NON-PERFORMING ASSET-A CHALLENGE TO BANKING INDUSTRY

                                                   

                                           DETAILS OF NON-PERFORMING ASSETS

The biggest challenge that the banking industry presently is exposed to is caused due to the NON-PERFORMING assets. While making a study of it one should have an idea about the nature of it. Non-performing assets implies an asset which has ceased to perform i.e., generating income.Basically there are two types of assets which are available to a bank one is Investment made by the bank and another is loans and advances forwarded by the bank to it's customers

Banks provide various types of credit facilities to their customer in the form of loan and advance such as:-

1. Term loan.

2. Overdraft or cash credit.

3. Bills purchased and discounted.

4. Securitisation.

3. Agricultural Advance.

These are the chief credit facility basically provided by the bank. These assets are become non performing when meet the following criteria.

Term loan:

                     A term loan become non-performing assets when the interest or/and installment of principal remain overdue for a period of more than 90 days.

Overdraft/cash credit:

                                        A cash credit or overdraft account is treated as non-performing assets if it is remained out of order for more than 90 days.

Bills purchased and discounted:

                                                           If they are remain overdue and unpaid for more than 90 days.

Securitisation:

                           The asset is to be treated as non-performing assets if the amount of liquidity facility remains outstanding for more than 90 days.

Agricultural advance:   

                                       Agricultural advance is classified into two categories one is advance against short duration crops and another is advance for long duration crops. For short duration crops an advance is non-performing assets when it is remain overdue for two crop seasons. And for long duration crops when it is remain overdue for one crop season.

For long duration crop season it denote more than 12 months. The time period for short duration crops means the period up to harvesting of the crops raised would be as determined by the state level bankers’ committee in each state.

These are the basic guidelines issued by central bank for recognition of non-performing assets.

   

Exception to the general rule:

                                                    There are some exceptions in the basic recognition rule of non-performing assets which are discussed below:

1.       Temporary Deficiencies

2.       Regularisation near balance sheet

3.       Assets classification to be borrower wise not facility-wise

4.       Erosion in value of securities/Frauds committed by borrowers

5.       Government guaranteed advance

6.       Advance under consortium

7.       Advance against term deposit NSC,KVP,IVP, etc.

8.       Agricultural advance affected by natural calamities.

  

    Recognition of Income of non-performing assets :

                                                                                     Income from non-performing assets should be recognized at the time when it is actually realized.