Non-performing Assets.

Define non-performing assets.

The assets that have ceased to generate income.

Define assets.

Anything that generates income or return for us in the future.

Define liability.

It refers to the responsibility. Let’s say that you have a borrowed 1000 from Arnab. So now that 1000 is the liability.

Can machinery be assets? Can cash be an asset?

Yes. More machines means more production of goods. This in turns will lead to more selling and income will this increase.

Yes cash can also be an asset. It can generate return in interest is charged on the given amount.

What is the job of financial intermediaries?

Financial intermediaries can be defined as the body that channelises the funds from party having surplus to the party with deficit.

Can assets be intangible?

Knowledge, my friend is the most valuable asset!

So this proves that assets, indeed can be intangible!

Can cash be a non-performing asset?

Yes, cash can also be a non performing asset. Lets say you take loan from a bank and you don’t pay interest and also not the initial amount.

So the cash that bank gave you, now becomes NPA.

What is the time duration that an asset is given after it is non-operational before declaring it as NPA?

90 days.

Let’s say that a borrower stops making interest payments in Jan 1. After three months from Jan 1, i.e. the cash will be declared as NPA.

90 days is the time the banks wait before declaring something as NPA.

In case of Agricultural loans, how much time does bank wait before declaring loans as NPA?

See! There are two types of crops. One is short duration and another is long duration.

When farmers take loan for short duration crops, the bank will wait for 2 crop seasons before declaring the loan money as NPA.

In case of long duration crops, the bank will wait for 1 crop season, before declaring it as NPA.

What was the problem associated with NPA?

During 2006-2008, economy was booming and loans were getting repaid well within time.

Even during the global financial crisis of 2008-09, impact was felt all over the world, barring India. Even now, the loans wrte pain withing time. The non-performing assets didn’t increase over time.

During 2012-13 , there was economic recession all over the world, and India was also strongly affected by it. To counter the economic crisis, RBI instructed to lends loans without much hassle. In short, granting loans became a much easier process.

Now, here the commercial banks misunderstood it. They foolishly granted loans even to the companies that were on the brink of becoming insolvent.

In 2013, the loans were not getting repaid . Here again banks committed another mistake. Instead of emphasizing on repayments, banks gave even more loans and said to the companies to pay the previous loans using the money.

Here restructuring of loans was required but the banks didn’t take that step.

The new loans couldn't be paid.

During 2016-17 , there was a time when NPAs in public sector vanks peaked vehemently.

Classify NPA into three categories.

Sub-standard NPAs

Doubtful Assets.

Loss assets.

Define sub-standard assets.

An asset that remains NPA for less than Or equal to 12 months.

Define doubtful assets.

The asset that remains in the sub-standard category for 12 months.

Define loss asset.

The assets that have negligible probability of being converted into a performing asset.

What were the steps taken by the Government to tackle the NPA crisis?

-Debt Recovery Tribunals

-Corporate debt restructuring

-SARFESI act, 2002.

-Asset reconstruction companies.

-Mission Indra-Dhanush

-Insolvency and bankruptcy code, 2016

-Bad banks

Define corporate debt restructuring.

Let’s say that a company has taken 10 lakhs at 7 percent interest rate with loan tenure being 5 years.

Here, what the banks can do is lower the interest rate and increase the tenure of the loan, so as to make things easy for the company to pay the loan back.

The interest is reduced and jyada time bhi mila payment karne ke liye. So win-win situation.

Loan restructuring basically refers to the situation when the terms and conditions of the loans are revised.

What is the full form of SARFESI act, 2002?

Securitization and reconstruction of financial assets and enforcement of security interest act, 2002.

How does asset reconstruction company work?

Let’s say that rahul takes 5 lakhs as loan from banks on 1 jan.

Now, rahul doesn’t pay the interest rate for 90 days. So the amount lent to rahul becomes a non-performing asset.

Here, asset reconstruction company comes into the picture, and says”Bank listen! Take 4 lakhs from me and give me the responsibility of extracting 5 lakhs from this Rahul guy! “

Now, the bank takes 4 lakhs, and gives the responsibility of extracting 5 lakhs from rahul to ARC!

ARC extracts 5 lakhs from rahul and gets a profit of 1 lakh.