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NON-PERFORMING ASSETS

Posted on October 20, 2019 By commerceiets No Comments on NON-PERFORMING ASSETS

Table of Contents

    • NON-PERFORMING ASSETS
  • LEGAL PROVISIONS REGARDING NON-PERFORMING ASSETS
      • PROVISIONS REGARDING LOSS ASSETS
      • PROVISIONS REGARDING DOUBTFUL ASSETS
      • PROVISIONS REGARDING SUB-STANDARD ASSETS

NON-PERFORMING ASSETS

Non-performing assets are the assets that cease to generate any kind of income for the banking company. The assets are categorized as non-performing by applying some standard norms. Non-performing asset is a loan or advance where:

  • Interest or installment of principal remain overdue for a period of more than 90 days in respect of term loan.
  • The amount remains ‘out of order’ in respect of overdraft or cash credit.
  • The bills remain overdue for a period of 90 days in the case of bills discounted or purchased.
  • The installment of principal or interest thereon remains overdue for a crop season for long duration crops.
  • The installments of principal or interest thereon remains overdue for one crop season for long duration crops.

The non-performing assets can be further classified into three categories:

SUB-STANDARD ASSETS: A substandard asset would be one which has remained Non-performing asset for a period of more than or equal to 12 months. Sub-standard assets are the assets which have well defined credit weaknesses that jeopardize the liquidation of the debt and indicate that the banks will sustain loss in case deficiencies are not corrected.

DOUBTFUL ASSETS: An asset would be classified as doubtful if it has remained in the sub-standard category for a period of 12 months. These assets have the probability of not getting encashed.

LOSS ASSETS: A loss asset is one where loss has been identified by the bank or internal or external auditors or by RBI inspection. But these assets are not allowed to get written off completely.

LEGAL PROVISIONS REGARDING NON-PERFORMING ASSETS

PROVISIONS REGARDING LOSS ASSETS

Loss assets should be written off. If loss assets are permitted to remain in the books for any reason, 100% of the outstanding should be provided for.

PROVISIONS REGARDING DOUBTFUL ASSETS

100% of the extent to which the advance is not covered by realizable value estimated on realistic basis.

In regard to the secured portion, the provision made as:

Period for which the advance has remained in the doubtful category Provision required
Upto one year 25%
One to three years 40%
More than three years 100%

PROVISIONS REGARDING SUB-STANDARD ASSETS

A general provision of 15% on the total outstanding should be made without making any allowance for guarantee cover and securities available.

The ‘unsecured exposures’ which are identified as sub-standard would attract additional provision of 10% i.e. a total of 25% on the outstanding balance. Unsecured Exposures are those exposures where the realizable value of the security is not more than 10% as assessed by the RBI.

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Sweat Equity SharesStock vs SharesReserve Capital Vs Reserve CapitalDifferent types of preference shares
Equity vs Preference sharesSlip System of PostingRedemption of preference sharesBuy Back of shares
DebenturesIssue of debenturesRedemption of DebenturesSources of redemption of debentures
Balance Sheet as per Companies Act 2013Divisible ProfitsAmalgamationPurchase consideration
Alteration of share capitalInternal ReconstructionProvision of banking regulation act 1949Asset classification of banking company
Non-performing assetsAdvances in banking companyLife Insurance AccountingValuation balance sheet
Financial statements of life insurance companiesFinal accounts of general insurance companies

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  • 11 ACCOUNTANCY
  • 12 ACCOUNTANCY
  • BCOM GNDU NOTES
  • BUSINESS MANAGEMENT
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  • CORPORATE OR COMPANY LAW
  • COST ACCOUNTING
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  • INDUSTRIAL AND LABOUR LAWS
  • INTERNATIONAL BUSINESS
  • KEY DIFFERENCES
  • MANAGEMENT ACCOUNTING
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  • MICRO ECONOMICS
  • OPERATIONS RESEARCH
  • PARTNERSHIP ACCOUNTS
  • RISK MANAGEMENT AND INSURANCE

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