Write a short essay on Why do Indian banks have a higher rate of NPA?(At least 200 words)
Answers
A nonperforming asset (NPA) refers to a classification for loans or advances that are in default or are in arrears on scheduled payments of principal or interest. In most cases, debt is classified as nonperforming when loan payments have not been made for a period of 90 days. While 90 days of nonpayment is the standard, the amount of elapsed time may be shorter or longer depending on the terms and conditions of each loan.Nonperforming assets are typically listed on the balance sheets of banks. Banks usually categorize loans as nonperforming after 90 days of nonpayment of interest or principal, which can occur during the term of the loan or at maturity. For example, if a company with a $10 million loan with interest-only payments of $50,000 per month fails to make a payment for three consecutive months, the lender may be required to categorize the loan as nonperforming to meet regulatory requirements. A loan can also be categorized as nonperforming if a company makes all interest payments but cannot repay the principal at maturity.Types of Nonperforming Assets
Although the most common nonperforming assets are term loans, there are six other ways loans and advances are NPAs:
Overdraft and cash credit (OD/CC) accounts left out-of-order for more than 90 days
Agricultural advances whose interest or principal installment payments remain overdue for two crop/harvest seasons for short duration crops or overdue one crop season for long duration crops
Bill overdue for more than 90 days for bills purchased and discounted
Expected payment is overdue for more than 90 days in respect of other accounts
Non-submission of stock statements for 3 consecutive quarters in case of cash-credit facility
No activity in the cash credit, overdraft, EPC, or PCFC account for more than 91 days