Fahid Fayaz Darangay
As per RBI, 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. The specified period was reduced in a phased manner as under:year ending March 31 specified period1993 four quarters1994 three quarters1995 onwards two quartersAn amount due under any credit facility is treated as ‘past due’ when it has not been paid within 30 days from the due date. Due to the improvements in the payment and settlement systems, recovery climate, upgradation of technology in banking system, etc., it was decided to dispense with ‘past due’ concept, with effect from March 31, 2001. Accordingly, as from that date, a Non-performing Asset (NPA) shall be an advance wherei. interest and/or instalment of principal remain overdue for a period of more than 180 days in respect of a Term Loan,ii. the account remains ‘out of order’ for a period of more than 180 days, in respect of an Overdraft/Cash Credit (OD/CC),iii. the bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted,iv. 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, andv. any amount to be received remains overdue for a period of more than 180 days in respect of other accounts.With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt ’90 days’ overdue norm for identification of NPAs, from the year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a non-performing asset (NPA) shall be a loan or an advance where;i. interest and/ or instalment 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 the case of bills purchased and discounted,iv. 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, andv. any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.A cross-country comparison of the identification and measurement of NPAs was published by the Financial Stability Institute (FSI) of the Bank for International Settlement (BIS). The findings reveal considerable differences across jurisdictions in applicable accounting standards which are exacerbated by divergent prudential frameworks that govern NPAs’ identification and measurement:
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