Test: Non-Performing Assets (NPA) - 2 - Banking Exams MCQ

If an NPA remained for more than 12 months is called Doubtful Assets.

• Sunil Mehta, a non-executive chairman of Punjab National Bank , was the head of Sashakt Committee.
• The government had constituted a committee led by Sunil Mehta to resolve the issue of  NPAs.
• Sunil Mehta said the new RBI direction making the Inter-Creditor Agreement (ICA) framework mandatory is a move in the right direction for resolution of non-performing assets (NPAs or bad loans).
• Sashakt panel has recommended that bad loans of up to Rs 50 crore will be managed at the bank level, with a deadline of 90 days.
• For bad loans of Rs 50-500 crore, banks will enter into an ICA, authorising the lead bank to implement a resolution plan in 180 days or refer the case to the National Company Law Tribunal (NCLT). 
• The Sashkat ICA can be modified to incorporate the requirements of the new framework and serve as the Master Inter-Creditor Agreement for resolution of all stressed asset under BLRA (Bank Led Resolution Approach). 

The rearrangement of a distressed company's outstanding commitments to its creditors is known as corporate debt restructuring. A corporate debt restructuring aims to restore a company's liquidity so that it can avoid bankruptcy.

• SMA stands for Special Mention Accounts.
• SMA is an account that is exhibiting signs of borrower defaulting of her debt obligations before being identified as NPA.
• SMA is subcategorized as:
  • SMA 0 - 1 to 30 days.
  • SMA 1 - 31 to 60 days.
  • SMA 2 - 61 to 90 days.
• NPA (Non-Performing Asset): An asset when it ceases to generate income for the bank and becomes overdue for more than 90 days.

Corporate Debt Restructuring, or CDR, is a scheme developed by the Reserve Bank of India (RBI) through a circular released on August 23, 2001, for implementation by banks and financial institutions (FIs) to recover debt from debtors who are unable to pay the full amount owed.

The Insolvency and Bankruptcy Board of India was established on October 1, 2016 in accordance with the provisions of The Insolvency and Bankruptcy Code, 2016.

As part of the prompt corrective action (PCA) framework, the Reserve Bank has defined regulatory trigger points in terms of three parameters: capital to risk-weighted assets ratio (CRAR), net non-performing assets (NPA), and Return on Assets (RoA).

Gross Non-Performing Assets (NPAs) of banks are expected to rise to 8-9% this fiscal from 7.5% as on March 31, 2021, but they would still remain below the peak of 11.2% seen at the end of fiscal 2018.

Debt Recovery Tribunals are established in various cities under the “Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, 1993”.

If an asset has remained NPA for a period less than or equal to 12 months then that is classified as substandard.