Banks declare loans as NP when they come to the final conclusion that the account becomes inoperative for a particular period of time, as per the rules laid down. Such an NPA can be restructured and brought back into the category of Performing Assets if some actions are taken by the Organization, but in some cases when there is absolutely no co-operation from the Owner the asset goes into the permanent Non-Performing category.
For a Non-Performing Asset to get restructured or taken up by another Bank, there are technical difficulties. The biggest difficulty faced by most Organizations is the means to repay the monthly installments of the loan.
Some important factors we need to note in the case of NPA is that once the business falls into this category, in a normal situation revival or coming out of this situation would be extremely difficult. NPA classification does not come into existence one fine morning, it’s a slow progressive process that has been festering over time. The bank and the Company would be aware for some time, that there is a strain and the business is not moving forward as it should.
What are the indicators… mostly everyone looks at the account or its performance, but if you look at the Company as a whole, there will be lots of governing issues behind the downfall. As far as the bank is concerned, they see whether they are receiving their interest, whether the operations are going on smoothly, etc. But the actual problem would be much deeper than that.
There could be a culmination of many root causes which have not been attended to in time, and it would be a cumulative result of all these causes. As mentioned before the reasons may be mismanagement, Governance problems, not handling the operations properly, lack of professionalism, and temporary crisis management measures, which bring more harm than good, and soon matters go out of hand. One of the major or initial tribulations could be felt among the human resources. They generally would get a broad feeling that the business is not going in the right direction, and this is the time the Company faces great employee turnover, the best talents leave and there will be a lacuna in the Human Resources. Even if the information is out there, the management does not take it in the right sense, and no concrete action is normally taken.
