Loan and International Best Practices Essay Example for Free

Loan and world(prenominal) Best Practices EssayA Non-performing asset (NPA) is defined as a credit facility in respect of which the interest and/or installment of principal has remained past due for a specified percentage point of time. Identificationedit NPA is a classification used by financial institutions that refer to bestows that be in jeopardy of default. erst the borrower has failed to make interest or principle payments for 90 days the loan is considered to be a non-performing asset.Non-performing assets argon problematic for financial institutions since they depend on interest payments for income. Troublesome pressure from the economy can jazz to a sharp increase in non-performing loans and often results in massive write-downs. With a view to go towards international best practices and to ensure greater transparency, it had been decided to adopt the 90 days overdue norm for identification of NPA, from the year ending March 31, 2004.Accordingly, with effect from March 31, 2004, a non-performing asset (NPA) is a loan or an advance where occupy and/or installment of principal remain overdue for a menstruation of more than 90 days in respect of a term loan, The account remains push through of order for a termination of more than 90 days, in respect of an overdraft/Cash Credit (OD/CC).The cadence remains overdue for a period of more than 90 days in the case of bills purchased and discounted, Interest and/or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for awkward purposes, and Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts. Non submission of Stock Statements for 3 Continuous Quarters in case of Cash Credit Facility. No active transactions in the account (Cash Credit/Over Draft/EPC/PCFC) for more than 90 days. ClassificationeditBanks are required to classify non-performing assets fu rther into the following three categories base on the period for which the asset has remained non-performing and the realisability of the dues Sub-standard assets a sub standard asset is i which has been classified as NPA for a period not exceeding 12 months. Doubtful Assets a doubtful asset is one which has remained NPA for a period exceeding 12 months.Loss assets where loss has been identified by the bank, internal or external auditor or central bank inspectors but the amount has not been written off, on the whole or partly. Sub-standard asset is the asset in which bank have to maintain 15% of its reserves. All those assets which are considered as non-performing for period of more than 12 months are called as Doubtful Assets. All those assets which cannot be corned are called as Loss Assets.