The revival of NPA is just like pumping life into a person who is on the verge of dying. Much research has to be done to know the real reason behind the NPA for its revival.
There are many factors that lead to an NPA and through analysis give the root cause. Non Payment of the loan by the borrower is deemed as Non-Performing Assets on the balance sheet of the bank.
The status of the asset converts it into a non-performing asset and it is vital to understand its nitty-gritty. In order to not turn into NPA, it is vital to pay at least the minimum amount.
What is a Non-Performing Asset (NPA)?
NPA (Non-Performing Asset) are the loans that have not been paid and are classified into default/arrears. Whenever the borrower does not pay the interest on the loan then a loan is termed to be in arrears. A loan is called default when the borrower is not able to meet the loan agreement.
Important Pointers in Regard to NPA
- Whenever a loan is not paid by the borrower for a long period of time then they are recorded as Nonperforming assets on the balance sheet of the bank.
- A lot of NPAs is a bad situation for a bank and put a financial load on the bank’s financials.
- The other names that are given to NPAs are loss assets or substandard assets. These classifications that are given to NPAs are according to the time span of the non-payment of the loan and if there is any chance of payment of the loan.
- The banks or the lenders have the power and ways to recover their money such as possession of the property or any collateral that is given.
Classification of NPA
The following are the types of NPAs:
- Overdraft and cash credit accounts those are out of order for about more than 90 days
- Due installments of the agricultural advances
- Any payments those are overdue for above 90 days
Working of Nonperforming Accounts
The placements of the NPAs are on the balance sheet and they are termed as nonperforming assets due to the non-payment of these funds. The lender has the right to liquidate the assets that kept in security for the loan or if any loan agreement/asset is not kept against the loan then the lender writes the loan as a bad debt in the balance sheet.
Any debt will be termed as nonperforming if the lender does not get the payment back within 90 days. The ill-effects of NPAs on the lender are a decrease in the cash flow, budget getting off track, low earnings, and loss.
Having a lot of NPAs on the balance sheet can disrupt the financial health and put on risk the financial security.
The Revival of NPA Account
For the revival of NPA accounts, the government is helping the MSMEs through which this can be done. The Minister for MSME has launched schemes that aim at the revival of the NPA accounts in MSME.
The government launched the Credit Guarantee Scheme for Sub-ordinate Debt (CGSSD) which is also called “Distressed Assets Fund-Sub-ordinate Debt for MSMEs”. This government scheme is launched under the Atmanirbhar Bharat Package in FY 20.
The government is offering the guarantee cover worth INR 20,000 crore to the promoters who are willing to take debt from banks for the investment in their stressed MSME units as equity. This scheme pertains to the MSMEs that have become NPA as on 30 April 2020.