In what should be a very bad news for the public sector banks, there has been a realization that their non performing assets (NPA) have increased by about one-fourth of its value three years ago. Non Performing Asset (NPA) means an asset or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by RBI. A non-performing asset is a loan or lease that is not meeting its stated principal and interest payments. Banks usually classify as nonperforming assets any commercial loans which are more than 90 days overdue and any consumer loans which are more than 180 days overdue, more generally, an asset which is not producing income.
In absolute terms, the last three years have seen an increase in the net NPAs (or sticky assets) of 25 public sector banks by 24 per cent. The NPAs have risen from Rs. 13,794.60 crore in 2005-06 to Rs. 17,015.04 crore in 2007-08. According to the numbers, the last year it saw a 17 percent rise in the sticky assets.
The gross NPAs (calculated by taking all banks together) increased by 5 per cent in 2007-08 alone. Due to increase in the lending rates, the asset quality of public sector banks peaked in the first half of 2007-08. As a result of this, the amount recovered and written off (Rs 9,642 crore) was less than the fresh NPA addition of Rs 11,813 crore.
What is important to note is that the absolute amount of NPAs is not a worry. If the loan assets are huge, even a big amount of NPAs can look relatively small. This is because the percentage of NPAs depends on the size of the loan portfolio.