<–2/”>a >A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.According to RBI, terms loans on which interest or installment of principal remain overdue for a period of more than 90 days from the end of a particular quarter is called a Non-performing Asset.
However, in terms of agriculture / Farm Loans; the NPA is defined as under:
- For short duration crop agriculture loans such as paddy, Jowar, Bajra etc. if the loan (installment / interest) is not paid for 2 crop seasons , it would be termed as a NPA.
- For Long Duration Crops, the above would be 1 Crop season from the due date.
The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act has provisions for the banks to take legal recourse to recover their dues. When a borrower makes any default in repayment and his account is classified as NPA; the secured creditor has to issue notice to the borrower giving him 60 days to pay his dues. If the dues are not paid, the bank can take possession of the assets and can also give it on lease or sell it; as per provisions of the SAFAESI Act.
Reselling of NPAs :- If a bad loan remains NPA for at least two years, the bank can also resale the same to the Asset Reconstruction Companies such as Asset Reconstruction Company (India) (ARCIL). These sales are only on Cash Basis and the purchasing bank/ company would have to keep the accounts for at least 15 months before it sells to other bank. They purchase such loans on low amounts and try to recover as much as possible from the defaulters. Their revenue is difference between the purchased amount and recovered amount.
Steps taken by RBI:
- Establishment of private Asset Reconstruction Companies (ARCs)
Many ARCs have been created, but they have solved only a small portion of the problem, buying up only about 5 percent of total NPAs.
- Strategic debt restructuring scheme: under this creditors could take over firms that were unable to pay and sell them to new owners.
- Sustainable structuring of stressed assets: under this creditors, could take over firms with debt reduction up to 50% in order to restore their financial viability.
- Asset Quality review: to stream line the balance sheet to reflect the true picture.
- Indradhanush scheme: capital infusion in PSB’s
Analysis of the scheme:
Success of the schemes are limited. There are several reasons for this:
- The Asset Quality Review (AQR) was meant to force banks to recognise the true state of their balance sheets but bank keep on evergreening loan.
- The RBI has encouraged creditors to come together in Joint Lenders Forums, where decisions can be taken by 75 percent of creditors by value and 60 percent by number. But reaching agreement in these Forums has proved difficult, because different banks have different degrees of credit exposure, capital cushions, and incentives.
- The S4A scheme recognises that large debt reductions will be needed to restore viability in many cases. But public sector bankers are reluctant to grant write-downs, because there are no rewards for doing so.
Capital Infusion
Also known as the cross-subsidization of divisions within a firm. When one division is not doing well, it might benefit from an infusion of new funds from the more successful divisions. In the context of Venture Capital, it can also refer to funds received from a venture capitalist to either get the firm started or to save it from failing due to lack of cash.
Government announced Indradhanush plan for revamping Public Sector Banks (PSBs) in August 2015. The plan envisaged, inter alia, infusion of capital in PSBs by the Government to the tune of Rs. 70,000 crore over a period of four financial years. Government has recently announced decision to further recapitalise PSBs to the tune of Rs. 2,11,000 crore, through recapitalisation Bonds of Rs. 1,35,000 crore and budgetary provision of Rs. 18,139 crore (the residual amount under Indradhanush plan) over two financial years, and the balance through capital raising by banks from the market. Government has so far infused capital of Rs. 59,435 crore in PSBs under Indradhanush.
Capital infusion is aimed at supplementing the achievement of regulatory capital norms by PSBs through their own efforts and, in addition, based on performance and potential, augmenting their Growth capital. Government has announced that a differentiated approach would be followed, based on the strength of each bank.PSBs have been recapitalised to the tune of Rs. 1,28,861 crore through infusion and mobilisation of capital from the market.,
Non-performing assets (NPAs) are loans that are not being repaid by borrowers. They can be caused by a number of factors, such as economic slowdown, financial crisis, or natural disasters. NPAs can have a number of negative effects on the economy, such as reducing lending, increasing the cost of borrowing, and slowing economic growth.
There are a number of measures that can be taken to control NPAs, such as:
- Early warning systems: Banks should have early warning systems in place to identify potential NPAs.
- Stress tests: Banks should conduct stress tests to assess their ability to withstand shocks.
- Asset quality reviews: Banks should conduct asset quality reviews to identify and address NPAs.
- Recapitalization: Banks may need to be recapitalized to strengthen their balance sheets.
- Write-offs: Banks may need to write off some of their NPAs.
The government can play a role in controlling NPAs by:
- Providing liquidity support to banks: The government can provide liquidity support to banks, which can help them to meet their obligations.
- Providing guarantees: The government can provide guarantees to banks, which can help to reduce the risk of NPAs.
- Reforming the bankruptcy code: The government can reform the bankruptcy code to make it easier for banks to recover loans.
Banks can play a role in controlling NPAs by:
- Improving lending practices: Banks should improve their lending practices to reduce the risk of NPAs.
- Strengthening risk management: Banks should strengthen their risk management practices to identify and address potential NPAs.
- Increasing provisioning: Banks should increase provisioning for NPAs to reduce the impact of NPAs on their profitability.
Borrowers can play a role in controlling NPAs by:
- Repaying loans on time: Borrowers should repay their loans on time to avoid becoming NPAs.
- Improving financial management: Borrowers should improve their financial management to reduce the risk of becoming NPAs.
- Insuring loans: Borrowers should insure their loans to protect themselves from the risk of default.
The future outlook for NPAs is uncertain. However, there are a number of factors that could lead to an increase in NPAs, such as:
- Economic slowdown: An economic slowdown could lead to an increase in NPAs as businesses are unable to repay their loans.
- Financial crisis: A financial crisis could lead to an increase in NPAs as banks are unable to recover loans from borrowers.
- Natural disasters: Natural disasters could lead to an increase in NPAs as businesses are unable to repay their loans due to damage or destruction.
It is important to monitor NPAs closely and take steps to control them. NPAs can have a number of negative effects on the economy, so it is important to take action to prevent them from becoming a major problem.
What is a non-performing asset (NPA)?
A non-performing asset (NPA) is a loan or advance that has been classified as such by a bank or financial institution. This means that the borrower has not made any payments on the loan for a certain period of time, and the bank has no realistic expectation of recovering the full amount of the loan.
What are the causes of NPAs?
There are a number of factors that can contribute to NPAs, including:
- Economic downturns: When the economy is in a downturn, businesses may experience financial difficulties and be unable to make loan payments.
- Industry downturns: In some industries, such as construction or manufacturing, there may be periods of time when there is little demand for products or Services, which can lead to financial difficulties for businesses in those industries.
- Poor lending practices: Banks and financial institutions may make loans to borrowers who are not creditworthy, which increases the risk of NPAs.
- Fraud: In some cases, borrowers may deliberately default on loans in order to defraud the lender.
What are the consequences of NPAs?
NPAs can have a number of negative consequences for banks and financial institutions, including:
- Loss of income: When a loan becomes an NPA, the bank or financial institution will no longer receive any interest payments on the loan.
- Increased risk of insolvency: If a bank or financial institution has a high number of NPAs, it may be at risk of insolvency.
- Damage to reputation: NPAs can damage the reputation of a bank or financial institution, making it more difficult to attract new customers and investors.
What are the solutions to NPAs?
There are a number of things that banks and financial institutions can do to address the problem of NPAs, including:
- Improve lending practices: Banks and financial institutions should take steps to ensure that they only make loans to borrowers who are creditworthy.
- Increase capital reserves: Banks and financial institutions should increase their capital reserves so that they are better able to absorb losses from NPAs.
- Sell NPAs: Banks and financial institutions may sell NPAs to other financial institutions or to investors.
- Write off NPAs: In some cases, banks and financial institutions may write off NPAs, which means that they will no longer attempt to collect the debt.
What is the role of the government in addressing NPAs?
The government can play a role in addressing the problem of NPAs by:
- Providing financial assistance to banks and financial institutions: The government can provide financial assistance to banks and financial institutions that are struggling with NPAs.
- Implementing reforms to the financial sector: The government can implement reforms to the financial sector that are designed to reduce the risk of NPAs.
- Providing support to businesses: The government can provide support to businesses that are struggling financially, which can help to reduce the number of NPAs.
Question 1
Which of the following is not a reason for the decline in the Indian economy in 2019?
(A) The trade war between the United States and China
(B) The slowdown in the global economy
(C) The implementation of the Goods and Services Tax (GST)
(D) The demonetization of high-value currency notes
Answer
The correct answer is (C). The GST was implemented in July 2017, and the demonetization of high-value currency notes was implemented in November 2016. The trade war between the United States and China and the slowdown in the global economy are both factors that contributed to the decline in the Indian economy in 2019.
Question 2
Which of the following is not a measure that the Indian government has taken to revive the economy?
(A) Increasing public spending
(B) Reducing corporate taxes
(C) Lowering interest rates
(D) Increasing the import duty on certain goods
Answer
The correct answer is (D). The Indian government has taken measures to increase public spending, reduce corporate taxes, and lower interest rates. However, it has not taken any measures to increase the import duty on certain goods.
Question 3
Which of the following is not a challenge that the Indian economy faces?
(A) The high level of debt
(B) The low level of Investment
(C) The high level of Unemployment
(D) The low level of productivity
Answer
The correct answer is (A). The Indian economy has a low level of debt, a high level of investment, and a high level of unemployment. However, it has a low level of productivity.
Question 4
Which of the following is not a goal of the Indian government’s Economic Reforms?
(A) To increase economic growth
(B) To reduce POVERTY
(C) To improve Infrastructure-2/”>INFRASTRUCTURE
(D) To increase the import duty on certain goods
Answer
The correct answer is (D). The Indian government’s economic reforms are aimed at increasing economic growth, reducing poverty, and improving infrastructure. However, they are not aimed at increasing the import duty on certain goods.
Question 5
Which of the following is not a factor that has contributed to the growth of the Indian economy?
(A) The rise of the middle class
(B) The increase in foreign investment
(C) The improvement in the quality of Education
(D) The increase in the import duty on certain goods
Answer
The correct answer is (D). The rise of the middle class, the increase in foreign investment, and the improvement in the quality of education are all factors that have contributed to the growth of the Indian economy. However, the increase in the import duty on certain goods has not contributed to the growth of the Indian economy.