Professional Documents
Culture Documents
Prof.B B Bhattacharyya
Chair Professor
Lending
Risk of default
Profitability depends on churning of
advances portfolio.
Prompt recovery → Liquidity + Profitability
+ Ongoing lending
activity
→ Recoveries in written
off account/URI/UCI
Importance of Management of NPA
NPA – Inevitable
– 100% provision after 48 months
from the date of the account
becoming NPA – irrespective of
security.
Asset Quality
Quality of borrowal accounts –
• With effect from 31st March 2005, substandard asset is one which has remained
NPA for a period less than or equal to 12 months. Its Asset Code is 20. The
provision requirement in substandard asset was earlier flat 10% of the
outstanding dues, irrespective of the category of the advance (secured or clean).
• Now RBI has removed the CAP on the unsecured exposures and individual Bank
Boards were given the freedom to formulate their own policy guidelines for
prudential norms on unsecured exposures. Simultaneous with this liberalisation,
RBI has made norms of provision requirement on unsecured exposure of Banks
more stringent. Unsecured exposure is defined as an exposure where the
realisable value of security as stipulated and ascertained by the valuation is not
more than 10% `ab initio’. That means all clean / unsecured advances such as
clean overdraft etc. will form ‘unsecured exposure `ab initio’. These accounts,
when they become NPA as substandard asset, will now (w.e.f. 31.3.2005)
require a provision at 20% of the outstanding balances.
• The normal secured advances, when moving to NPA as
substandard asset will also now require 20% of the
outstanding balance as provision (presently 10%). Thus,
now onwards the substandard assets will continue to
have 2 segments as hitherto viz. Substandard – Secured
Assets – Code 21 and Sub-standard – Unsecured
Assets – Code 22, however, the provision requirement
for both the segments will now be 20% of outstanding
dues net of URI lying in sundry credit but without making
any allowance for ECGC/CGTMSE cover.
Doubtful Asset
If the borrower comes to the bank, If the borrower does not respond
as desired to the call
Chances are borrower will appear If borrower meets the bank and submits
recalcitrant the problems faced by him
Contd…
In case, borrower appears
Recalcitrant, take stock of banks
security