Non Core Assets

What is a non core asset
Assets that are either not essential or simply no longer used in a company's business operations. They usually serve companies best when extra cash is needed as they can often be sold. Some businesses sell their non-core assets in order to pay down their bank debt. Non-core assets are not crucial to the continued success of a business but can still provide a valuable contribution. Non-core assets are likely to be sold by a company if the need for cash arises. Examples of non-core assets include real estate, commodities, natural resources, currencies, high-yield bonds and options. However, exactly what types of assets are considered non-core will vary from one business to another. For example, a real-estate investment trust would consider its real estate holdings as a core asset, while an oil company may not.

Market Capitalization, Free Float Market Capitalization and SENSEX calculation

RIL gained 1.2% to Rs 765.6 on the BSE, which pushed up its valuation to Rs 2,50,650 crore on Tuesday. CIL, however, lost nearly 1% to end at Rs 391.9 after which its Market Capitalization declined to Rs 2,47,538 crore. With Tuesday's gain, RIL has recovered 4.7% in the past two trading sessions

What is all about Market Capitalization??
Market cap or market capitalization is simply the worth of a company in terms of it’s shares! To put it in a simple way, if you were to buy all the shares of a particular company, what is the amount you would have to pay? That amount is called the "market capitalization"!

Market Capitalization = Current share price X No. of equity shares issued

What is "free-float market capitalization"?
Shares which are not privately held i.e. shares not held by directors of the company, FDI, PE Investors, Government etc. are called as free float shares.

According the BSE, any shares that DO NOT fall under the following criteria, can be considered to be open market shares:

1. Holdings by founders/directors/ acquirers which has control element
2. Holdings by persons/ bodies with "controlling interest"
3. Government holding as promoter/acquirer
4. Holdings through the FDI Route
5. Strategic stakes by private corporate bodies/ individuals
6. Equity held by associate/group companies (cross-holdings)
7. Equity held by employee welfare trusts
8. Locked-in shares and shares which would not be sold in the open market in normal course

A simple way to understand the "free-float market cap" would be, the total cost of buying all the shares in the open market!

Finding SENSEX

First: Find out the "free-float market cap" of all the 30 companies that make up the Sensex!

Second: Add all the "free-float market cap's" of all the 30 companies!

Third: Make all this relative to the Sensex base. The value you get is the Sensex value!

Suppose, for a "free-float market cap" of Rs.100,000 Cr... the Sensex value is 4000…
Then, for a "free-float market cap" of Rs.150,000 Cr... the Sensex value will be..



Please Note: Every time one of the 30 companies has a "stock split” or a "bonus" etc. appropriate changes are made in the "market cap” calculations.

Now, there is only one question left to be answered, which 30 companies, why those 30 companies, why no other companies?

The 30 companies that make up the Sensex are selected and reviewed from time to time by an "index committee”. This "index committee” is made up of academicians, mutual fund managers, finance journalists, independent governing board members and other participants in the financial markets.



The main criteria for selecting the 30 stocks is as follows:

Market capitalization: The company should have a market capitalization in the Top 100 market capitalization’s of the BSE. Also the market capitalization of each company should be more than 0.5% of the total market capitalization of the Index.

Trading frequency: The company to be included should have been traded on each and every trading day for the last one year. Exceptions can be made for extreme reasons like share suspension etc.

Number of trades: The scrip should be among the top 150 companies listed by average number of trades per day for the last one year.

Industry representation: The companies should be leaders in their industry group.

Listed history: The companies should have a listing history of at least one year on BSE.

Track record: In the opinion of the index committee, the company should have an acceptable track record.

Non Performing Assests - NPA, Types, Provisioning on NPAs

Introduction

All those assets which generate periodical income are called as Performing Assets (PA). While all those assets which do not generate periodical income are called as Non-Performing Assets (NPA).

If the customers do not repay principal amount and interest for a certain period of time then such loans become non-performing assets (NPA). Thus non-performing assets are basically non-performing loans.
In India, the time frame given for classifying the asset as NPA is 180 days as compared to 45 days to 90 days of international norms.

Types

NPA have been divided or classified into following four types:-

1.Standard Assets : A standard asset is a performing asset. Standard assets generate continuous income and repayments as and when they fall due. Such assets carry a normal risk and are not NPA in the real sense. So, no special provisions are required for Standard Assets.

2.Sub-Standard Assets : All those assets (loans and advances) which are considered as non-performing for a period of 18 months are called as Sub-Standard assets.

3.Doubtful Assets : All those assets which are considered as non-performing for period of more than 18 months are called as Doubtful Assets.

4.Loss Assets : All those assets which cannot be recovered are called as Loss Assets.


Provision on types of assets

Restructured Loan, Reshceduled Loan, Loan and Loan Loss Provisioning, Standard Assets

Banks are sensitive about provisioning on restructured and sticky loans as it impacts their bottom lines.

Since many airlines, saddled with debt and operating in a fiercely competitive market, have run into difficulty due to costly oil and weaker rupee, the RBI has allowed lenders to treat the restructured loans to these companies as 'standard assets'. This worked as an incentive for banks, which have to commit lesser capital against standard assets compared to other categories of loans such as 'substandard or 'loss' assets.

Under the proposal, SBI will have to make a provision of Rs 37 crore on its loan exposure of Rs 1,100 crore while other banks with exposures of Rs 1,000-1,200 crore will have to provide as much as Rs 500-700 crore. Most banks questioned the provisioning criteria when they met in Delhi a fortnight ago to discuss the matter.

"SBI Caps told banks that SBI has the first right over the securities of Air India and since it is willing to relinquish its first right over the assets and create a common pool of securities, the bank is compensated with lower provisioning. We don't buy this argument," a banker, who was present in the meeting, told ET.

What is a restructured loan???
New loan that replaces the outstanding balance on an older loan, and is paid over a longer period, usually with a lower installment amount. Loans are commonly rescheduled to accommodate a borrower in financial difficulty and, thus, to avoid a default. Also called rescheduled loan.

What is a rescheduled loan???
A bank loan which was restructured, usually by lengthening the maturity, in order to avoid default.

What is a provisioning of loan by Banks???
A non-cash expense for banks to account for future losses on loan defaults. Banks assume that a certain percentage of loans will default or become slow-paying. Banks enter a percentage as an expense when calculating their pre-tax incomes. This guarantees a bank's solvency and capitalization if and when the defaults occur. The loan loss provision allocated each year increases with the riskiness of the loans a given bank makes. A bank making a small number of risky loans will have a low loan loss provision compared to a bank taking higher risks.

Loan Loss Provision???
An expense set aside as an allowance for bad loans (customer defaults, or terms of a loan have to be renegotiated, etc).

Standard Assets???
To understand the standard assets, I would suggest you to read through the NPAs (Non Performing Assests).