Stress Asset

Banking

Quick Definition

A Stressed Asset is a loan or financial asset that is at risk of default or has already stopped generating expected income for the lender.

Detailed Explanation

Stressed Assets indicate financial stress in the banking system, where borrowers are unable to repay loans on time. These assets reduce bank profitability and increase risk.

In India, classification of stressed assets is governed by the Reserve Bank of India.

Types of Stressed Assets

  • Non-Performing Assets (NPAs): Loans overdue for 90+ days
  • Restructured Loans: Modified repayment terms due to borrower difficulty
  • Written-off Assets: Loans removed from balance sheet but still under recovery

Why Stressed Assets Matter

  • Indicates financial health of banks
  • Impacts credit availability in economy
  • Affects economic growth

Causes of Stressed Assets

  • Economic slowdown
  • Poor credit assessment
  • Business failures
  • High debt levels

Impact

  • Lower bank profits
  • Higher provisioning requirements
  • Increased risk in financial system

Example

"If a borrower fails to repay a loan for more than 90 days, it becomes an NPA and is classified as a stressed asset."

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