TERM PAPER ON NON PERFORMIN ASSETS

SUBMIMITTED BY:ANANT JAIN ROLL No. :1033 SEMESTER :IV (BBA)

INTRODUCTION
Action for enforcement of security interest can be initiated only if the secured asset is classified as Nonperforming asset. Non performing asset means an asset or account of borrower ,which has been classified by bank or financial institution as sub standard , doubtful or loss asset, in accordance with the direction or guidelines relating to assets classification issued by RBI .

CONTD
Accordingly as from 31 MARCH01, a Non performing asset shell be an advance where Interest and/or instalment of principal remain overdue for a period of more than 180 days in respect of a term loan, The account remains out of order for a period of more than 180 days ,in respect of an overdraft/cash credit (OD/CC) The bill remains overdue for a period of more than 180 days in case of bill purchased or discounted. Interest and/or principal remains overdue for two harvest season but for a period not exceeding two half years in case of an advance granted for agricultural purpose ,and Any amount to be received remains overdue for a period of more than 180 days in respect of other accounts

FACTORS FOR RISE IN NPAs

EXTERNAL FACTORS
Ineffective recovery tribunal Wilful defaults Natural calamities Industrial sickness Lack of demand Change of Govt. policies

INTERNAL FACTOR

  

Defective lending process

Principles of safety Principle of liquidity Principles of profitability

Inappropriate technology Improper swot analysis Poor credit appraisal system

CONTD
Managerial inefficiency Absence of regular industrial visit Re loaning process

PROBLEMS DUE TO NPA

Owners do not receive a market return on there capital .in the worst case, if the banks fails, owners loose their assets. In modern times this may affect a broad pool of shareholders. Depositors do not receive a market return on saving. In the worst case if the bank fails, depositors loose their assets or uninsured balance. Banks redistribute losses to other borrowers by charging higher interest rates, lower deposit rates and higher lending rates repress saving and financial market, which hamper economic growth.

CONTD

Non performing loans epitomise bad investment. They misallocate credit from good projects, which do not receive funding, to failed projects. Bad investment ends up in misallocation of capital, and by extension, labour and natural resources. Non performing asset may spill over the banking system and contract the money stock, which may lead to economic contraction. This spill over effect can channelize through liquidity or bank insolvency: a) when many borrowers fail to pay interest, banks may experience liquidity shortage. This can jam payment across the country, b) illiquidity constraints bank in paying depositors .c) undercapitalised banks exceeds the banks capital base.

LITRETURE STUDY

A loan or lease that is not meeting its stated principal and interest payments. Banks usually classify as nonperforming assets any commercial loans which are more than 90 days overdue and any consumer loans which are more than 180 days overdue. More generally, an asset which is not producing income. 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.

REFERENCE
Financial management by I.M Pandey Liquidity management by oxford university press Wekipedia Business times