Stressed assets are those that are experiencing financial difficulty and pose a risk of loss to the lender. Here are some examples:
1. Non-performing assets (NPAs): These are loans or advances where the borrower has not made any payment (principal or interest) for a specified period (usually 90 days or more). Examples include:
- Personal loans: unpaid credit card debts, mortgages, auto loans, etc.
- Corporate loans: loans to businesses that are struggling to repay.
2. Restructured loans: These are loans where the terms have been modified due to the borrower’s financial difficulties. This could involve extending the repayment period, reducing the interest rate, or waiving certain fees.
3. Special mention accounts (SMAs): These are accounts that show signs of weakness but haven’t yet become NPAs. This could include:
- Accounts with overdue payments of less than 90 days.
- Accounts where the borrower’s financial condition has deteriorated.
- Accounts where there is a significant risk of default.
4. Written-off assets: These are loans that the lender has deemed uncollectible and removed from its books. This typically happens after all recovery efforts have been exhausted.
Examples of stressed assets by sector:
- Infrastructure: Projects facing delays, cost overruns, or low revenue generation.
- Iron and Steel: Companies struggling with weak demand, high input costs, and excess capacity.
- Textiles: Businesses affected by competition from cheaper imports or changing consumer preferences.
- Aviation: Airlines facing financial difficulties due to high fuel costs, competition, or economic downturns.
- Mining: Companies affected by falling commodity prices or environmental regulations.
Additional points:
- Stressed assets can have a significant impact on the financial stability of banks and other lenders.
- High levels of stressed assets can lead to reduced profitability, increased risk of losses, and a need for additional capital.
- Banks and other financial institutions implement various strategies to manage stressed assets, such as loan restructuring, debt recovery, and asset sales.
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