Non performing assets in commercial banks and payment banks

Study of Non Performing Assets in commercial banksNon performing AssetsIntroduction:A Non-performing asset (NPA) is defined as a credit facility in respect of which the interest and/K instalment has remained ‘past due’ for a specified period of time. Once the borrower has failed to make interest or principal payments for 90 days the loan is considered to be a non-performing asset. NPA is used by  financial institutions that refer to loans that are in default the so called NPL. The assets can be consider as non performing assets only considering the guidelines and regulations that are given by RBI.Non performing assets can be further divided in the following categories. This division is based on the time period:Sub standard assets: these are those type of assets which are remain as non performing assets but for the period not exceeding the 1 year or we can say less than 12 monthsDoubtful assets : These are those assets which remain as non performing assets more than  12 months but less than 36 months that is more than 1 year but less than 3 yearsLoss assets: these are those assets which are remain as non performing assets for period more than 36 months that means more than 3 years these are those assets recovery of which is impossible.Causes of NPA:NPA is a major problem that is being suffered by many of the or we can say almost all of the financial institutions of India. This has a become a major headache for the various renowned institutions of our country. Though these are very common issue that is being occurred. among the financial institutions . Also there are various reasons or ways which may lead to the or creation as well as the increasing of the non performing assets of the financial institutions.NPA arises due to a number of factors or causes like:-Speculation : Investing in high risk assets to earn high income or we can say more and more profits.  Yes , thus we can conclude the non performing assets are occurred due to the speculative nature possessed by the investors. Speculation are like a greed which makes a man earn more due to which some illegal activity can performed and the person can lead to the creation of the non performing assets. Thus speculation is like a bliss for the financial institutions cause they may have to suffer because of this.Default : Intention to make default by the borrowers. Sometimes an investor invest with a view to just exploit or we can say to make a fraud with another party which ultimately cause and make an adverse affect which leads to the creation or also the increasing of non performing assets. Wrong intention may lead to the wrong action and ultimately wrong action may lead to the adverse reactions and can also be very harmful.Fraudulent practices : Fraudulent Practices like advancing loans to ineligible persons, advances without security or references, etc. Fraudulent practice thus can become another reason for the creation of non performing assets.  Frauds are like a killer to any of the person or the institutions that leads to the loss to any of the assets which ultimately leads to the creation as well as the increased non performing assets of the institution .Thus frauds are one of the major cause for the creation of Non performing assets.Diversion of funds : Most of the funds are diverted for unnecessary expansion and diversion of business. As we know excess of everything is bad thus the unnecessary diversion may lead to the unnecessary burden or flaws or may lead to creation of non performing assets. Expansion is a good thought but this thought required a lot of planning and effort to get implemented in reality so it can be said that to diversify sometimes there can be some losses to the organisation due to improper management of the institution.Internal reasons : Many internal reasons like inefficient management, inappropriate technology, labour problems, marketing failure, etc. resulting in poor performance of the companies. These reasons still can be controlled but they also may cause the major problem & can create non performing assets which is harmful for any financial institutions.External reasons : External reasons like a recession in the economy, infrastructural problems, price rise, delay in release of sanctioned limits by banks, delays in settlements of payments by government, natural calamities, etc. Thus the external reasons which are like put of control for any of the financial institutions have become  cause behind the creation as well as the increasing of the non performing assets.Thus above are major causes which leads to the creation of non performing assets in the financial institutions. Study of NPA in Commercial BanksCommercial Bank:Meaning:A commercial bank is a profit based institution that grant loans, accepts deposit , and offer many of the other financial services to the general public as well as the company.Definition:According to Culbertson,“Commercial Banks are the institutions that make short make short term bans to business and in the process create money.”Types of Commercial Banks :There are 3 types of Commercial Banks. They are as follows:Private sector banksPublic sector bankForeign banksFunction of Commercial Banks:Commercial banks perform many functions. These functions can be classified into 2 following categories:Primary Function:Accepting DepositsAdvancing LoansSecondary Function:Agency FunctionCollection checksCollection of incomesPayment of expensesOther Function:Creating MinerElectronic bankingProvides locker facilitiesDealing in foreign exchange& so on.Thus it can be concluded from above discussion that how wider the commercial banks are possessing their duties and performing the function . Reasons For Non-Performing Assets in Commercial BanksThese days creation as well as the increasing of non-performing Assets in commercial banks has become a major problem but this problem is not created in a single day. These happen due to many reasons, some are avoidable and some are unavoidable. Following are the reason due to which the creation and increasing of non-performing assets in commercial banks are happening-Internal FactorsExpansion or modernisation- this is true that expansion and modernisation for every bank is important but everything comes with many pros and cons, so we can say that expansion or modernisation is one of the major reason behind the creation of commercial banks.Inefficient management- yes it is true that management is the only one who can either built the organisation or ruin it. So if the management is inefficient and unable to recover its loan then this will be the ultimate reason for the creation of the non-performing assets in commercial banks.Taking up new projectsHelping or promoting or associate concernsTime or cost over run during the project implementationInappropriate technologyProduct obsolescencePoor credit appraisalsImproper SWOT analysisTechnical problems Strained labour relationsExternal FactorsRecessionInput or power storagePrice escalationExchange rate fluctuationsChange in government policies such as excise, pollution control order, import duties and so manyAbsence of regular industrial visits Political tool- directed credit to small scale industries as well as to rural sectorManipulation by the debtors using political influence has been a cause for the higher industrial bad debtsRecommendations For The Management Of Non-Performing Assets in commercial banksPersonal visits: personal visit with the customers should be made after sanction as well as the distribution of credit and the proper monitoring and management of the operation of the accounts of the borrowed units should be done time to time on regular basis in order to reduce the non-performing assets in commercial banks.Strict actions against defaulters- the organisation must take some harsh actions against the defaulters so that the losses doesn’t occur in future or reduced. They can do this by punishing them in legal and effective way.Improving the recovery management- the recovery management should be so punctual with the time to time checking of accounts, strict with the rules and regulations so the mistakes can be caught easily and early so that losses can be reducedEffective legal system: the government should be made because this is the only way which is most effective by which the work will be done without any problem and strictly action can be taken against the defaulters in the legal way and the strict punishment can be takenDiscussion with the staff: the bank must consider the whole staff discuss each and everything that is most important which is required to be solved as many suggestions will cone from their side  and the problem of non performing assets in commercial banks can be reducedProper management of accounts: the another way is to properly manage the accounts of the organisations because by this  the proper check will be made on the problem that are being created and also it will be saved on time so that no further problem can be createHelp of political tool: also the commercial banks can take the help of political tool because this is a legal by which the non performing assets in commercial banks can be decreased and a  check can be madeConclusion: So from the above discussion we can concluded that yes it is true that the non performing assets are like the bliss in the growth of the commercial banks these days and now it had become like a major different problem for the commercial banks .These non performing assets are created in commercial banks due to many reason and reason can be either avoided or sometimes unavoidable but they impose a negative and an adverse effect on the working of the commercial banks but they are must to be avoided .And there are many ways by the way of which the creation and increase of non performing assets in commercial banks can be reduced like by proper checking also by making accounts and rechecking them timelyHelp of political toolsProper CoordinationTaking proper accountsMaking strong recovery systemsMaintain proper accountsTimely check over accountsTaking staff advice and involving themTaking strictly action against defaultersMaking the management more effective and so onPayment Banks:MeaningIt is a new type of bank which is conceptualised by the RESERVE BANK OF INDIA. These are those type of banks which accept a restricted amount of deposit that is limited to a restricted amount which is only ? 1 lakh only but this amount can further be increased but only on some special conditions.These banks cannot issue loans as well as can’t issue the credit cards. Both current and saving accounts can be operated by such banks. Payment banks can issue services like           ATM cards         Debit cards          Credit cards        Net banking        Mobile banking     And so onFunctions Of Payment BanksAccepting the restricted deposit by their customersOperating current accountsOffer forex serviceProvides facilities at lower chargesOperating savings accountsProvide service of ATM cardsProvide facility of debit cardsProvide facility of credit cards Net banking also availableFacility of mobile bankingAccept demand depositOffer remittance servicesFacility of mobile transfersMobile purchases facilityMobile payment facilityEffective online payment method From the above discussion we can conclude that the payment banks has to perform many and difficult and different functions. These functions make banking easier and effective and keep ourselves updated. Also it has some restrictions and limitations but still it is very much helpful and must for those customers who are addicted to usage of payment banking system on regular basis. It saves times and make banking effective. Process takes few minutes to complete the transaction that’s why it is a reliable source for the persons who Spend a lot time on banking transactions.Study Of Non-Performing Assets In Payment BanksNon-performing assets are biggest problems these days in banking world. And it is increasing day by day at fastest pace causing a lot of problems for the banks to deal with. These issues can’t be resolved completely nor avoided. But these non performing assets are like a headache for the non payment banks but still they are becoming more and more difficult to solve the problem Causes of NPA in payment Banks:As there can be many reasons due to which the non performing assets can be created in the non performing assets . Following are some of the ways or the reasons because of which the non performing assets are being created:Internal Factors:Funds borrowed for a particular purpose but not use for the said purposesProject not complete in time Poor recovery of receivablesExcess capacity created on non economic costsBusiness failureExpansion or diversion of fundsWilful defaultInefficient work managementImproper regulations Improper coordination External Factors:These are those factors which are unavoidable and out of the control for the organisations Long legal tanglesChange in labour lawsLack of sincere effort. Lack of raw materialLack of powerLack of other resourcesIndustrial recessionShortage of raw materialInput price escalationPower shortageNatural calamitiesGovernment policiesRecession in other countriesOver dues in other countriesEffects of non performing assets in payment assets:Payments banks are being adversely effected by the creation of the non performing assets in many ways. Some of the effects of non performing assets are given as following ways:Creation of losses in the organisationsNegative effect on the goodwillCreate financial limitationsDecrease the available resourcesInsufficient resourcesDecrease operation efficiencyInfluence the liquidity positionCan create insolvencyDecrease the profitabilityDecrease efficiency of organisationsEffect the long run equilibriumEffect negatively the short term equilibriumDanger to financial healthReduce capital assetsIncrease loan loss reservesReduce lending limitsDecrease the favourable situationsBank shareholder affected adverselyBad loans imply redirecting of fundsCan not face competitionOrganisations can come out of the race So from the above points it can stated that the non performing assets are like a danger to the performance of the payment banks as they are controllable but up to some of limited extent after that it can not be control and thus create many serious problems for the payment banks as their liquidity get affected negatively. Also the financial health of the organisations get decreased and the organisations goodwill get also effected adverselyBut they can be avoided by various of the means but still can be controlled up to an extent and if they are not control then the profitability of the payment bank can be decreased It can be controlled by following ways.Ways or the recommendations for the decreasing as well as the management of the non performing assets in the payment banks:Yes it is true to that the non performing assets are a major problem and is very difficult to reduce but still there are some ways to decreases the non performing assets in the payment banks.Following are some of the recommendations to decrease as well as to manage the non performing assets in the payment banks:By the help of SARFAESI act2002This provides the following things:SecuritizationAsset ReconstructionEnforcement of Security without the interview of the courtManaging the regulation authorityCompromise SettlementTaking help of Lok Adalats to het loans recovery up to ?500000Taking Strict action against the defaultersHelp from Credit information BureauMaintaining a data of individual defaulters Provide requested information to concerned banksCompromise Settlement Schemes: it provides recovery of non performing assets below ?1000000Taking help of the Political ToolsMaking a strict Recovery DepartmentChoosing the customers very keenlyAlong with the above points many of the help is being provided by the government in order to stop the creation of non performing assetsRelief and concessions Review of doubtful loss assetsMonitoring by controllersAction by review authorityStress assets review reportProper organisation set upCut off and their proper registrationProper legal formalityProper Documents and timely checkingCheck on timely repaymentsMonitoring of suit filesFilling execution petition and monitoring decreed casesWriting off the bad DebtsBudgeting for NPA managementStaff accountabilityDisposal of assets in NPA accountsReview of position to BoardDelegation for sanctionHire proper authority for recoveryHolding on operation Time NormsProper and strict regulationConclusionSo from the above discussion it can be concluded that the non performing assets are like a bliss and it is increasing day by day in the payment banks AMD creation of losses being caused to them and to control on the increasing of the non performing assets as they are no in the hands  of the payments banks.But still they keep an adverse effect on the situations and goodwill of the organisations and cause liquidity losses also with that profitability get decrease along with that the financial problem get raised which can cause the company a bad situation.But still there are some ways by which the non performing assets can be decrease in the payment bank as by using the proper regulations taking the help of the government tools. Also the proper regulation method must be made by the help of which the problem can be solved Reference:The HinduThe Economic 

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