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Non-Performing Assets i.e. ‘NPAs’ are those assets which are not earning adequate returns to the lending institutions. These are generally the bad loans in the books of the lenders, which may occur due to failure to meet the debt obligation on time/default by the borrowers of such loans.

Generally the assets i.e. the loans provided by the lenders are classified as ‘NPAs’ when its payment obligation is not served by the borrowers for more than 90 days.

In light of the above background, now we may briefly understand the impact of NPAs as below:

i) Lenders- When assets turn NPA due to default in payment by the borrowers then it creates revenue loss for the lenders. It may put financial burden on the lenders and they may face shortage of funds for other purposes.

ii) Borrowers-The NPAs impact the borrowers as well, when the asset is non-performing and payments are not made to the lenders, it can negatively impact borrower’s credit rating and growth possibilities. It may also hamper their ability to obtain funds in future.

iii) Others- When the borrowers default then it may be an indicator of deteriorating business health, which may have a material impact on its paying capacity to its employees, vendors, etc.

Considering the past, improvement is being made so as to minimize the impact of NPAs eg, increase in DICGC insurance limits, etc.

Summary: The NPAs impact the lender’s position and may also effect the borrower’s business operations.

Disclaimer-This article or any references contained therein are meant for educational purposes only. We reserves the right to modify, delete the content or rectify any inadvertent errors, at any time.

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6 Comments

  1. Praveen garud says:

    i feel that in future there should be secreterial audit at least for the banks. Whether proper approvals are taken while giving loans, what percentage /amount of banks funds are given to a single customer . There should be report on the riskiness of the banks operation. This should mitigate the frauds in future

  2. Stan Alvares says:

    One thing I am trying to understand understand and would like your opinion is that, if the RBI had checked the proportion of total yearly interest-income to total book loans disbursed by the bank would it have been able to smell the fraud.

  3. GANDHI MOHAN BHARATI says:

    I personally feel that there should be a regulation in place to ensure that no one individual or institution gets more than a specified percentage, say about 3%, of the funds available. RBI should cross check the KYC to ensure no bogus accounts.Board of Directors should pledge their assets to the Government before accepting the appointment

  4. GANDHI MOHAN BHARATI says:

    I feel it will be in order if a regulation is put in place not to lend more than 3% of the actual funds available to any one individual/institution. The KYC check should be double checked by RBI before an account is opened to avoid bogus accounts; some institution must be able to check regularly about the credibility of borrowers, account holders directors etc.. Insurance on Deposits to be increased and the Board members must pledge their assets to the Government before taking up their task.

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