New Maharashtra law for recovery of bad loans

Maharashtra government appointed a committee to bring a legislation that will improve the recovery of loans given as part of government schemes. The proposed legislation will create a mechanism for forceful recoveries of loans given under government schemes. It will not be applicable to agricultural and other loans.

What are Non performing Assets (NPA)?

Any asset, including a leased asset, becomes a non performing when it ceases to generate income for the bank are called Non Performing Assets or Bad loans. As per RBI guidelines, NPA is defined as under:

  • Non ­performing asset (NPA) is a loan or an advance where:
  • Interest and/ or installment of principal remain overdue for a period of more than 90 days in respect of a term loan.
  • The account remains ‘out of order’ in respect of an Overdraft/Cash Credit (OD/CC).
  • The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted.
  • The installment of principal or interest there on remains overdue for two crop seasons for short duration crops.
  • The installment of principal or interest there on remains overdue for one crop season for long duration crops.
  • The amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitization transaction undertaken in terms of guidelines on securitization dated February 1, 2006.
  • In respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.

Net NPA = Gross NPA – (Balance in Interest Suspense account + DICGC/ECGC claims received and held pending adjustment + Part payment received and kept in suspense account + Total provisions held).

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Categories: Banking Current Affairs 2017

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