What’s NPA and how can technology solve it?
Being the son of a banker, you always get a first-row seat to some of the most important events in the financial world. One such event that has always troubled me as an ex-credit analyst and the son of a banker, was the cancer at the core of our Indian banking system — Non Performing Assets (NPAs). The below are a collation of the various articles/items that I had read from various sources. At the end, there is also a potential solution to the problem including a very cool name.
Definition:
The banks, in their books, have different kind of assets, such as cash in hand, balances with other banks, investment, loans and advances, fixed assets and other assets. The Non- Performing Asset (NPA) concept is restricted to loans, advances and investments. As long as an asset generates the income expected from it and does not disclose any unusual risk other than normal commercial risk, it is treated as performing asset, and when it fails to generate the expected income it becomes a “Non-Performing Asset”.
In other words, a loan asset becomes a Non Performing Asset (NPA) when it ceases to generate income, i.e. interest, fees, commission or any other dues for the bank for more than 90 days. A NPA is an advance where payment of interest or repayment of installment on principal or both remains unpaid for a period of two quarters or more and if they have become ‘past due’. An amount under any of the credit facilities is to be treated as past due when it remain unpaid for 30 days beyond due date.
The stress in the banking sector, which mirrors in the corporate sector, has to be dealt with in order to revive credit growth
— Raghuram Rajan, June 2016
Potential revenue streams:
- Asset certification fees from banks with NPAs
- Commission fees from the sale of NPAs
- Post Asset Management fees
The above was a year and half ago. Unfortunately, we were not able to kickstart this as in addition to tech (which we had in abundance), it required the domain expertise and “political clout”. Now, this weaved over a beautiful permissioned Blockchain will make the system more transparent and do wonders.
But, is it what the banks, the politicians and their cronies really want? That is something a techie can never answer!
