............An Honest View of Learned Bankers


Follow AllBankingSolutions


    Follow allbanking on Twitter

There is a Need to Revise Definition of NPA  - Some Practical Suggestions 

Ads by Google



V Subramanian


Banks are passing through a difficult phase.  Year 2012 has been a tough year and 2013 will also be tougher.    The major problem being faced by almost all banks, specially the PS Banks is the problem relating to NPA.   Most of the banks have huge hidden NPAs.  Therefore, there is a need for re-look at the present definition of NPAs.  The author has given here some of his suggestions and also explanations.  Some may not agree with the proposed revised definitions, but certainly there is a need for revision as majority of bank staff is asked to use all methods to underplay the level of NPAs. encourages such discussions which are based on practical experience and not based on the suggestions given in the Board Rooms where members do not have time and Agenda running into over 100 items is rushed through in 4 to 5 hours. 


Revised definition of NPA norms Suggested by Author for OCC Accounts


S No

Existing Definition

Revised Definition suggested by author



The latest stock statement basing on which is Drawing Power has been calculated, shall not be older than 3 months.

The value of stocks on hand as mentioned in the stock statements submitted to the bank must tally/correspond with various other documents like the latest Audited Balance Sheet, MSOD and QIS statements, Stocks & Receivables Audit Report, Unit Inspection Reports, Concurrent Audit and Short Inspection Reports and the VAT returns filed by the borrower.   Similarly, the total of debits in the account, attributable to purchase of raw materials, must largely correspond to the total purchases declared in the latest audited financial statements.

It has been noticed in a good number of cases that the value of stocks declared by the borrower in the monthly stock statements does not correspond to any of these reports/returns.  So, the Drawing Power arrived at basing on such stock statements is not accurate and reliable.


Thus, banks unwittingly help the borrowers to cheat themselves now.


There are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period.

All the following conditions must be satisfied.


(a) The credits received during the last two quarters put together must be equal to or more than the interest and other charges debited during the same period;


(b) The credits received during the last two quarters put together must be equal to or more than 25% of the projected annual turnover for the relevant accounting year;


(c) The credits so received in the account must not have been withdrawn in cash;



(d) There shall not be any noticeable diversion of funds from the account.



Needs no explanation.





Ever-greening of the accounts is done by ensuring that the credits in the account are just equal to the interest debited during the past 90 days, as per the present practice.


Whatever the amount of credits reflected in the account is allowed to be withdrawn in cash by the borrower immediately, as of now.


In many cases, the funds received are diverted to the personal accounts of the borrower and his relatives or the other accounts in the same group.


Ads by Google


S No

Existing Definition

Revised Definition suggested by author



The account remains overdue without renewal/review for more than 180 days.

If the transactions in the overdue account are satisfactory and are in tune with the projections for the relevant period, operations in an overdue account may be permitted for 270 days from the original due date of the limit.

In reality, many OCC accounts do not get renewed within a reasonable time, after the expiry of the limit.  Therefore, this pragmatic change will benefit both the customer and the bank.  The unbearable pressure felt by the branch as of now will come down and it will be a huge relief to the managers.


The liability in the account is continuously exceeding the limit or D.P. or both, for the past 90 days.

The liability in the account shall not have exceeded the limit or D.P. or both, on more than 60 days during the last quarter.

This is also suggested to prevent ‘ever-greening’ of the account.


The excess drawings allowed or the ad hoc limit sanctioned to the borrower remain unadjusted fully, even 90 days after the due date fixed for repayment of such excess drawings or ad hoc limit.

The excess drawings allowed once adjusted shall not be granted again, within a period of 15 days from the date of such adjustment.




Similarly, sanction of TODs, excess drawings and ad hoc limit shall not be resorted to by rotation, to adjust one another.


Credit received through a cheque/bill purchased/discounted but subsequently returned unpaid shall not be reckoned as a credit at all.

This is recommended to avoid accommodating a borrower who has defaulted.  This measure will save and protect many managers and officers from the possible charge-sheets in future.


Needs no explanation.




This step will serve as an effective check on the illegal and immoral practices in the bank.


Banks should, classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter.

Any interest or charges debited during a particular quarter must be serviced by the end of the following quarter.  In any case, an interest debit or a debit for bank charges must get fully adjusted within a period of 120 days from the date of such debit.

This change will bring more clarity on the subject.





You can give your feedback / comments about this Article.   Please give only relevant comments as irrelevant comments are waste of time for yourself and our other readers.



blog comments powered by Disqus