Definition of Non Performing Assets in Banks Reference for MBA Students

Now a day’s the Indian banks as well as the financial institutions are facing the problem called enlargement of the NPAs-Non-Performing Assets which is happened to be the uncontrollable aspect. In order to overcome this problem and control it many measures are been taken. Among all the existing steps the introduction of the securitization, the reconstruction of the financial assets as well as he enforcement of the security interest act 2002 by the parliament are some of the significant steps which are meant to eliminate or decrease the non performing assets.

Lending business is one of the significant and vital role which is been played by the banking sector. This process is been encouraged as it is showing the major impact on the funds which are been transferred through the system for a particular reasons and it will even lead to the growth and development in the economy. There are many existing defrauds within the lending business which leads to the risks in the credits that will take place when the borrower fails to complete the contractual requirements within the entire process.

The asset is categorized as the NPAs- non-performing asset in which the payments that are due in the form of the interest are not been paid by the borrower to the bank or a financial institutions. From the year 2004 if the payments are not received then the default status will be forwarded to the borrower. In the ongoing process if the credit facility is been offered by the bank to the borrower then it will happen to be non-performing, then there is a necessity of treating the entire credit facilities which are offered to the borrowers as the non performing excluding the fact that the existing credit facilities will have the performing status.

The growth of the non-performing assets will totally depends on the quality of managing or controlling the credit risk which is been faced by the particular banks which are taken into consideration.

The main significant aspect which the Indian banks lacking are having the sufficient protective measures during the set up of the evaluation responsibilities as well as having the successful post disbursement management. The banks which are taken into consideration must be capable of observing the loans in order to recognize the accounts which are possible to be the non-performing.

The global standard of the gross non-performing asset of the banking sector is nearly 5%, but especially in India it is more than this. This statement shows that there are no more existing chances that the non-performing assets of the Indian banks can be reduced or controlled.

Because of the increasing number of the non-performing assets the original borrowers are facing many problems within the process of increasing their existing funds from the banks. One of the main reasons is that the bank is not willing to provide the required funds or credits to the original borrowers and even if the funds are offered they will happen to be at high costs repay the losses which are happened to the lenders because of the existence of the higher levels of the non-performing assets. As a result the corporate will consider the funds by making use of the commercial papers of which the interest rate charged on the working capital is to high. By making use of the performance of the securitization and reconstruction of the financial assets as well as the enforcement of the security interest act 2002, the banks will be capable of issuing the notices or alerts to the defaulted customers to pay their balance amounts and after receiving this default message the borrower need to pay his dues within 60 days of time period.

Within this default period if at all the borrowers receives the notice or the alert from the particular bank as well as the financial institution then the protected assets which are specified in the received notice could not be traded as well as transferred without taking the permission from the lenders.

The main aim of this default notice is to update the borrower regarding his dues which are to be paid to the banks or the financial institutions; if the borrower doesn’t pay the due within the allotted time after receiving the default notice, and then certain actions will be taken on the borrower by considering the assets. Other than the assets the banks are even capable of handover the management of the company. As a result by making use of the aforementioned act the banks is capable using their authorities in orders to hand over the entire company or else the bank is even capable of changing the management of that particular company. 

Since the safety which comes under the above mentioned act will only offer the incomplete solution. The banks should recognize that they must move according to the actions within the process of disposing the assets. This is happened because of the uncertainty increases within the time period, and there is even other possibility that the recoverable value which belongs to the asset will even decrease as well as this facto will not obtain the best price. By making use of this securitization act 2002 the banks are capable of overcoming the problems of non-performing assets.

And after the establishment of the securitization act 2002, the banks can easily issue the default notices and alerts to the borrowers regarding their due payments and if they don’t repay the amount even after sending the default notice then the banks can take the typical and tough actions on the borrowers by making use of the aforementioned act. This will allow the banks to be relief from the typical borrowers. By the process of formulation of the asset Reconstruction Company which is under this act will even be helpful in removing the debt ridden assets in a reliable manner. One of the most successful way to remove the non-performing assets from the books which belongs to the weak banks can be done by moving them into the individual agency that will purchase the loans in order to create the self efforts for the recovery process. This act will be even helpful to recover the achieved non-performing assets than that of the price which is been paid initially. The non-performing assets levels of the Indian banks are more than that of the international standards. In order to overcome all these problems related to the non-performing assets the Indian banks should make sure that they should only offer the loans to the credit valuable customers. 

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