The first meeting of the recently-formed Bank Board Bureau (BBB) met  at the RBI headquarters in Mumbai and discussed issues of non-performing assets (NPAs), or bad loans, as well as strategies for recapitalising banks.

Taking the first step towards a holding company structure for state-run banks, the government, in August last, announced the setting up of the BBB to recommend appointment of directors in PSBs and advise on ways of raising funds and dealing with stressed assets. The quantum of exposure of Indian scheduled banks in terms of gross non-productive assets, re-cast loans and write-offs was Rs.9.5 lakh crore as of September last year.

                          A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days; refer to loans that are in risk of default.

Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.

1. Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.

2. Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.

3. Loss assets: A loss asset is one where loss has been identified by the bank or internal or external auditors or by the Co-operation Department or by the Reserve Bank of India inspection but the amount has not been written off, wholly or partly. In other words, such an asset is considered un-collectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

Recently the Finance minister also launched a seven pronged plan– Indradhanush–to revamp functioning of public sector banks. The seven elements include appointments, board of bureau, capitalisation, de-stressing, empowerment, framework of accountability and governance reforms.