Page 31 - Banking Finance August 2020

ARTICLE

THE NOISE ABOUT

THE NON-

PERFORMING

ASSETS - A LARGER

PERSPECTIVE

Background: The “lender” can be anyone – a bank, an NBFC, a Fintech,
or just about anyone.
Many people keep writing on NPAs, without even having an
understanding of the concept, and tend to apportion a
blame on who is responsible for the situation being bandied So, if I borrow INR 1000/- from you, and did not even care
to pay interest to you, then your lending to me is NPA – in
about by the press which in turn seems to be feeding into
the frenzy of more people taking their pens out, to draw your books, and soon will progress to a BAD DEBT if you
cannot recover the sum lent to me. At that point of
NPA blood!!
realization, you have no option but to write it off. (more on
this, to follow!!)
Getting the Basics rights:

NPA – Non-Performing Asset – is exactly that. How do Banks actually work on this NPA

It has stopped performing. situation:
Banks do not have an option to consider what to do when,
So, what is ‘performance of an asset?”. so the regulator – RBI here – has specified when a borrower
is considered an NPA, and how he/it moves from SMA-0 to
It should generate “interest income to the lender”. SMA-4 (Special Mention Account), and has specified what
portion of the ‘accrued interest’ can be recognized as
Income and what cannot be (under its Income Recognition
About the author and Asset Classification – IRAC - norms), and finally when

Sridhar Kalyanasundaram and how the principal amount itself can be treated in the
Ex-banker books of accounts, including the reporting of the same.
Risk-Management Consultant
There is simply no room for a bank to fudge its books to

BANKING FINANCE | AUGUST | 2020 | 31