Non Performing Assets ( NPA)
It is a loan or an advance for which the principal or interest amount remained overdue for a period of 90 days.
Types of NPA
Standard assets: Borrower fails to make repayment regularly and on time.
Substandard: Borrower fails to make repayment for a term less than or equal to 12 months
Doubtful: Borrower fails to make repayment for a period of more than 12 months
Loss Assets: Repayment uncollectable by Banks
Causes of NPA:
1) Willful defaults eg: Kingfisher Airlines
2) Industrial crisis
3) Lenient lending norms
4) Credit distribution mismanagement: Borrowers bribe to get loans and later misuse the amount.
Steps taken for NPA:
1) SARFAESI Act ( Securitization and Reconstruction of Financial Assets Enforcement of Securities Interest Act)
2) 5/25 Refinancing
a) Revival of stressed Assets in infrastructure Sector and 8 Core Industries.
b) Lenders can extend the tenure of loans upto 25 years with interest adjusted every 5 year.
This is to increase the credit profile and Liquidity of borrowers.
3) Debt Recovery Tribunal
Recovery of Debt and Bankruptcy Act ( RDB Act) 1993.
4) Asset Reconstruction Companies ( ARC)
SARFAESI ACT, 2002
5) Strategic Debt Reconstruction ( SRT)
Introduced in 2015 to convert Debt of the companies to 51% equity and sell them to highest bidder.
6) Asset Quality Review ( AQR)
Sound recognition of bad loans in line with RBI loan classification rules.
7) Scheme for Sustainable Structuring of Stressed Assets ( S4A)
Independent agency is hired to decide how much stressed Asset of a company is sustainable.
7) Insolvency and Bankruptcy code 2016.
Banking Reforms:
1) Narasimham committee 1- 1993
2) Narasimham committee 2- 1998
They together recommended the following :
a) Rationalization of Priority Sector Lending loans
b) No more nationalization of Banks
c) Emphasis on 3 tier banking structure
d) SARFAESI Act 2002
Priority Sector Lending
1) To provide loans to the Sector of economy which may not get timely and adequate loans.
2) 40% for Indian banks- 18% Agricultural loans, 10% for the weaker section and 12% for other areas
3) 32% for foreign banks- 12% exports, 10% for small and medium enterprises , 10% for others.
Sectors:
Agriculture, MSME , Export Credit, Education , Housing, Infrastructure, Renewable Energy , others.
Differential Rate of Interest:
a) All Public Sector Banks should lend 4% of their total lending to the poorest of the poor.
b)Lead Bank
One bank is there at every district to coordinate lending activities.
PJ Nayak Committee
It was set up to review the governance of Boards of India. It's recommendations are:
1) Government holdings in PSBs must be less than 50%
2)Board appointment in PSBs must be professionalised.
Inclusive growth
Financial services must be accessible for inclusion that is beyond Rural/ Urban , Rich/ Poor and Gender divides.
Deposit Insurance Credit Guarantee
It provides insurance for deposits done in banks for a period of upto 5 years.
National payments corporation of India
It acts as a payment and Settlement body of Banking Sector.
Types of Deposit Accounts
1) Current Account- for business, no interest
2) Savings account- for salaried and less income people
3) Fixed account deposits : Lump Sum amount deposited and withdrawn after some maturity.
4) Recurring account- Deposition done on installment and withdrawn after maturity.
5) Non Resident Ordinary account
It is a kind of savings account . Here deposits are accepted from NRIs in the form of foreign or Indian currency, but withdrawal is only possible in Indian rupees.
6) Non Resident External Account.
It is a kind of savings account where deposits are accepted from NRIs in Foreign currency but withdrawal is possible in both Indian as well as foreign currency.
7) Foreign Currency Non Resident account
These are term deposits accepted only as certain foreign Currencies. Eg: Canadian dollar, Pound , Euro etc .
Specialized Banks :
They include IFCI, ICCI, IDBI, EXIM , NABARD, NHB, SIDBI, MUDRA.
Credit Rating Agency:
These are private agencies which give ratings to individuals and firms based on their discipline in repaying their borrowed loans with interest.
Eg: IRCA, CARE
Some important abbreviations are
Content Credits: A.Vishnu Varthan
