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💿Non Performing Assets (NPA)💿

NPAs refer to loans which are in risk of default. Reserve Bank of India (RBI) defines NPAs as below:

AN ASSET, INCLUDING A LEASED ASSET, BECOMES NON­-PERFORMING WHEN IT CEASES TO GENERATE INCOME FOR THE BANK.

As per guidelines issued by the RBI, banks classify an account as NPA only if the interest due and charged on that account during any quarter is not serviced fully within 90 days from the end of the quarter.

Conditions to become NPA
An asset becomes NPA when it ceases to generate income for the bank –

➖Term Loan – Interest and/or installment of principal amount remain overdue for more than 90 days
➖Overdraft / Cash Credit – The account remains ‘out of order’ for 90 days
➖Bill – The bill remains overdue for more than 90 days in the case of bills purchased and discounted
➖Short duration crops – The installment of principal or interest remains overdue for 2 crop seasons
➖Long duration crops – The installment of principal or interest remains overdue for 1 crop season
➖Securitisation transaction – The amount of liquidity facility outstanding for more than 90 days
➖Derivative transaction – The overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for 90 days from the specified due date for payment.

Basis of Classification of Non Performing Asset (NPA)
Banks are required to classify NPAs into the following 3 categories based on how long do they remain non-performing.

The three categories are – Substandard Assets, Doubtful Assets and Loss Assets.

♦️ Substandard Assets – If an account remains as NPA for a period less than or equal to 12 months

♦️ Doubtful Assets – An asset would be classified as doubtful if it has remained in the substandard category for 12 months.

♦️ Loss Asset – A loss Asset is one where loss has been identified by the bank’s internal or external auditors or upon an RBI inspection.

Example of NPA
We suppose that a party was disbursed a loan on January 1, 2010. Its due date is June 1, 2010. But the party does not make a payment. So
♦️ It will be an Standard Asset from January 1, 2010 till June 1, 2010 (Due Date)
♦️ It will be a Special Mention Account From June 2, 2010 till August 29, 2010 (90 days)
♦️ It will be Sub-standard from August 30, 2010 till August 29, 2011
♦️ It will be doubtful from August 30, 2011 till August 29, 2012
♦️ It may remain doubtful Asset for a period of 3 years, beginning from 12 months of being an NPA, but once the auditors identify it as a loss, it will be assigned a loss asset; however, the period may be anything above 3 years

✅Treasury Bills (T-Bills): It is a short-term borrowing instrument issued by the Government of India. RBI, issue it on behalf of Government of India.

👉🏻 It is also known as zero coupon bonds.
👉🏻 It has a maturity of less than one year.
👉🏻 It is issued at discount and repaid at par.
👉🏻 It is in the form of a promissory note.
👉🏻 It is highly liquid and has negligible risk.
👉🏻 It is available in denominations of ₹ 25000 and its multiples.

✅Commercial Paper: Commercial paper is issued by large creditworthy companies to raise short-term funds at lower rates of interest than the market rate.

👉🏻 It is an unsecured promissory note, having a maturity of 15 days to one year.
👉🏻 It is a negotiable instrument, transferable by endorsement and delivery.
👉🏻 It is sold at discount and redeemed at par.
👉🏻 It is an alternative to bank borrowing. The original purpose of commercial paper was to meet working capital needs of companies.
👉🏻 It is used by companies for bridge financing, a method of financing used by companies before issuing shares or debentures, to cover the expenses associated with the issue of such securities, i.e. floatation costs.

✅Call Money: Call money is a method used by commercial banks to borrow funds from each other, in order to maintain the Cash Reserve Ratio (CRR). Cash Reserve Ratio is the minimum balance of cash to be maintained by banks, according to RBI guidelines.

👉🏻 It is short-term finance repayable on demand.
👉🏻 Maturity of call money is 1 day to 15 days.
👉🏻 The interest paid on call money is called the call rate.
👉🏻 Call rate is highly fluctuating, which varies from day-to-day or even from hour-to-hour.
👉🏻 There is an inverse relationship between call rates and return on other short-term money market instruments. Increase in call rates make the demand for call money decrease, and increase in demand for other short-term instruments, as they become cheaper in relation to call money.

✅Certificate of Deposit: Certificate of deposits are issued by commercial banks or developmental financial institutions to individuals, institutions, corporations and companies.

👉🏻 It is an unsecured, negotiable instrument in bearer form.
👉🏻 It is issued in periods of tight liquidity, when the deposits by individuals and households are less, but the demand for credit is high.
👉🏻 They help to mobilise large amounts of money in a short time period.



✅Commercial Bill: It is a bill of exchange used by business firms to meet their working capital needs.

👉🏻 It is an unsecured, negotiable instrument in bearer form.
👉🏻 When goods are sold on credit, the seller (drawer) draws a bill of exchange on the buyer (drawee), who accepts it. When he accepts the bill, it becomes a marketable instrument, which is called a trade bill. When the seller presents it to the bank for discounting it, to get the funds before the maturity of the bill and the bank accepts it, it is called a commercial bill.

✅ International Monetary Fund (IMF)

🧿 Founded : 1945
🧿 Headquarters: Washington, D.C.
🧿 Managing Director : Kristalina Georgieva (Bulgaria)
🧿 Chief Economist.: Gita Gopinath (Indian)
🧿 Member countries : 190 (Andorra)


✅ About WORLD BANK

🧿 Founded : 1944
🧿 HQ : Washington Dc
🧿 President : David Malpass
🧿 MD & CFO : Anshula Kant
🧿 Chief Economist : Carman Reinhart
🧿 Executive Director : Rajesh Khullar
🧿 Senior Advisor to Ed of World Bank : Rajeev Topno
🧿 Member Countries :189

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