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have a topic that is non-performing
asset a biggest problem right now in
India Indian banking system is facing a
turmoil situation out here because there
is a hell lot of NPOs that's hitting
them hard on their balance sheets so
let's understand what exactly this all
about why this is the important thing
for the bank at large and not only banks
but even the central bank the RBI is one
big chunk that is involved in handling
such NPS because of its regulations so
non-performing assets it refers to you
know classification classification of
what we call as the loans and advances
okay in the books of the what we call a
lender in which there is no payment of
interest and the principal have received
and are passed you so in most of the
cases debt has been classified as the
NPA non-performing assets where the loan
payment have been outstanding for
greater than 90 days take this number in
mine in a very close way so in the term
sheets are probably the sanction letters
of every loan the period of default
under which the loan will be classified
as NPA are generally mentioned first you
know NPA is generally classified on the
banks what we call as the bank's balance
sheet and the percentage of the NPA out
of the total advances has become a vital
ratio for the banks to keep a check on
before making the results public second
more than that is greater than 90 days
where the payment is due on the bank's
loan and the advances move to and NPA
third you know as you have noted from
the above you know from that particular
screenshot this Bank of America has has
an NPA of around $4170
million that has been accrued for
90 days or we'll take an example you
have to understand for example let's say
there is a company called X Y Z and it
has taken a loan of let's say $100
million from a bank let's say DCB
bank on which it needs to pay let's say
$10000 this is $100
million okay take that in head and 10000 is the interest that is
supposed to be paid every month for 5
years now on the borrower's default on
the bank for three consecutive months
that has 90 days and the bank needs to
classify the loan as NPA in the balance
sheet for the financially oh okay I hope
with this particular idea example you
must have got the idea now what exactly
are the types of NPA let's lower most is
the term loans now a term loan is the
plain vanilla debt facility you know
will be it will be treated as an NPO and
the principal or the interest
installment of the loan has been due for
greater than
90 days it's a plain vanila debt second
cash credit or OD which is known as your
overdraft facility now when we talk
about this you know as a crack cash
credit or an autotroph and remaining
past tube let's say for 90 days it can be
treated as NPA third there are thing
called agricultural advances now
agriculture advances that have been
passed you for more than two crops seize
it for short crop duration or one crop
duration for long duration groves so
there could be various other types of
NPA including the residential mortgage
home equity loans credit card loans non
credit card outstandings and direct and
indirect consumer loans so it is
possible there now let's do
classification of NPA
for banks now banks are required to make
such standards of standardization of the
non-performing asset into the fourth brought categories the first category that
starts is the standard assets now these
standard assets are those assets which
have remained as an NPA for the duration
greater then what we call as 12
months or for a period of 12 months or
less than 12 months okay equal to
the grater sign has to be removed less
than equal to12 months and the risk
of the asset is what we call as normal
there's no problem in that then the
another is called the substandard assets
now for the period of more than 12
months the non-performing assets
classified when we say greater than 12 m
it is classified as substandard assets
and this kind of advances possesses more
than normal risk so you can say greater
than in risk such kind of advance they
are targeting the credit worthiness of
the borrower and it's quite weak and
banks are generally ready to take some
haircut on the loan amount we know which
are categorized under this asset class
third are called the doubtful debts now
what exactly are the doubtful let's see
for a period which is extending let's
say for greater than 18 month
non-performing assets come under the
category of the doubtful debts so
doubtful debt itself means that the
banks have is highly doubtful of the
recovery of its advances so the
collection of such kind of advances is
highly questionable and there is a very
least probability you can say that that
the loan amount can be recovered from
the party and such kind of advances they
put the bank what we call as the
liquidity and not only that but the
prestige under the Jeopardy or probably
the inner turmoil state and the loss is
called the loss assets see the final
classification of the non forming asset
is the loss assets where you know the
loan has been identified either by the
what we call as Bank itself or by the
external auditors now not only that
external internal audit also and that
the loan amount collection is not
possible and the bank has to take our
denth it's a perfect world in its
balance sheet and the bank in this case
has to write off the entire amount of
the loan and amount outstanding or need
to make provision for the full amount
which needs to be written off in the
future now there are things bank need to
bear in the mind before making a loan at
once the for thing is called the first
is called the character second is called
what sort of collateral they are
offering the third whether the client is
in a capacity to pay such loan fourth is
the some conditions or probably some
constraints that you put so this are the
four things that they need to take care
of now I quickly quickly run through
each and every one character you know
the character of the borrower needs to
be judged and the willingness of the
company to repay its debt you know it
needs to ponder upon so the management
history revenue pipelines stock
performances media coverages of the
company should be taken into
consideration to rightly make an opinion
about the come now if we talk about
collateral the value of the collateral
which has been pledged needs to be
assessed and you know proper valuations
of such property as it should be done
keeping in mind the loan-to-value ratio
which is known as your l2v ratio right
third is the capacity the
see that the loans company's financials
and future revenues projections of the
company should be analyzed by the bank
and also the existing lenders which are
already on the company's balance sheet
needs to be studied very properly in
order to get the right collateral before
providing the advance and the last is
the condition at last the overall
environment in the market and the
industry condition should be kept in
mind the external and the internal
factors that can be a that can affect
the business in the future should be
considered and needs to be analyzed in a
very detailed format so big credit
analysis form
judges any company in the 4c parameters
and they need to so that's the this is
it for the topic of NPA non non
performing asset if you have learned and
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