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