Non- Performing Assets
A Bank assets can be classified as the loans that they give to their customers, interest that they earns on them, their investments, land, equipment etc. and various other sources from which they earn money, can be classified as a bank’s assets.
Banks earn profit in the form of interest that they earn from the loans. Interest is the cost of borrowing that the borrower has to pay to the bank for borrowing a sum of money.
Now, the important question to ask here is how does these loans become – ‘Non-Perfoming Assets’?
It happens when a borrower is unable to pay for 3 consecutive months / or is 90 days past the due date of the installment of interest or principle. For example: if Mr.X borrows Rs 1,00,000 from ABC bank at 10% interest rate, he pays only Rs.15,000 and then defaults (i.e. does not make any payment for 90 days). The remaining amount of Rs.95,000 (principle +interest charged) is a Non-performing asset.
Non-performing assets have increased drastically over the recent period.The graph below shows the 3-fold increase in the gross NPA’s in the last 5 years-from Rs. 3.3 lakh crore to Rs. 10.03 lakh crore.
About 90% of these NPA’s are from public sector banks. The PSB’s NPA’s currently currently account for Rs.8.4 lakh crore as compared to Rs.2.9 lakh crore 5 years back.
SBI and nirav modi scam led PNB are the biggest contributor of the Gross NPA’s accounted by the public sector banks.
Private sector banks are also seeing a similar growth in NPA’s, increasing 2.5 times from Rs. 34k crore to Rs. 1.2 lakh crore
with ICICI and Axis bank taking a lead on this.