📉 NPA Management Made Simple

🎯 What is an NPA?

NPA full form is Non-Performing Assets are loans where the borrower hasn’t paid interest/principal for 90+ days.
Example: If you miss home loan payments for 3 months, your loan becomes an NPA.

The Golden Rule: The 90-Day Norm

This is the most crucial point to remember. According to the Reserve Bank of India (RBI):

A loan account becomes an NPA if the interest or principal installment remains overdue for a period of more than 90 days.

• “Overdue” means a payment that has not been paid on its due date.
• “More than 90 days” means if the payment is due on Day 1, it becomes an NPA on Day 91.

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📅 Key NPA Criteria

Loan Type	NPA Trigger
Term Loans	90+ days overdue
Overdrafts	No credits for 90 days or over limits
Agricultural (Short-term 🌾) – e.g., Rice, Wheat	1 crop season is overdue
Agricultural (Long-term 🌾) – e.g., Sugarcane	1 crop season overdue
Bills	90+ days overdue

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🏷️ Types of NPAs

1. Technical NPA:
   • Old stock statements (>3 months) or unrenewed credit limits (>180 days).
2. Asset Classifications:

Asset Type	Definition	Provisioning
Standard ✅	Timely repayments	0.25%–1%
Sub-Standard ⚠️	NPA <12 months	15%–25%
Doubtful ❗	NPA >12 months	25%–100% (based on security)
Loss 💸	Unrecoverable	100%

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💰 Provisioning Norms Simplified

The Bank’s Safety Net

A bank cannot pretend that a bad loan is a good loan. It has to set aside some of its profits as a “safety net” to cover the expected loss from that NPA. This is called Provisioning. The percentage depends on the NPA stage.

NPA Category	Provisioning Requirement	Simple Meaning
Sub-Standard	15% (of the outstanding amount)	Bank sets aside 15% as a potential loss.
Doubtful – 1 (up to 1 year)	25%	Recovery is more doubtful, so 25% is set aside.
Doubtful – 2 (1 to 3 years)	40%	Recovery is even more doubtful, so 40% is set aside.
Doubtful – 3 (more than 3 years)	100%	The bank considers the entire amount as a potential loss.
Loss Asset	100%	The entire amount is considered a loss.

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🤝 Consortium Lending

• Banks don’t just give up. They have powerful tools to recover the money:
  • SARFAESI Act, 2002: Allows banks to seize and sell the assets (like property or vehicles) of the borrower without court intervention.
  • Debt Recovery Tribunals (DRTs): Special courts set up to handle loan recovery cases.
  • Insolvency and Bankruptcy Code (IBC), 2016: A major law to resolve cases of insolvency for companies.
  • One-Time Settlement (OTS): A compromise where the bank agrees to accept a lesser amount than what is due to close the loan.

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🔍 Security Valuation Rules

• Stock: Revalue every 3 months.
• Property: Revalue every 3 years.
• Fraud Cases:
  • Security <50% value → Doubtful asset.
  • Security <10% → Loss asset.

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🌾 Agricultural Loans (IRAC Norms)

Loan Type	Repayment Period
Short-Term Crops	12 months
Long-Term Crops	18 months

• Overdue loans follow NPA rules.

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🛠️ Compromise Settlement

Banks accept partial payment if:

1. Borrower offers lump-sum.
2. Recovery cost > likely recovery.
3. Insufficient security.

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📊 Monitoring NPAs

Loan Size	Review Authority
₹50+ Cr	Board Committee
₹1–50 Cr	Internal Committees
Below ₹1 Cr	Branch Level

• Stock Audits: Mandatory for ₹5 Cr+ accounts.

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⚡ Key Exceptions

• Advances Against Term Deposits: Not NPA if the margin is safe.
• Recovery Order:
  • Non-court cases → Recover costs → interest → principal.
  • Court cases → Follow court orders.

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