NPA Meaning & its Full Form
NPA stands for Non-Performing Asset. According to the Reserve Bank of India (RBI), an NPA is any loan or advance that has been overdue for more than 90 days. In simpler terms, an asset is considered “non-performing” when it stops generating income for the bank, typically because the borrower—whether an individual or business—has failed to pay the interest or principal. The RBI introduced the 90-day overdue standard for identifying NPAs from March 31, 2004, to align with global practices.
How does NPA Work?
Non-Performing Assets (NPAs) are loans or advances that stop generating income for banks or financial institutions because the borrower has not made payments on the principal or interest for at least 90 days.
As the ratio of NPAs in a bank’s loan portfolio increases, the bank’s income and profitability decline, its lending ability is reduced, and there is a higher risk of loan defaults and write-offs. To tackle this issue, the government and the Reserve Bank of India (RBI) have introduced various policies and strategies to manage and reduce NPAs in the banking sector.
Types of NPA
Non-Performing Assets (NPAs) are classified based on how long they remain unpaid:
- Sub-Standard Assets: Loans are considered sub-standard if they remain unpaid (NPA) for up to 12 months.
- Doubtful Assets: Loans become doubtful if they are unpaid (NPA) for over 12 months.
- Loss Assets: These are loans that are considered uncollectible or of such low value that they are unlikely to be recovered. Some residual value might still exist, but they are generally not treated as recoverable assets, even if not fully written off yet.
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