We will look after Non-Banking Assets (NBA).
Non-Banking Assets (NBA)
As per the BAFIA, Banks are not allowed to purchase land and building other than for their own purpose. However, there may arise case where banks cannot realize land and building held as security against loan through auction, for recovery of loans. In such exceptional case, bank can assure ownership over such land and building. These land and building shall be termed as non-banking assets.
Accounting Treatment
Following is the accounting treatment.
- NBA will be recognized as total amount receivable or the market value of land and building. If the market value is lower than the amount receivable, the difference will be charged to P& L as loss.
For Example:
a. Loans: 10 crore and outstanding interest: 2 Crore : Total : 12 crore.
i. Market Value: 16 crore
NBA Dr A/C 12 crore
To Borrowers (Loan) A/C 10 crore
To Borrowers (O/s Interest) A/C 2 crore
ii. Market Price : 7 crore
NBA Dr 7 crore
P & L A/C Dr. 5 crore
To Borrowers (Loan) A/C 10 crore
To Borrowers (O/S) A/C 2 crore
- So, as long as the NBA actually realized and cash recovered. The balance in interest suspense account cannot be booked as income.
- 100% provision will have to be made for NBA.
Other Importnat Links:
BBS 1st Year Account Notes: CLICK HERE
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