The
bank being financial intermediaries are in the business of accepting
deposits for the purpose of lending and to augment their resources at
times they borrow money from other sources and meet the ever increasing
borrowing requirements of their customers. However, most of the business
is done by banks with the funds which are collected from the public by
way of deposits. They are, therefore, answerable to the public at large,
who are keeping their funds with the banks by reposing trust in the
ability of banks that they will not put the depositors interest to
jeopardy.
A
non-performing asset in the banking sector may be termed as an asset
not contributing to the income of the bank. In other words, it is a zero
yield asset when applied particularly to loan and advances. The actual
concept of NPA is that it is an asset which ceases to yield income for
the bank and that any income accrued from such asset shall not be
treated as income until it is actually realized. Classification of an
asset as NPA should be a based on record of recovery. Therefore, an
asset is to be classified as NPA when there is a threat of loss for the
recoverability is in doubt. In spite of wide ranging reform measures
initiated in the banking sector, the problem of non-performing assets
assumed a central place in issues relating to banking sector.
