Page 217 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services Sukhpreet Kaur, Lovely Professional University

Notes Unit 15: Management of NPAs by Banks

CONTENTS
Objectives

Introduction

15.1 Meaning of NPA
15.2 Provisioning Norms given by RBI
15.3 Factors Contributing to NPAs

15.4 NPA Management Tools

15.4.1 Preventive Measures of NPA
15.4.2 NPA Management – Resolution
15.5 Summary

15.6 Keywords

15.7 Self Assessment
15.8 Review Questions
15.9 Further Readings

Objectives

After studying this unit, you will be able to:
Describe the meaning of NPAs and its provisioning norms
Explain the tools available to manage NPAs

Introduction

This unit tells you about the NPA management in banks. When a loan asset fails to contribute
any income on the stipulated dates – every quarter in case of working capital loan and half
yearly basis on term loans – to the owners, it is known as NPA. Till the mid-80’s there was no
uniformity of approach, among banks in booking income from various kinds of loan assets. For
instance, many banks had long stopped the practice of debiting the loan accounts with interest
in the health code categories of ‘recalled, ‘protested’, ‘decreed’ and ‘bad and doubtful’ assets,
While others continued to book interest on some of these categories of advances. We may recall
that there were eight categories of advances based on health code system in 1985. These were
(i) satisfactory; (ii) irregular; (iii) sick – viable; (iv) sick non-viable; (v) debt recalled; (vi) suit
filed; (vii) Decreed debt and (viii) Bad and doubtful account

212 LOVELY PROFESSIONAL UNIVERSITY