India being an emerging economy faces many challenges in each and every sector especially in banking. And one of the major challenges which are in domain is NPAs (Non performing assets).
Before discussing it further lets just first try to understand what is asset and liability. If we say in simple term then assets are those things which someone owns
(for example if I have a mobile phone then it is my asset)
and liabilities are those things which someone doesn’t own rather than it’s the property which someone is taking care of
(for example if I have a phone which belongs to someone else then it’s a liability for me).
In banking term one who deposit money is an asset for him and a liability for a bank.
If bank gives loan to someone then it is an asset for the bank and liability for a person who is taking that loan.
When bank give money as a loan to someone and if that person stops paying installments then bank waits for at least 90 days after that either bank declares him/her WILLFUL DEFAULTER or puts in the category of NPA.
One important thing here needs to understand is that bank is not facing loss. Its the asset which is not performing, may be after 90 days he/she will start performing or pay installments. So there is a difference between willful defaulter and NPA. Willful defaulter is the one who is not going to perform at all.
The condition of 90 day is not applicable on farmers. For farmers banks have two types of crop loan providing methods. Generally they call it as follow :
- Short term crop loan
- Long term crop loan
Short term crop loan: This loan is for the crop which gets ready in one year. So in that case if farmer pays installments for the first 4 months and stops paying after that then bank will count his days from the time he has stopped paying till two crop season after that bank will declare NPA.
Long term crop loan : This loan is for the crop which takes time to get ready in more than one year. In that case if framer pays installments and stops paying after some time then from the due date ( when is topped paying) till the one season bank will wait and then declares NPA.