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NPA Full Form - Non Performing Assets

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 Non Performing Assets

Non Performing Assets

  • NPA stands for Non Performing Assets.
  • It refers to a loan or advance that the principal or interest payment isn't paid for a minimum of 90 days, i.e. the assets of a bank (loans or advances given to customers) that aren't performing (don’t bring any return) are called Non Performing Asset or bad loans.
  • For example, a bank has sanctioned a loan of Rs. 10 lakh to a company with interest-only payment of 5000 per month.
  • If the company fails to form the payment for 3 consecutive months (90 days), the bank is required to categorize this loan as a non-performing asset to meet the regulatory requirements.
  • The NPA places burden on the lenders as nonpayment of interest or principal reduces income for the lender. It disrupts budget and reduces earnings and reduces the capital to provide subsequent loans.
  • The Banks have classified NPAs into three categories or types which are as follows:
    • Substandard Assets : It refers to those assets which remain NPA or are overdue for a period but 12 months but more than 90 days.
    • Doubtful Assets : It refers to those assets which are overdue for a period exceeding 12 months.
    • Loss Assets : It refers to those assets which are doubtful and thought of as non-recoverable by bank, internal or external auditor and central bank inspectors.

Common Reasons for NPA

  • Default :
    • The non-payment (default) by the borrowers.
  • Economic conditions :
    • The unfavorable economic condition due to natural calamities, political reasons or the other reason.
  • Bad credit history :
    • The loan is provided to borrowers who have had a bad credit history.
  • Negligence :
    • Sometimes borrowers bribe bank officials to get loans with an intention of default.
  • Diversion of funds :
    • The borrowed funds used for other purposes rather than those mentioned within the loan documents. Such borrowers usually fail to repay the loan.

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