NPAs likely to rise in first half of 2021

A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
Banks classify NPAs further into Substandard, Doubtful and Loss assets.
- Substandard assets: Assets which have remained NPA for a period less than or equal to 12 months.
- Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
- Loss assets: Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.

With respect to agriculture, a loan granted for short duration crops will be treated as NPA, if the instalment of principal or interest thereon remains overdue for two crop seasons.
A loan granted for long duration crops will be treated as NPA, if the instalment of principal or interest thereon remains overdue for one crop season.

A latest survey has shown that asset quality of banks, which saw some improvement in the second half of 2020, is likely to worsen during the first six months of 2021.
The findings are part of the 12th round of bankers’ survey carried out by FICCI-IBA between July and December 2020. The survey was conducted on 20 banks, including public sector, private sector and foreign banks.
In the current round of the survey, half of the respondent banks reported a decline in NPAs during the second half of 2020. About 78% of participating state-run banks cited a reduction in NPA levels.
However, in terms of outlook, nearly 68% of respondent bankers expect the NPA levels to be above 10% in the first half of 2021.

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