What is the AUCA Full Form in Banking?
The AUCA full form in Banking is advance under collection account. AUCA, or Advance under Collection Account, is an account that holds a percentage of non-performing assets. AUCA contributes to the NPA reduction strategy, which helps banks remove bad debt from their balance sheets. In this case, there is an option to collect the funds from the promoter. The bank can improve its NPA ratio by writing off the bad assets.
Reasons for instituting advance under collection account:
Having more non-performing assets harmed the bank’s reputation. That is why the RBI has introduced AUCA. RBI consistently pushes banks to take action against problematic loans and keep their books clean. Non-performing assets increase total tax payments and reduce capital. The advance under collection account actually helps the bank to maintain its reputation.
Significance of AUCA in banking:
AUCA is important in banking since it helps monitor and minimize non-performing assets. When a loan becomes irrecoverable, the remaining balance is transferred to the AUCA, a separate account utilized for recovery operations. This strategy improves the bank’s financial stability by removing problematic loans from its regular accounts. It also helps to reduce the tax burden by writing off the sums for accounting purposes.
