Illiquidity constraints bank in paying depositors

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A STUDY OF NON PERFORMING ASSETS IN BANK

OF BARODA

INTRODUCTION

The three letters “NPA” Strike terror in banking sector and business circle today. NPA is short

form of “Non Performing Asset”. The dreaded NPA rule says simply this: when interest or

other dues to a bank remains unpaid for more than 90 days, the entire bank loan

automatically turns to a non performing asset. The recovery of loan has always been problem

for banks and financial institution. An asset becomes NPA when:

 Interest and/or instalment of principal remains overdue for two harvest seasons

but for a period not exceeding two half years in the case of an advance granted

for agricultural purposes, and

 Any amount to be received remains overdue for a period of more than 90 days in

respect of other accounts.

For any nation, banking system plays a vital role in the development of its sound economy.

Banking is an important segment of the tertiary sector and acts as a back bone of economic

progress. Banks are supposed to be more directly and positively related to the performance of

the economy. Banks act as a development agency and are the source of hope and aspirations

of the masses. Commercial banks are the major players to develop the economy. A major

threat to banking sector is prevalence of Non-Performing Assets (NPAs). NPAs reflect the

performance of banks. A high level of NPAs suggests high probability of a large number of

credit defaults that affect the profitability and net-worth of banks and also erodes the value of

the asset. The NPA growth involves the necessity of provisions, which reduces the overall

profits and shareholders‟ value. In present scenario NPAs are at the core of financial problem

of the banks. Concrete efforts have to be made to improve recovery performance. The main

reasons of increasing NPAs are the target-oriented approach, which deteriorates the

A STUDY OF NON PERFORMING ASSETS IN BANK

OF BARODA

qualitative aspect of lending by banks and willful defaults, ineffective supervision of loan

accounts, lack of technical and managerial expertise on the part of borrowers.

The purpose of the study is to identify the causes of loans becoming NPAs and to identify the

action plan to reduce the NPAs in Bank of Baroda.

Definitions:

An asset, including a leased asset, becomes non-performing when it ceases to generate

income for the bank.

A ‘Non-Performing Asset’ (NPA) was defined as a credit facility in respect of which the

interest and/ or instalment of principal has remained ‘past due’ for a specified period of time.

A non performing asset (NPA) is a loan or an advance where;

i. Interest and/or installment of principal remain overdue for a period of more

than 90 days in respect of a term loan,

ii. The account remains ‘out of order ‘ for a period of more than 90 days ,in

respect of an overdraft/cash credit (OD/CC),

iii. The bill remains overdue for a period of more than 90 days in case of bill

purchased or discounted,

iv. the installment of principal or interest thereon remains overdue for two crop

seasons for short duration crops,

v. the instalment of principal or interest thereon remains overdue for one crop

season for long duration crops,

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INTRODUCTION The three letters "NPA" Strike terror in banking sector and business circle today. NPA is short form of "Non Performing Asset". The dreaded NPA rule says simply this: when interest or other dues to a bank remains unpaid for more than 90 days, the entire bank loan automatically turns to a non performing asset. The recovery of loan has always been problem for banks and financial institution. An asset becomes NPA when: Interest and/or instalment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purposes, and Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts. For any nation, banking system plays a vital role in the development of its sound economy. Banking is an important segment of the tertiary sector and acts as a back bone of economic progress. Banks are supposed to be more directly and positively related to the performance of the economy. Banks act as a development agency and are the source of hope and aspirations of the masses. Commercial banks are the major players to develop the economy. A major threat to banking sector is prevalence of Non-Performing Assets (NPAs). NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a large number of credit defaults that affect the profitability and net-worth of banks and also erodes the value of the asset. The NPA growth involves the ...
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