Non-Performing Asset (NPA)
In this article, we are going to cover each and everything about the non-performing assets or the NPA. It stands for the non-performing asset. It means that the loans that the bank gives out, are the assets of the all bank csp , and when these assets become non-performing, then, they are called NPAs.
How NPAs are formed?
So, how can they actually become non-performing, let’s find out? So, the first thing that you need to remember is the definition of the NPAs. So, any loan or advance where the principal or the interest or any one of them or both of them, remains overdue for greater than 90 days, then, it is called a term ‘loan’. There are various classifications and various loans, they can become NPA using a slightly different methodology. So, in case you have a loan, then, if you have the principle or the interest overdue for greater than 90 days then you can call them NPA. The definition of the bills purchased or the discounted deals have the same definition.
Now coming to the agricultural loans, so, those depend on the duration of the crop. So, if you have short-duration crops, now short-duration crops mean these are the crops which you can actually show multiple times in a certain year. So, you can have two or three seasons in one particular year itself, so, for those, if the principal or interest is overdue for two crop seasons, then, they are called NPA and in case of a long duration crop which take a long time and, in a year, you can only place them once. For those long-duration crops, if your principal or interest is overdue for one crop season, then, you can call them NPA. So, in these different ways, you can call them NPA.
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Net NPA and Gross NPA
The next thing we have to look at is the net NPA and the gross NPA. Net NPA is defined as the gross NPA – the provisions that you have actually made. Then, what are NPA provisions? just think about the NPAs, they are assets to the bank. So, when you’re giving some kind of loan to somebody then you might have a situation where those loans can go bad. So, you need to have some provision or you need to keep some money aside. Just think of it like that that you are keeping some money aside and you are saving up so that in case any of those people are defaulting, then, you do not have any kind of issues and even if an account is a rest, then also, we have to have provisions. If the account is not a normal account, then also, we have some provisions that we have to keep according to the Reserve Bank of India. So, these are the provisions actually. So, speaking of the different kinds of NNPA and the GNPA, the financial stability report of the RBI says that in the scheduled commercial banks gross NPA in March 2020 it was 8.5 % of all the scheduled commercial banks. The PSB (the public sector banks) have a higher percentage that is 11.3% and the private banks have 4.2 % and the foreign all bank solutions have 2.3%. Similarly, talking about the net NPA, then, all the scheduled commercial banks together is around 3% and for the public sector banks, it is 4.1 % the private banks have 1.4% and the foreign banks have only 0.5%. In March 2020, we have a gross NPA of 8.5%. So, in March 2019, it was around 9.3 %. So, it has reduced right now but it is not something that is going to be continued because RBI said that by March 2021, our gross NPA figure can actually touch 12.5% gross NPA in March 2021 and if the economic situation does not improve, then, RBI said that it can become 14.7%. So, these are all the future projections that the RBI has made in their financial stability report. So, that was all about NPAs.
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