How do banks handle NPA?

By Ritesh|Updated : September 1st, 2022

Banks handle NPA using techniques like asset reconstruction, debt recovery tribunals, and Lok Adalats. The establishment of Bad Bank to assist banks in dealing with NPAs was announced by Union Finance Minister Nirmala Sitharaman on September 16, 2021.

  • Bad Bank would be established as a distinct organization that would purchase non-performing assets from other banks to free itself up and resume normal operations.
  • Banks have identified bad debts of around Rs 90 billion and will be handed to National Asset Reconstruction Company Limited (NARCL).

The principal payment/interest remains overdue for a term loan continuously for more than 90 days.

  • The account's Cash Credit/Overdraft (CC/OD) portion is "out of service."
  • Billing that is overdue by 90 days.
  • The principal or interest payment would not be made for two harvest seasons for crops that only grow for a short time.
  • In the case of long-lived crops, the payment of interest or principal is past due for a crop season.
  • The quantity of cash that has been outstanding for a continuous 90 days.

Different Types of NPAs

The various forms of NPA include:

  • An NPA that is past due by less than or equal to 12 months is known as a non-standard NPA.
  • Doubtful NPA: This NPA is classified as a Substandard NPA for 12 months or less.
  • Non-performing assets: According to a review by the Reserve Bank of India, non-performing assets (NPAs) are when an NPA has been acknowledged as a loss incurred by a bank or financial institution (RBI).

Summary:

How do banks handle NPA?

To handle NPA, banks employ several strategies, such as debt collection tribunals, asset reconstruction, and Lok Adalats.

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