

If not treated early, the patient would die.

How to identify an NPA

To know this first we have to understand two terms "Overdue" and "out of order"

Overdue -  Any amount due to bank under any kind of Credit Facility  is Overdue if it is not paid  on due date fixed by the bank

Out Of Order - An account should be treated as "Out of order" if its outstanding balance  remains continuously in excess of the sanctioned limit/drawing power. It is mainly related to Overdraft account where borrower had a limit fixed by bank to withdrawal money. If borrower withdrawal money excess to its limit and failed to deposit principal as well as interest then that account treated as "Out Of Order "

On what criteria a Loan Account treated as NPA

Term Loan - If interest or installment of principal remains Overdue for a period of more than 90 days then it treated as NPA

Overdraft Account - If account remains " Out of Order" more than 90 days then it treated as NPA.

Credit Card - If minimum amount due  , given in monthly credit card statement is not paid fully with in 90 days  from the due date then it treated as NPA

Agricultural Loan - An agricultural loan tread as NPA if it unable to pay its principal amount along with interest beyond period of time . 

2 crop season in case of short  duration crops (Crops that maturing within year )

1 Crop season in case of Long duration crops ( Crops that maturing after period of one year )

Impact of NPA on Banking Sector and Indian Economy

1. Bank Shareholderls adversely effected
2. Bann lose confidence of its customer
3. Problem of Liquidity rises
4. More NPA increases then bank has to incurr further capital
5. Bank will give low interest rate on deposit and charge high rate Interest on advances
6. GDP decreases
7. Problem of Unemployment rise

Reason Behind Rising of NPA

1. Business Failure of Borrower
2. wilfull defaulter
3. Lack of Inquiry regarding advancing loans
4. Aggressive lending by Banks
5. Corruption in banks
6. Client who default in their payments

Image of NPA in India 

India is on number 5th position among the BRICS countries with 9.9 percentile.

Greece  has the highest NPA of 36.4