NON PERFORMING ASSETS

(NPA)
 WHAT ARE ASSETS OF BANK?

• Anything that generates income is called Asset.

• Loans and Advances generates interest income

for banks. So,

“Loans and advances are the assets of Bank.”

 CATEGORIES OF ASSETS:

NON –
PERFORMING
PERFORMING
ASSETS
ASSETS (NPA)
 1. PERFORMING ASSETS

• Performing assets are also known as:

“Standard Assets”
• Performing / Standard assets are the assets which
brings income to the Bank.
NON – PERFORMING ASSETS (NPA)

• When the Bank is not able to recover the interest

on loan or the principal amount or both
(interest/principal amount) for a period specified
by the SBP(State Bank of Pakistan), the
assets become Non – performing Asset.
NON – PERFORMING ASSETS (NPA)

According to the guidelines of SBP:

• If Interest or installment of principal remains

overdue for a period of more than 90 days in

respect of a term “Loan” then it is called (NPA)

NON – PERFORMING ASSETS (NPA)

• If the account remains “Out of order” in respect of

an “overdraft/Cash credit (OD/CC), then we call it

(NPA)
NON – PERFORMING ASSETS (NPA)

• If the bill remains overdue for a period of more

than 90 days in the case of bill purchases and

discounted then it is known as (NPA)

NON – PERFORMING ASSETS (NPA)

• In the case of “Short Duration Crops”, the

installment of principal or interest thereon

remains overdue for TWO crops seasons then it

will become (NPA)

NON – PERFORMING ASSETS (NPA)

• In the case of “Long Duration Crops”, the

installment of principal or interest thereon

remains overdue for ONE crops season then it will

become (NPA)
NON – PERFORMING ASSETS (NPA)

In the case of “Securitization transaction”:

• The amount of liquidity remains outstanding for

more than 90 days, in respect of securitization
transaction undertaken in terms of the SBP
(Securitization of standard assets) directions,
2021 as amended from time to time, then it will
become (NPA)
NON – PERFORMING ASSETS (NPA)

• BANKS SHOULD NOT CHARGE AND TAKE TO

INCOME ACCOUNT INTEREST ON ANY (NPA)

CATEGORIES OF NPA:

1. Sub – Standard
Assets.

2. Doubtful Assets.

3. Loss Assets.
 CATEGORIES OF NPA:

1. Sub – Standard Asset:

If an asset remains in the NPA category for a period

less than or equal to 12 months, it becomes a

“Sub – Standard Assets”

NPA < = 12 Months

 CATEGORIES OF NPA:

2. Doubtful Assets:

If an asset remained in the Sub – Standard

category for more than12 months, it becomes a

“Doubtful Asset”

NPA > 12 Months

 CATEGORIES OF NPA:

• TYPES OF DOUBTFUL ASSETS:

1. Doubtful 1 (D1)
Doubtful up to 1
year

2. Doubtful 2 (D2)
Doubtful from 1 to 3
year

3. Doubtful 3 (D3)
Doubtful > 3 year
 CATEGORIES OF NPA:

3. Loss Assets:

A loss asset is one where loss has been identified

by the bank or internal or external auditors or the

SBP inspection, but the amount has not been

written off wholly

 SPECIAL MENTION ACCOUNTS
(SMA)

• SMA are the loan account that is not an NPA But it

has some overdue left

• These accounts are potential NPA, and banks try

to do recovery from such accounts

 SPECIAL MENTION ACCOUNTS
(SMA)
• Banks classify SMA into 3 categories:

SMA – O

SMA – 1

SMA - 2
 SPECIAL MENTION ACCOUNTS
(SMA)

SMA – O:

• Principal or interest payment or any other amount

wholly or partially overdue for up to 30 days

 SPECIAL MENTION ACCOUNTS
(SMA)

SMA – 1:

• Principal or interest payment or any other amount

wholly or partially overdue for more than 30 days

and up to 60 days
 SPECIAL MENTION ACCOUNTS
(SMA)

SMA – 2:

• Principal or interest payment or any other amount

wholly or partially overdue for more than 60 days

and up to 90 days
 SPECIAL MENTION ACCOUNTS
(SMA)

Revolving credit facilities like OD/CC

( Over Draft/ Cash Credit)

• In there case, Bank classify SMA into two

categories:
SMA - 1 SMA - 2
 SPECIAL MENTION ACCOUNTS
(SMA)

SMA – 1 (IN CC/OD):

• Outstanding balance remains continuously in

excess of the sanctioned limit or drawing power,

which is lower, for a period of more than 30 days

and up to 60 days
 SPECIAL MENTION ACCOUNTS
(SMA)

SMA – 2 (IN CC/OD):

• Outstanding balance remains continuously in

excess of the sanctioned limit or drawing power,

which is lower, for a period of more than 60 days

and up to 90 days
 UP GRADATION OF (NPA)
ACCOUNTS:

• Up gradation of NPA accounts can happen when

the borrower starts repaying the loan again that

are not being paid back.

 UP GRADATION OF (NPA)
ACCOUNTS:

• When a borrower starts making payments again or

pays off the debt, the bank can change the loan’s
status from a bad loan (NPA) to a performing asset,
so, it’s no longer considered as a bad loan.

(It’s about helping borrowers get back on track with their

payments and restoring the bank's financial health.)

 UP GRADATION OF (NPA)
ACCOUNTS:
• Example OF up gradation of NPA account:

Until he submits all his dues, his account will remain NPA
 PROVISIONING:

• Provisioning is a practice adopted by banks in

which they set aside certain portion of funds from

their profits for bad assets

 PROVISIONING:

• Banks does Provisioning on the basis of asset

classification
• Provisioning is done differently on the following
assets:

Sub - Standard
Standard Assets
Assets

Doubtful Asset Loss Asset

 PROVISIONING:

Standard Assets:
• Direct advances to agriculture and SME sectors
0.25%
• Commercial real estate (CRE) sector 1.00%
• Commercial real estate - residential housing
sector (CRE - RH) 0.75%
• All other loans and advances 0.40%
 PROVISIONING:

Sub - Standard Assets:

• 10%
 PROVISIONING:

Doubtful Assets:

100%

Up to 1 year
20%

1-3 year
30%
More than 3
year
100%
 PROVISIONING:

Loss Assets:
• 100%
CAUSES OF NPA:
CAUSES OF NPA:

Failure of business activity

Willful default

Natural Calamity

Unhealthy Competition

Industrial Sickness
CAUSES OF NPA:

Lack of demand

In-effective recovery tribunal

Recessionary market trend

Government policy for financing

priority sector
CAUSES OF NPA:

Defective lending process

Poor credit appraisal system

improver selection of Borrowers/

activities

Non compliance of sanction terms

and conditions

Unrealistic repayment schedule

Absence of regular industrial

visits
IMPACT OF NPA ON BANKS:

Reduces the profitability of banks

IMPACT OF NPA ON BANKS:

Reduces the lending ability of

banks

Pro
vi si o
nar
y
IMPACT OF NPA ON BANKS:

Reduces the profitability of banks

Provisionary
IMPACT OF NPA ON BANKS:

Bank requires more capital

Risk weighted
assets
IMPACT OF NPA ON BANKS:

Jolts the investors and

shareholders confidence
IMPACT OF NPA ON BANKS:

Affects the credibility of bank

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TOPIC: NON PERFORMING ASSETS(NPA)