A current account is generally opened in the name of the business. it is to know the business in-depth. It is generally used by businessmen who carry on a large number of transactions regularly which are savings account does not allow.
In this account credit limit is given by the bank for the business firm or industry. Interest is charged on the daily usage limit of the borrower.
Here we calculate the drawing power of the cash credit account based on paid stock and debtor.
stock = (stock – creditor) * 75%
debtor = 60% of debtor
therefore, total primary security = stock + debtor
in banks, assets can be classified as performing assets and non-performing assets that are PA and NPA.
asset is classified as NPA if do you use it in the form of interest or principal are not paid by the borrower for more than 90 days.
In the case of cash credit or overdraft facility asset is classified as NPA if the account remains out of order for more than 90 days.
NPAs can be further classified depending on the length of time overdue and probability of repayment.
it's classified as
The asset is substandard if interest payment is not done for more than 90 days.
asset is classified as a doubtful asset when that interest payment is not done for a period of the next 12 months.
asset remains in doubtful category for a minimum period of three years and then this is categorized as loss asset.
How Non-Performing Asset Works
Non Performing assets are listed on the balance sheet of a bank or other financial institution. After a long period of non-payment, the lender forces the borrower to liquidate the assets deposited under the debt agreement. If the asset is not deposited, the lender may amortize the asset as a bad debt.
To summarize the above-
a NON-PERFORMING asset (NPA) can be a loan or a down payment if either loan either and/or principal is overdue for 90 days or more. For overdraft/cash advance (OD / CC), the account remains "out of service". purchased and discounted exchange invoices, the exchange invoice is overdue for 90 days or more. iv. Principal or interest repayments are delayed by two crop seasons for short-term crops. The amount of the liquidity facility for securitization transactions carried out by the securitization guidelines of February 1, 2006, has been outstanding for more than 90 days. vii. For derivative transactions, the delinquent account represents the positive market value of the derivative contract if it is unpaid within 90 days of the specified date.
