GROSS NPAS MAY RISE TO 9.9% BY NEXT SEPTEMBER SAYS RBI REPORT
Context: According to an RBI report the gross non-performing asset (GNPA) ratio of banks may increase to 9.9% by September 2020 from 9.3% in September 2019.
- The report said state-run banks’ GNPA ratios may increase to 13.2% by September 2020 from 12.7% in September 2019.
- For private banks it may climb to 4.2% from 3.9%, under the stress scenario.
- Foreign banks’ gross bad loans may increase to 3.1% from 2.9% in September 2019.
- The report said banks’ net non-performing assets (NNPA) ratio declined in September 2019 to 3.7%.
- Following the recapitalization of state-run banks by the government, banks capital to risk-weighted assets ratio (CRAR) improved to 15.1% in September 2019 from 14.3% in March 2019.
- The state-run banks’ CRAR improved to 13.5% from 12.2% during the same period.
- Bank-wise distribution of asset quality showed while 24 banks had GNPA ratios of under 5%, four banks had GNPA ratios higher than 20% in September 2019.
- Amid rising macroeconomic worries reflected in falling growth numbers across spectrum, it’s important to lift the efficiency of the economy to its full potential.
- The twin engines of consumption and investment remains the key challenge even while remaining vigilant about spillovers from global financial markets.
NON PERFORMING ASSETS
- A nonperforming asset (NPA) refers to a classification for loansor advances that are in default or in arrears.
- A loan is in arrears when principalor interest payments are late or missed.
- A loan is in default when the lender considers the loan agreement to be broken and the debtor is unable to meet his obligations.
Nonperforming assets (NPAs) are recorded on a bank’s balance sheet after a prolonged period of non-payment by the borrower.
- NPAs place financial burden on the lender; a significant number of NPAs over a period of time may indicate to regulators that the financial health of the bank is in jeopardy.
- Lenders have options to recover their losses, including taking possession of any collateral or selling off the loan at a significant discount to a collection agency.
- NPAs can be classified as a substandard asset, doubtful asset, or loss asset, depending on the length of time overdue and probability of repayment.
- Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.
2. Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
3. Loss assets:As per RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.
HOW NON-PERFORMING ASSETS (NPA) WORK
- Non-performing assets are listed on the balance sheetof a bank which force the borrower to liquidate any assets that were pledged as part of the debt agreement.
- If no assets were pledged, the lender might write-offthe asset as a bad debt and then sell it at a discount to a collection agency.
- In most cases, debt is classified as nonperforming when loan payments have not been made for a period of 90 days.
- While 90 days is the standard, the amount of elapsed time may be shorter or longer depending on the terms and conditions of each individual loan.
- A loan can be classified as a nonperforming asset at any point during the term of the loan or at its maturity.