Answer / prakash chandra jatav

An asset becomes non-performing when it ceases to generate
income for the bank. Earlier an asset was considered as non-
performing asset (NPA) based on the concept of 'Past Due'.
A ‘non performing asset’ (NPA) was defined as credit in
respect of which interest and/ or installment of principal
has remained ‘past due’ for a specific period of time. With
a view to moving towards international best practices and
to ensure greater transparency, '90 days' overdue* norms
for identification of NPAs have been made applicable from
the year ended March 31, 2004. Therefore afterward Non-
performing asset shall be a loan or an advance where:
(i) Interest and/or installment of principal remain
overdue for a period of more than 90 days in respect of a
Term Loan.
(ii) The account remains 'Out of order'@ for a period of
more than 90 days, in respect of an Overdraft/ Cash Credit
(OD/CC).
(iii) The bill remains overdue for a period of more than
90 days in the case of bills purchased and discounted,
(iv) Any amount to be received remains overdue for a
period of more than 90 days in respect of other accounts.
* Any amount due to the bank under any credit facility, if
not paid by the due date fixed by the bank becomes overdue.
@ “An account should be treated as 'out of order' if the
outstanding balance remains continuously in excess of the
sanctioned limit/drawing power. In cases where the
outstanding balance in the principal operating account is
less than the sanctioned limit/drawing power, but there are
no credits continuously for 90 days or credits are not
enough to cover the interest debited during the same
period, these accounts should be treated as 'out of
order'”.
NPA is part of the operational risk of the banking
industry. NPA can be reduced and managed a certain level by
a prudential banker. Before account turn NPA its give
signals, which type of accounts should be categarised as
Special Mentioned Account (SMA) and treatment should be
given accordingly:
(i) The account should be categarised as SMA 1 if
overdue remains for 30 days & SMA 2 if remains overdue more
than 30 days to 89 days. Efforts for recovery of overdue
within the time to be done. Regular follow-up and notices
should be sent to borrower
(ii) Restructuring/rescheduling/re negotiation of the
terms of loan agreement in Term loan in case to case basis
in case of need
(iii) Recovery of interest in CC/OD account be done.
(iv) Submission of stock statement and financial data
within the prescribed time limit.
These are some steps to manage (Recover and Reduce) NPA in
Banking Sector

Answer / h.r. sreepada bhagi

Above answer by Mr. Prakash Chandra is detailed and informative.

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