NPA Management
A Non-Performing Asset (NPA) is a loan or advance where the borrower has stopped making interest or principal payments for a specific period. In India, a loan is usually classified as an NPA if the payment is overdue for more than 90 days. For banks, loans are assets because they generate income through interest. When these loans stop performing, they become NPAs. This is a major problem because it locks up the bank's money and reduces its ability to give new loans to others.
Concepts (3)
The IBC is a single law that handles the insolvency of companies and individuals. It prioritizes 'Resolution' over 'Liquidation'. This means it tries to save the company first.
The IBC is a single law that handles the insolvency of companies and individuals. It prioritizes 'Resolution' over 'Liquidation'. This means it tries to save the company first. A professional called an Insolvency Professional takes over the company management. A Committee of Creditors (the banks) makes decisions. If no buyer is found for the company, its assets are sold. Example: A debt-ridden airline is taken over by the IBC process, and a new group buys it to run it properly again.
This law stands for 'Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest'. It gives banks the power to take over the collateral (security) of a borrower who fails to pay a loan.
This law stands for 'Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest'. It gives banks the power to take over the collateral (security) of a borrower who fails to pay a loan. Banks can sell or auction these assets to recover their money. This process does not require a court's permission, making it faster. However, it only applies to secured loans. Example: If a company fails to pay a ₹10 crore loan, the bank can sell the company's warehouse to get its money back.
PCR is the ratio of the money a bank sets aside (provisions) to the total amount of its bad loans (NPAs). It shows how much of the bad loans are covered by the bank's own funds.
PCR is the ratio of the money a bank sets aside (provisions) to the total amount of its bad loans (NPAs). It shows how much of the bad loans are covered by the bank's own funds. A higher PCR means the bank is better prepared for losses and its financial health is stronger. The RBI monitors this ratio to ensure banks remain stable. Example: If a bank has ₹100 as NPA and keeps ₹70 in a reserve fund, its PCR is 70%.
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