Non-performing loan

A non-performing loan, or NPL, is a loan that is in default or close to being in default. Many loans become non-performing after being in default for 90 days, but this can depend on the contract terms. According to International Monetary Fund, "A loan is nonperforming when payments of interest and principal are past due by 90 days or more, or at least 90 days of interest payments have been capitalized, refinanced or delayed by agreement, or payments are less than 90 days overdue, but there are other good reasons to doubt that payments will be made in full".[1] By bank regulatory definition, non-performing loans consist of:

In India, non-performing loans are common in the agricultural sector where the farmers can't pay back the loan or the interest amount mainly as a result of losses due to floods or drought. Generally NPL problems are resolved in two ways:

Worldwide, the most common and successful approach towards NPL management is the establishment of Asset Management Companies (AMC). These companies use public or bank funds to remove NPAs from the bank books. For example, the Korea Asset Management Corporation purchased as much as 80% of bad loans at market rate following the Asian crises. Now, there are several proactive measures that are being implemented:

Issues Faced in NPL Management Worldwide

These include:

Business Opportunity

Many companies see a business opportunity in buying NPL's. Buying NPL's from financial institutions with a discount, can be a lucrative business.[2] Companies pay from 1% to 80% of the total loan and become the legal owner (creditor). The discount depends on the age of the loan, secured/ unsecured, age debtor, personal/ commercial debt, area of residence, etc.

See also

References

  1. "Clarification and Elaboration of Issues Raised by the December 2004 Meeting of the Advisory Expert Group of the Intersecretariat Working Group on National Accounts". INTERNATIONAL MONETARY FUND. June 2005 http://www.imf.org/external/pubs/ft/bop/2005/05-29.pdf. Check date values in: |date= (help)
  2. "Cash Loans".


This article is issued from Wikipedia. The text is licensed under Creative Commons - Attribution - Sharealike. Additional terms may apply for the media files.