Page 227 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services

Notes
The total amount of financial assets acquired by these 11 entities rose 25 per cent in the
year July 2008-June 2009. At the end of the period, the total assets with them stood at
51,542 crores.

Source: Introduction to Banking Management, G. Vijayaragavan Iyengar

15.5 Summary

The Indian banking sector is facing a serious problem of NPA.
The extent of NPA is comparatively higher in public sectors banks.
Brief View of Provisioning

Standard Assets – general provision of a minimum of 0.25%
Sub-standard Assets – 10% on total outstanding balance, 10 % on unsecured exposures
identified as sub-standard and 100% for unsecured “doubtful” assets.

Doubtful Assets – 100% to the extent advance not covered by realizable value of
security. In case of secured portion, provision may be made in the range of 20% to
100% depending on the period of asset remaining sub-standard
Loss Assets – 100% of the outstanding
With a view to developing an institutional mechanism for sharing of information on
borrowers /potential borrowers among banks and financial institutions, Credit
Information Bureau (India) Ltd. (CIBIL) was formally launched on May 5, 2004, for collecting,
processing and sharing credit information on the borrowers of credit institutions and
serve as an effective mechanism for curbing the growth of Non-performing Assets (NPAs).
The key resolution tools used by banks for NPAs management are DRT, Lok Adalats, BIFR
etc.

15.6 Keywords

CIBIL: Credit Information Bureau (India) Limited

Doubtful Assets: With effect from March 31, 2005, an asset would be classified as doubtful if it has
remained in the sub standard category for a period of 12 months.
Loss Assets: A loss asset is one where loss has been identified by the bank or internal or external
auditors or the RBI inspection but the amount has not been written off wholly.
NPA: 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.
Standard Assets: These are loans which do not have any problem are less risk.

st
Sub-standard Assets: With effect from 31 March 2005, a sub standard asset would be one, which
has remained NPA for a period less than or equal to 12 months.

222 LOVELY PROFESSIONAL UNIVERSITY