INTRODUCTION TO

NON-PERFORMING
ASSETS
PROJECT INCHARGE -
SUMATI MAM
 GROUP MEMBERS
(S.Y.B.M.S.)
• 15002 – VISHAL CHANAN
• 15013 – SHIRLEY SHEKHARAN .K
• 15016 – LITTY THOMAS
• 15041 – MAHESH SING
 Contents
• INTRODUCTION
• MEANING
• GENERAL REASONS FOR ASSETS BECOMING
NPAs
• SUGGESTIONS TO OVERCOME THE
PROBLEM OF NPAs
• MANAGEMENT OF NPA
• RESOLUTION OF NON PERFORMING ASSETS
• CONCLUSION
 INTRODUCTION
• “A Man without money is like a bird without
wings”, the Rumanian proverb insists the
importance of the money. A bank is an
establishment, which deals with money. The basic
functions of Commercial banks are the accepting
of all kinds of deposits and lending of money. The
main challenge facing the commercial banks is
the payment of funds in quality assets (Loans and
Advances) or other wise it leads to Non-
performing assets.
 What Does Nonperforming
Asset Mean?
• A debt obligation where the borrower has not paid any previously
agreed upon interest and principal repayments to the designated
lender for an extended period of time. The nonperforming asset is
therefore not yielding any income to the lender in the form of
principal and interest payments.

• In other words, An asset which stop to generate income of the

bank is called non-performing asset.

• For example, a finance in default would be considered non-

performing. After a prolonged period of non-payment, the lender
will force the borrower to liquidate any assets that were pledged
as part of the debt agreement. If no assets were pledged, the
lenders might write-off the asset as a bad debt and then sell it at a
discount to a collections agency.   
 GENERAL REASONS FOR
ASSETS BECOMING NPAs
A strong banking sector is important for a flourishing economy.
The failure of the banking sector may have an adverse impact
on other sectors. A multiplicity of factor is responsible forever
increasing size of NPAs in banks. A few prominent reasons for
assets becoming NPAs are as under.
 INTERNAL FACTORS
1. Heavy borrowing 
2.Poor Credit Collection 
3.Funds borrowed for a particular purpose but not use for the said
purpose. 
4. Project not completed in time. 
5. Poor recovery of receivables. 
6. Business failures. 
7. Willful defaults, fraud, disputes, management disputes, mis-appropriation
etc., 
8. Lack of motivation 
9. Delay in sanction 
10. Reckless advances to achieve the budgetary targets.
EXTERNAL FACTORS
1. Sluggish legal system - 
Long legal tangles 
Changes that had taken place in labour laws 
Lack of sincere effort. 
2. Scarcity of raw material, power and other
resources. 
3. Industrial recession. 
4. Natural calamities like floods, accidents. 
5. Failures, non payment\over dues in other countries,
recession in other countries, externalization
problems, adverse exchange rates etc. 
6. Government policies like excise duty changes,
Import duty changes etc., 
 SUGGESTIONS TO
OVERCOME THE PROBLEM
NPAs are increasing dayOF
by dayNPAS
for a multiplicity of reasons. The
following recommendations are suggested to control over the
NPAs. The recommendations are classified as follows. The Bank
should adopt the following General strategies for control of NPAs.

 The suggestions are as follows:

1. Projects with old technology should not be considered for finance
2. Large exposure on big corporate or single project should be
avoided.
3. Operating staffs’ credit skills should be up graduation.
4. There is need to shift banks approach from collateral security to
viability of the project and intrinsic strength of promoters.
5. Timely sanction and or release of loans by the bank is to avoid
time and cost overruns.
 Management of NPA
• During initial stage the percentage of NPA was higher. This
was due to ineffective recovery of bank credit, gap in credit
recovery system, inadequate legal provision etc. Complete
elimination of NPA is impossible so Various steps have been
taken by the government to recover and reduce NPAs.

• Some of them are:-

1. One time settlement / compromise scheme
2. Debt Recovery Tribunals
3. Securitization and reconstruction of financial assets and
enforcement of Security Interest Act 2002.
4. Corporate Reconstruction Companies 
5.  credit information on defaulters and role of credit
information bureaus 
Resolution of Non Performing
Assets
• At present, many local banks across Asia are
saddled with non-performing loans (NPLs) or sub-
performing loans, foreclosed real state properties,
and other non-performing assets (NPAs) for which
they have neither the management time nor the
resources for proper resolution. Ultimately, this
leads to a depletion of loanable funds for banks,
resulting in slower credit growth. Tighter credit
restricts economic growth and development, as
enterprises are unable to access capital.
• To help local banks resolve their NPL/NPA
problems, ADB(ASIAN DEVELOPMENT
BANKS) facilitates the financing of special
purpose vehicles and other mechanisms that
acquire and service such assets. This enables local
banks to focus on its core operations and provide
financing to productive sectors of the economy.

• By shifting distressed assets to organizations and

professionals better equipped to manage them,
economic fundamentals and new bank lending has
repeatedly been shown to improve significantly.
 CONCLUSION:
• NPA is a double-edged weapon, which affects bank
profitability due to interest income not being recognized
on NPA accounts and loan loss previously to be created
from profit earned.
• The Indian banking sector is facing a serious
problem of NPA. The bank must adopt structured
NPAs management policy for elimination or reducing
the NPAs in the Bank. In general the trend of NPAs are
increasing trend, on the same time it has been adopted
a very good techniques to control over the NPAs.
• To improve the efficiency and profitability,
the NPA has to be scheduled. Various steps
have been taken by government to reduce the
NPA. It is highly impossible to have zero
percentage NPA. But at least Indian banks can
try competing with foreign banks to maintain
international standard.

• It is high time to take stringent measures to

curb NPAs and see to it that the ,Non-
Performing Assets may not turn banks into
Non-Performing Banks; instead steps should
be taken to convert Non-Performing Assets
into NOW Performing Assets.