About Non-performing Asset (NPA):
- A nonperforming asset (NPA) refers to a classification for loans or advances that are in default or are in arrears on scheduled payments of principal or interest.
- It is the loan or advance is classified as NPA whose principal or interest payment remained overdue for the period of 90 days.
- They are typically listed on the balance sheets of banks.
- A loan can also be categorized as nonperforming if all interest payments are made but the principal amount is not repaid at maturity.
Banks are required to classify nonperforming assets in one of three categories according to how long the asset has been non-performing:
- Sub-standard assets: Assets which has remained NPA for a period less than or equal to 12 months.
- Doubtful assets: An asset would be classified as doubtful if it has remained in the sub-standard category for a period of 12 months.
- Loss assets: As per RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.”
Types of Nonperforming Assets
Although the most common nonperforming assets are term loans, there are six other ways loans and advances are NPAs:
- Overdraft and cash credit (OD/CC) accounts left out-of-order for more than 90 days
- Agricultural advances whose interest or principal installment payments remain overdue for two crop/harvest seasons for short duration crops or overdue one crop season for long duration crops
- Bill overdue for more than 90 days for bills purchased and discounted
- Expected payment is overdue for more than 90 days in respect of other accounts
- Non-submission of stock statements for 3 consecutive quarters in case of a cash-credit facility
- No activity in the cash credit, overdraft, EPC, or PCFC account for more than 91 days