What is Non-Performing Asset?

Non-Performing Asset or NPA is the loan or advance for which the principal or interest payment remained unsettled or overdue for more than 90 days. They are also the kind of loans that the lender considers the borrower is unable to pay back.

In India, the estimated timeline for categorizing the asset as NPA is 180 days. Banks classify NPAs into four categories i.e. Standard, Substandard, Doubtful, and Loss Assets.

• Standard: A kind of performing asset that creates continuous income and repayments that carry normal risk and are not actual NPAs. It has no special provision.

• Substandard: Asset that has remained NPA for a time frame of less than or equivalent to 12 months.

• Doubtful: The asset that remains in the substandard category for a period of 12 months.

• Loss Assets: This is considered uncollectible with a negligible value that it is not seen as a bankable asset, though they might be of some recovery value.

When not paid on time, loans and advances have negative impacts on the bank's balance sheet. NPAs are easily detectable by the auditors or RBI, affecting the bank’s financial health.