CA Gokul B Rathi

Presented By :-

CA
Gokul B. Rathi
098500 41311

CA Gokul B Rathi

Is an account which does not disclose

any problems & carries not more than
normal risk attached to the business.

All loan facilities which are regular !

CA Gokul B Rathi

NPA is defined as a loan or an advance in respect of which the

interest &/or installment of principal remains overdue for a
period of more than 90 days in respect of a term loan or
remains out of order for a period of more than 90 days in
respect of an Overdraft /Cash Credit.

Any amount due to the Bank under any credit facility, if not
paid by the due date fixed by the bank, becomes overdue.

An asset, including a leased asset, becomes non-performing

when it ceases to generate income for the bank.
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CA Gokul B Rathi

Non Performing Asset:

A loan granted for short duration crops will be treated as NPA

if the installment of principal or interest thereon remains
overdue for two crop seasons. A crop season for each crop
means the period upto harvesting of the crops raised.

A loan granted for long duration crops will be treated as NPA if

the installment of principal or interest thereon remains
overdue for one crop season. ( Long duration crops = crop
season longer than 1 year & short duration crops means which
are not long duration crops )

A bill purchased & discounted will be NPA if it remains overdue

for a period of more than 90 days from the date it is due.

Any amount to be received remains overdue for a period of

more than 90 days in respect of other accounts.
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CA Gokul B Rathi

OUT OF ORDER:

An account should be treated as out of order if

the outstanding balance remains continuously in
excess of sanctioned limit /drawing power. Even if
the outstanding in the account is within limit/DP,
but there are no credits continuously for 90 days
or credits are not enough to cover interest
debited, the account should be treated as out of
order .

CA Gokul B Rathi

NPA Identification A Regular

Exercise:

NPA identification is an ongoing

process. An asset should be classified
as NPA within a month of its becoming
NPA & provisions for NPA should be
done on quarterly basis rather than at
year end only.

CA Gokul B Rathi

Temporary
Deficiencies:

Record of recovery should be seen before any a/c is

treated as NPA. However, solitary entry at the year
end which brings the account in order on year end
but the a/c again becomes irregular subsequently,
such a/c should be treated as NPA. An a/c should not
be treated as NPA just because of some temporary
deficiencies which are rectified subsequently.

An a/c should be classified as NPA when there is

threat of loss or recoverability of advance is in doubt.

Recovery in the a/c should be from genuine sources

& not because of grant of additional credit facilities
to the borrower.
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CA Gokul B Rathi

Borrower wise & not

Facility wise

When a loan a/c of a borrower is treated as

NPA, all the other loan a/cs of the borrower,
even if they are otherwise regular, should
be treated as NPA as NPA classification
should be borrower wise & not facility wise.

When various advance a/cs of a borrower

are in different categories of NPA, then the
provisioning shall be as per the lowest
category applicable.
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CA Gokul B Rathi

Special Purpose
Agricultural Loans in areas
Advances:
- suffering from Natural Calamities,

Housing Loan to Staff

Credit facilities guaranteed by Central would become NPA

only if the guarantee is repudiated by the Govt. State Govt.
Guaranteed Advances are treated at par with other advances.

Project financing - For Infrastructure & Non infrastructure

sectors

Gold Loans For Agricultural purposes & for non Agricultural

purposes

Loans against FDs / IVPs / KVPs / Life Policies are not treated
as NPA if adequate margin is available.

Investments where Interest/Principal is overdue beyond 90

days
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CA Gokul B Rathi

Project Loans:

For Infrastructure Projects

1)

NPA before DCCO, if 90 days overdue if not restructured

NPA if fails to commence commercial operations within 2
years from original DCCO, even if regular, if not
restructured

2)

For non Infrastructure Sector: -

1)

NPA before DCCO, if 90 days overdue if not restructured

NPA if fails to commence commercial operations within 6
months original from DCCO, even if regular, if not
restructured

2)

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CA Gokul B Rathi

Restructuring of
Advances:
Three Stages: a)

Before commencement of commercial

production /operation.

b)

After commencement of commercial

production /operation but before the asset has
been classified as Sub-standard.

c)

After commencement of commercial

production /operation but before the asset has
been classified as Sub-standard or Doubtful.
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CA Gokul B Rathi

Restructuring of
Advances: Standard Asset
restructuring

to

be

classified

as

Substandard

upon

NPA Account upon restructuring would slip into further lower

category

All restructured accounts treated as NPA upon restructuring are

eligible for upgradation to Standard if satisfactory performance is
observed during specified period. If satisfactory performance not
observed during specified period, Asset Classification to be with
reference to the Pre Restructuring Repayment Schedule

Any additional finance granted on restructuring to be treated as

Standard Asset upto a period of 1 year after 1 st installment
becomes due as per Restructuring Package. If satisfactory
performance not observed during the specified period, additional
finance would be placed in the same category as other accounts
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CA Gokul B Rathi

Gross NPA are the sum total of all loan assets

that are classified as NPAs as per RBI guidelines
as on Balance Sheet date. Gross NPA reflects
the quality of the loans made by banks. It
consists of all the non standard assets, i.e. substandard, doubtful & loss assets.

If Gross NPA of any Co-operative Bank is more

than 10%of Gross Advances in any year, it comes
under Supervisory Action Framework of RBI.

Net NPA = Gross NPA Provision for BDDR

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CA Gokul B Rathi

Standard Assets :- Advance account which

does not disclose any problem & does not carry
more than normal business risk.

Substandard Assets Which has remained

NPA for a period less than or equal to 12
months.

Doubtful Assets Which has remained NPA for

a period more than 12 months.

Loss Assets where loss has been identified

by the bank or internal or external auditors or
the RBI inspection, salvage value of security is
negligible & the entire asset is proposed to be
w/off after necessary approvals.
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CA Gokul B Rathi

Provisioning Norms: Asset

Classificati
on
Standard

Sub-standard

Particulars

Provisio
n
Require
d%

Direct Advances to Agriculture & SME

Sectors

0.25

Commercial Real Estate Advances

1.00

All other Loans & Advances not included

in above

0.40

Secured Exposure

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Unsecured Exposure for Escrow A/cs

available in case of Infrastructure lending,
infrastructure loan accounts

20

Other Unsecured Exposure

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CA Gokul B Rathi

Provisioning Norms: Asset

Classificati
on
Doubtful

Loss

Particulars

Provision
Required %
Secured

Unsecure
d

D1 (Upto 1 year)

25

100

D2 (One to Three
years)

40

100

D3 (More than 3
years)

100

100

Loss Asset

100
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CA Gokul B Rathi

Income from NPA Accounts is booked only when

actually received & is not accounted for on accrual
basis. Even in case Govt. guaranteed advances,
interest is to be recognized only when realized.

Interest on Advances against FDRs, KVPs, NSCs, IVPs

& LIC Policies is to be accounted when due if
sufficient margin is available in the account.

Fees & Commission earned on rescheduling is to be

recognized on accrual basis over the period covered
by reschedulement.
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CA Gokul B Rathi

When an account becomes NPA, interest, fees,

commission, etc, debited to account but is not actually
realized needs to be reversed or provided for.

When Bills Purchased & Discounted becomes NPA at the

close of any year, interest accrued on such bills in the
previous year should be reversed or provided for if not
realized already.

In case of Govt. Guaranteed Advances, interest debited

but not realized needs to be provided for.

In case of Equipment Leasing undertaken by the Bank,

interest component in the Lease account which has
become NPA needs to be reversed if unrealized.

Interest & Other Income on NPA Accounts realized out of

additional credit facilities cannot be taken to Income.
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CA Gokul B Rathi

BORROWER-SIDE

BANKER SIDE

Lack of Planning
Diversion of Funds
Disputes within

No contribution

No modernization

Improper monitoring
Industrial Relations
Natural Calamities

Defective Sanction
No post-sanction
supervision, etc
Delay in releases
Directed lending
Slow decision
making process

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CA Gokul B Rathi

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CA Gokul B Rathi

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CA Gokul B Rathi

DEBT
RECOVERY
To recover
their bad Debt quickly & efficiently.
TRIBUNALS (DRT): -

33 Debt Recovery Tribunal & 5 Debt Recovery

Appellate Tribunal

It is the special court established by Central

Government for the purpose of recovering money
belonging to the banks or financial institutions.

The judges of this court are the retired judges of

High Courts.

In this court, only the recovery cases of Rs.10 Lacs

& above can be filed.
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CA Gokul B Rathi

SARFAESI Act:

The Act provides three alternative methods for

recovery of non-performing assets, namely: - Securitization
- Asset Reconstruction
- Enforcement of Security without the
intervention of the Court.

Bad loans with outstanding above Rs. 1.00 Lac.

NPA loan accounts where the amount is less than

20% of the Principal & Interest are not eligible to
be dealt with under this Act.
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CA Gokul B Rathi

This Act empowers the Bank:

To issue demand notice to the defaulting borrower

& guarantor, calling upon them to discharge their
dues in full within 60 days from the date of the
notice.

To give notice to any person who has acquired any

of the secured assets from the borrower to
surrender the same to the Bank.

To ask any debtor of the borrower to pay any sum

due or becoming due to the borrower.

Any Security Interest created over Agricultural

Land cannot be proceeded with.

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CA Gokul B Rathi

CDR Mechanism:

CDR mechanism will cover only multiple

banking accounts / syndication / consortium
accounts .

An outstanding exposure of banks &

institutions to the extent of Rs.20 Crore &
more.

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CA Gokul B Rathi

Verify the previous years audited NPA

Statement to confirm that all the Accounts
which were NPA last year have been covered in
Current Year Statement except those which are
closed or upgraded.

If closed, whether from genuine sources. If

upgraded, whether from proper recovery in the
account.

Tally the number of accounts.

Verify whether unrealized Interest has been

reversed in respect of accounts which have
slipped during the year.
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CA Gokul B Rathi

Verify that proper classification has been

done with reference to Date of NPA.

Whether valuation report for Immovable

Properties is on record & it is within 3 years.
See that, valuation is taken as per Valuation
Report at Distress Value.

In case of depreciable assets, depreciation

has been considered at the time of valuation.

Securities shown are properly under lien of

the Bank.
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CA Gokul B Rathi

All the accounts related to particular borrower

have been treated as NPA under lowest category
applicable & provision made accordingly.

In case of D1 & D2 accounts, unsecured portion is

provided for @ 100%.

Verify overdue/overdrawn/SMA accounts to ensure

that all NPA A/cs have been covered in the
Statement & provided for.

Ensure that a/cs are not upgraded after

restructuring except cases covered by special
regulatory treatment.

Ensure that OIR as per Balance Sheet tallies with

that as per NPA Statement.
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CA Gokul B Rathi

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