Non Performing Asset

Banking

Quick Definition

A Non-Performing Asset (NPA) is a loan or advance where the borrower has stopped making interest or principal payments for a specified period.

Detailed Explanation

An asset becomes an NPA when it stops generating income for the lender.

In India, as per guidelines of the Reserve Bank of India, a loan is classified as NPA if interest or principal remains overdue for more than 90 days.

Types of NPAs

Substandard Assets

  • NPA for less than 12 months

Doubtful Assets

  • NPA for more than 12 months

Loss Assets

  • Considered uncollectible

Why NPAs Matter

  • Reduce bank profitability
  • Increase financial risk
  • Impact overall economy

Causes of NPAs

  • Economic slowdown
  • Poor credit appraisal
  • Borrower default
  • Industry-specific issues

NPA vs Standard Asset

  • NPA: Not generating income
  • Standard Asset: Performing normally

Example

"If a borrower fails to pay EMI for more than 90 days, the loan becomes an NPA."

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