NPA of Banks

Discussion in 'General Trading & Investing Chat' started by zeal, Dec 13, 2006.

  1. zeal

    zeal New Member

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    Hi Traderji,

    I have a confusion please answer my question?

    When we talk about NPA of a Bank can a bank's health be judged by that
    or if an NPA percentage of a bank is increasing year after year does that have an impact on its earning??

    any views. comments are also welcomed by members who can throw light on this.

    Regards,
    Zeal
     
  2. aca_trader

    aca_trader Active Member

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    The health of a bank's assets, viz., Loans & Advances can be judged by NPA figures.

    The increase in NPA figures year after year indicates that more of the loans are turning bad/doubtful and thus the bank will not be able to recognise any due but unpaid interest on those loans. This may bring down the earnings in gross term and will certainly bring down the ROI ratio.

    Best Regards,
    --Ashish
     
  3. deepakalgotar

    deepakalgotar New Member

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    I want to find out the NPA of the Banks of last 4 Quaters.
     
  4. S S

    S S Well-Known Member

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    Hi!

    NPA stands for Non Performing Assets.

    Whenever a bank gives loan, it is expected that the interest due and also the loan amount is recovered as planned at the time of issue of the loan.

    But circumstances change, and many clients find it difficult to repay the interest, leave aside the loan amount or EMIs.

    In private banks, ‘collection agents’ were being hired, who would use all sorts of pressure tactics to get the loan and interest back to the bank.

    In PSU banks, things were totally different. Like in any and every govt department, it was ‘Baba Ka Bagicha’ ….

    ‘Who cares?’ was the attitude, and the bank employees were NOT too keen in the recovery of the loan, for obvious reasons.

    This used to allow the NPA figure getting increased month by month and year by year, but the [ir]responsible officers never gave a damn, because it was being shown as ‘recoverable’ in the balance sheets and NOT as a loss. So, why would one worry?

    It was the courts that came to the rescue of the common man, who is the actual owner of all Public sector enterprises, and issued an order, that any NPA in excess of Six Months, be treated as a loss.

    This brought the pressure on the [ir] responsible officers, who were now required to make efforts for the recovery, a job that they had never ever done earlier in their tenure with that bank.

    Many officers took advantage of the VRS offered by the PSU banks and walked out. A lot of sum remained as an NPA and was written off as loss.

    But that could NOT be done every now and then. So, there after, the banks are required tom ensure that the NPAs are cleared within 6 months, to avoid getting them converted to loss. Because if that happens, such officers shall have to give reasons and/or may face enquiry for being incompetent. Therefore, technically, the officers visit the clients and physically grab the asset that was earlier hypothecated to the bank, and show the recovery.

    The said asset, in real terms, is NOT of any use to the bank, and if possible, is sold separately to square-off the NPAs. But in such cases, nominal amount of loss or profit gets booked along with the squaring off of the NPAs.

    This is my understanding of NPAs, based on my readings and also viewing the TV news items. But being an engineer, I am NOT the authority, and might have erred.

    Cheers!
    SS
     
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