Non-Performing Asset (NPA)

An NPA is defined as a loan or an advance in which interest and/or installment of principal remains overdue for a period of 90 days. The asset ceases to earn money for the lender (either a bank or a financial firm) when the borrower is unable to meet their repayment commitments. Depending on the period till which the borrower has not repaid and also upon their recoverability into other classes of assets, these NPAs are categorized as sub-standard, doubtful, and loss. A high level of NPAs signifies bad quality credit and can dent a bank’s profitability and capital cushion. Control of NPAs and banking system health requires effective monitoring, appraisal of credit, and recovery mechanisms.