NON PERFORMING ASSETS SUMMARY This paper discusses the changing definitions of NPAs across the time and

d stresses upon the need to devise the methods to settle them. An NPA account not only reduces profitability of banks by provisioning in the profit and loss account, but their carrying cost is also increased which results in excess & avoidable management attention. Thus banking industry has to structure remedial solutions. Post liberalization, the focus was shifted towards improving the quality of assets and better risk management. Earlier an amount under any credit facility which has not been paid within 30 days of the due date was considered as an NPA. Later from march 31, 2001 onwards it used to be defined as an interest or an installment of principal remaining overdue for a period of more than 180 days. However with a view to meet the international best practices and to meet greater transparency, a 90 days overdue norm was adopted in 2004. Various studies have pointed towards the fact that complete elimination of NPAs is impossible. An asset may turn into a non performing one owing to environmental reasons, business cycle, internal bank management, credit policy, term of credit etc. From the borrowers side, misconceived project, product failure, diversion of fund or a dormant capital structure may lead to NPAs. However from the banking side a wrong lending decision, lack of mechanism of credit information dissemination and an effective judicial system for recovery from defaulters may do the same. There is a tendency among bank and institution to depend excessively on collateral for advancing loans. However emphasis should be on cash generation and a charge on this should be built into the loan contract through some escrow mechanism. The author also suggests that frequent regulatory changes can turn assets non-performing. In India due to the legal impediment and time consuming nature of assets disposal process, problem of NPAs is raised. Restructuring of finance is quoted as one of the solutions to tackle this. The author suggests the banks to increase the number of installments by minimizing the quantum of installment to recover the loans. Author also suggests establishment of ARCs which purchase bad or nonperforming loans hoping to restructure the loan or sell the assets to make money, settlement of debts by lok adalats and debt recovery tribunals. This paper also stresses upon the criticality of a well developed capital market in the restructuring process. A capital market brings liquidity and a mechanism for write off of loans. Indian debt market is relatively under developed and attention should be focused on building liquidity and volumes. A regular training program on credit and NPA management should be made must for the executives. Also regular recovery camps should be organized by the banks to make the recovery easier.