NPA PROBLEM IN INDIAN BANKING

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 NPA PROBLEM IN INDIAN BANKING

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    • What is NPA – A loan asset/account in which the principal or interest payment or both have remained overdue for a continuous period of more than 90 days
    • What is SMA – SMA or Special Mention Account is the loan asset/account in which principal or interest payment or both are overdue but for a period less than 90 days. (It refers to an account which may be showing any other non-financial signs of stress. SMA is more of a precautionary measure to recognise a financial stress early and therefore take corrective action to contain that stress and prevent an account from turning into a NPA)
    • What is Provisioning – Banks/FIs are required to set aside a portion of their income as provision for the loan assets so as to be prepared for any losses that may arise soon. The amount of provision to be kept by the bank/FI, will depend on the probability of loan recovery. This probability depends on asset classification of the loan. The minimum provisions are
    • A higher proportion of NPA assets will reduce the profitability of the bank/FI and could also result into losses for the bank/FI, thereby eroding its capital base.
    • Resolution process – As per the Revised Framework for Resolution of Stressed assets, banks may start resolution or Insolvency & Bankruptcy Code (IBC) process within 30 days of default. If there is a delay in the resolution process, then lenders have to make higher provisioning of 35% – first 20% for 180 days and then an additional 15% if no resolution is found within 365 days.
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                                                                                                                            PT's IAS Academy: NPA PROBLEM IN INDIAN BANKING
                                                                                                                            NPA PROBLEM IN INDIAN BANKING
                                                                                                                            Excellent study material for all civil services aspirants - begin learning - Kar ke dikhayenge!
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