(a) Performing Asset:
A bank’s asset portfolio is basically classified into performing and non-performing asset. Performing asset is one which generates periodical income and repayments, as and when due or within the minimum lag of two quarters. This is being cut down to one quarter from April, 2004.
(b) Non-Performing Asset:
A non-performing asset is one where interest and/or repayment of installment has not been paid within seven months from its due date. For this purpose, first when the installment or interest due is not paid within 30 days from due date, the receivable becomes ‘past due’.
ADVERTISEMENTS:
When the receivables are not paid by the borrower in the next two quarters, the loans/advances thereafter become NPA. The effect of an asset turning out to be NPA is the advance indication of that asset slipping into bad category.
The RBI has since done away with ‘past due’ concept in October 2002. Further, effective April 2004, a loan asset will become NPA if the due amount is not paid within one quarter instead of two quarters followed presently.
(c) Standard Assets:
A Standard Asset is a performing asset. Standard Assets continue to generate income flow and repayments as and when they fall due. It also includes loans and advances where default for payment does not exceed two quarters.
ADVERTISEMENTS:
(d) Sub-standard Assets:
These are Assets (Loans and Advances) which are classified as NPA for a period not exceeding 24 months. This period of 24 months will be reduced to 18 months by March 2001 as per RBI guidelines.
(e) Doubtful Assets:
These are classified as NPAs for a period exceeding 24 months. This period will stand revised to exceeding 18 months by March 2001.
ADVERTISEMENTS:
(f) Loss Assets:
Assets which are classified as bud and non-recoverable by the concerned bank or by Statutory Auditors or by RBI Inspectors.
The loss assets may be some loans and advances not being serviced by borrowers for a long time or it may be a loan in the category of doubtful asset but in the opinion of bank or auditors, it may not be a recoverable sum.
Unless and until these sums are written off from Balance Sheet, they will continue to appear in the Balance Sheet but under the heading “Loss Asset”.
ADVERTISEMENTS:
RBI has since revised the policy relating to asset classification. The changes announced by the Reserve Bank are as follows:
(i) Effective year ending March 2004 the Bank can classify the loan asset as standard asset only when the installment of interest on repayment is paid within a period of three months from the due date of payment.
If the due amount is not received within one quarter, the loan asset will becomes an NPA as against the existing norm of 6 months.
This in the category of NPAs a sub-standard asset is a loan or advance where borrower has defaulted in payment of interest installment for a period exceeding 3 months instead of the current policy of six months.
ADVERTISEMENTS:
(ii) A loan asset will have to be moved over to the next category of NPA i.e., Doubtful Asset when default exceeds 18 months. In other words, for NPA remains in sub-standard category for a maximum of 18 months. RBI revised the 18 months period for 18 months to 12 months from year ending March 2005.
(iii) Doubtful asset will be those where default in payment of interest/installment exceeds 12 months. This will, however, be effective from March 31, 2005. Thus, an NPA will remain in sub-standard category for 18 months up to December 2004, and only up to 12 Months from March 2005 onwards.
(iv) From the year 2002, Reserve Bank has also directed the banks to create a provision of 0.50% on the category of standard asset from the existing level of 0.25%.
NPAs of Scheduled Commercial Bank
ADVERTISEMENTS:
Gross nonperforming assets (loans and advances) of all scheduled commercial banks including Public Sector Banks as on March 31,2002 aggregated to Rs. 70,904 crore as against Rs. 63, 741 crore as at the end of March 2001.
The gross NPAs of the Public Sector Banks during the year 2002 increased only marginally to Rs. 56,507 crore as on march 2002 from Rs. 54,672 crore as on March 2001.
The NPAs of all Commercial Banks as a percentage to total advances declined to 10.4% in March 2002 from 11.4% in March 2001. For the Public Sector Banks alone this percentage showed a decline from 12.4% in March 2001 to 11.1% in March 2002.
Significance of Asset Classification
On the basis of classification of an asset, the bank is required to set aside prescribed provision by debit to Profit and Loss A/c as per RBI guidelines.