The full form of AUCA in banking is Advance Under Collection Account. Let me briefly discuss AUCA accounts in banking.
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AUCA or Advance Under Collection Account is an account that holds the portion of Non-Performing Assets (NPA) accounts. AUCA helps in the NPA reduction strategy that in turn helps banks to take the bad debt off the balance sheet. In this condition, there is an option of recovering the amount from its promoter. By writing off bad and doubtful assets the bank improves its NPA ratio.
As a reference, I will share the definition of NPA as well.
A non-performing asset is a loan or advance for which the principal or interest payment remains overdue for at least 90 days.
There are different types of NPA accounts such as:
Substandard Assets
Doubtful assets
Loss assets
Having more Non-performing assets harms the reputation of the bank. That’s why the RBI has introduced the option of AUCA. RBI always encourages banks to take some actions against bad loans and keep the book clean. Non-performing assets increase overall tax liabilities and constrict the capital. Therefore, the AUCA method is there to help the bank maintain its reputation. I hope you know the meaning of AUCA in banking now.
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What is AUCA in banking?
disha
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2022-10-31T21:47:46+00:00 2023-08-16T16:30:07+00:00Comment
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