What is the core of the economy of a country? It is nothing but the banking system. It is the powerhouse that keeps the machinery running by pumping money.
To keep the money rotating, banks give loans to those who want to build their business. Banks earn by charging interest against the loans and advances they provided for the smooth running of the business and that's how the banking system flourishes.
But what if people take loans from banks and do not repay? Such unrecoverable loans will cost the loss of plenty of resources.
Banks do not earn interest from such loans. They are unable to recover the base amount also from defaulters.
Such assets are called Non-Performing Assets or NPA.
NPA Definition: Non-performing assets (NPA) are loans or advances for which the principal or interest has not been paid for 90 days.
Banks and financial institutes must take measures to control NPAs as it is not good for their health.
What is NPA Management?
NPA management is the process of managing and recovering NPA.
The problem can be handled by managing and recovering NPAs if they invest in the right solutions. Banks use proficient recovery tools that are responsible for data collection from all the possible sources.
They undergo a predictive analysis so that lending decisions can be supported based on the following aspects:
Repayment capacity of the clien
Willingness to payback
Banks integrate with controlling organizations such as CIBIL. It gives an idea of the financial condition, history, and payment behavior of the client
How do banks get benefited from NPA management?
When banks and financial institutions initiate NPA management and evaluate the credit rating of a client, they get fairly clear warning signals.
Thus, banks can get a timely alert. It becomes easy for them to find out and recover amounts in a better manner.
To support banks, the government of India has introduced regulatory bodies such as SARFAESI Act 2002, Lok Adalat, and Debt Recovery Tribunals (DRTs).
NPA automation has been initiated to evaluate credit rating and early warning signals. Therefore, it has become possible to take necessary actions easily, e.g., follow-up, scheduling meetings, filing legal cases, and so on.
Companies are offering automated NPA Management tools to cater to the problem of NPA in banks. These comprehensive solutions can be plugged-in to the existing CBS (Core Banking Solution) of the bank and customer data can be analyzed better.
These tools provide analytical tools to know the issues and causes. Banks can take corrective actions also these tools define the communication process and recovery framework.
Modern NPA management improves the financial health of banks and financial institutions.