Thursday, December 8, 2022

Non-Performing Assets: What They Are and How to Deal With Them

What is a Non-Performing Asset?
A non-performing asset is a non-performing financial asset that has been classified as such by the bank. It means that the bank has classified an asset as non-performing because it has breached the conditions defined under the provision. For instance, the company that has been given a loan for setting up a new manufacturing unit has failed to pay back the loan on time. In such a case, the bank can declare the asset as a non-performing asset. Read the full report here: How is Non-Performing Asset classified? The bank will classify the non-performing assets in two ways. One is priority & recovery based and the other is descriptive. Prioritization and recovery criteria are based on the loan’s interest, tenure, collection period, etc.

Why are they so important to the company?
It is important for companies to keep in mind that employees are the backbone of the company. The day-to-day activities of an employee require them to handle significant amounts of cash and, by default, conduct financial transactions. Sometimes these transactions do not go as expected and the company may end up with something that is not acceptable to regulators. This usually happens when there are a number of irregularities and/or unethical activities in transactions. If a company doesn’t keep an eye on its employees, it may end up with an NPA issue. When there are problems related to the employees, their paychecks are often not regular, and often times their job offers are not given on time.

How do I determine that an asset is non-performing?
You can’t figure it out from the face value alone. Read the details of the account; look at the nature of the assets. An active NBFC is not an NBFC of that car you’ve bought or not an NBFC that has bought 10 of your friends. If the bank is not able to recover the loan from you, then it must be the accounts of a person who has a lot of financial pressure at the time of making the payment. Don’t take the risk. I took a loan against an asset with a small loan amount. What will happen if the interest rates go up? The interest rate or the loan amount will not go up, because the loan was taken against assets with the minimum loan amount. There’s a good chance that you will have to repay the amount that you borrowed on time.

What are some ways that I can deal with them?
Talking with the banks If you think your account is a “problem” account, you can try talking to your bank for a solution. Make sure that you are reporting the problem account to your bank early so that they are able to deal with the problem account quickly. One of the most common “problem” accounts is loans taken out for a vacation property. Make sure that you are in agreement with your bank on the cash advance in the first place. Having a vacation property might sound like a dream, but it will add pressure to the bank. Be in agreement with your bank when you make those withdrawals. Credit Card Debt You might not realize it, but credit cards come with annual fees. If you have a credit card with an annual fee, that money is added to your debt.

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