Friday, 30 August 2019

Asset Classification-2 , Banking Fundamentals to Know for students.


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Asset Classification- 2 


Asset Classification Norms

Banks classify recoverable loans as assets of different types according to how they are being paid back. Assets or loans into four types: 
Standard Assets, Substandard Assets, Doubtful Assets, Loss Assets.
An asset is either NPA (Non- Performing Asset) or non-NPA. While the Standard Assets are not NPAs, all three remaining assets are grouped under the NPA category. In other words, the NPA category has three sub-categories: Substandard, Doubtful and Loss assets.
Standard Assets: Paid back regularly    - 
*Give their interest and Principal installments on time.
*Called performing assets as they generate regular interest to the     Bank and return the due Principal.
*Banks can earn profits.
*Term Loan Interest and/or installment of principal remains   overdue beyond 90 days *Overdraft/Cash Credit above Remains ‘out or order’ as indicated
*Bill Purchased/discounted Remains overdue beyond 90 days
* Crop Loans (short duration crops) Instalments of principal or interest remains overdue for 2 crops
*Crop Loans (Long duration crops) Instalments of principal or interest remains overdue for 1 crop

Substandard Assets
*For more than 90 days but less than or equal to 12 months
* It is considered NPA
*Doubtful Asset
*Sub-standard category for a period of 12 months
*It is considered NPA and  Called doubtful assets, since their recovery seems doubtful on the basis of the facts, conditions, and values of the security for the loan
Loss Assets Considerable period of time
* Loss has been identified by the bank or auditors, or the RBI inspection
*The amount has not been written off wholly. Loss assets are considered not collectible. 
*They are of little value as assets.
*However, there may be some recovery value in the long term, in some cases.

Asset Classification
Banks classify recoverable loans as assets of different types according to how they are being paid back. Assets or loans into four types: 
Standard Assets
Substandard Assets
Doubtful Assets 
Loss Assets
An asset is either NPA (Non- Performing Asset) or non-NPA. While the Standard Assets are not NPAs, all three remaining assets are grouped under NPA category. In other words, the NPA category has three sub-categories: Substandard, Doubtful and Loss assets.

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