ADVANCED ACCOUNTING

NAIYAR JAMAL KHAN (Querist) 30 January 2010 This query is : Resolved
What is meant by “Non-performing assets” as per NBFC Prudential Norms?

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Guest (Expert) 30 January 2010
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A V Vishal (Expert) 30 January 2010
An asset is classified as Non-performing Asset (NPA) if due in the form of principal and interest are not paid by the borrower for a period of 180 days. However with effect from March 2004, default status would be given to a borrower if dues are not paid for 90 days. If any advance or credit facilities granted by banks to a borrower becomes non-performing, then the bank will have to treat all the advances/credit facilities granted to that borrower as non-performing without having any regard to the fact that there may still exist certain advances / credit facilities having performing status.

Though the term NPA connotes a financial asset of a commercial bank, which has stopped earning an expected reasonable return, it is also a reflection of the productivity of the unit, firm, concern, industry and nation where that asset is idling. Viewed with this perspective, the NPA is a result of an environment that prevents it from performing up to expected levels.

The definition of NPAs in Indian context is certainly more liberal with two quarters norm being applied for classification of such assets. The RBI is moving over to one-quarter norm from 2004 onwards.

Here is a relevant write-up published in ICAI magazine. Hope it will be helpful.
http://www.icai.org/resource_file/103041202-1203.pdf

Guest (Expert) 31 January 2010
NANDKUMAR B.SAWANT.M.COM.LL.B.(MUMBAI),ADVOCATE
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IF ANY ONE TAKES ANY LOAN FROM BANK AND IS NOT REPAYING THE SAME FOR CONSIDERABLE LONG PERIOD AND THERE ARE VERY LESS CHANCES OF RECOVERY BANKS CLASSIFy THE SAME AS NON PERFORMING ASSETS .BANKS TRY TO RECOVER THE SAID AMOUNT BY OFFERING ONE TIME SETTLEMENT SCHEME TO THE BORROWER. IF HE PAYS THE AMOUNT THEN LOAN ACCOUNT IS CLOSED AND LOSS IS WRITTEN OFF.

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