• Non-Performing Assets (NPA)

    NPA stands for Non-Performing Assets. Alternatively, they are also termed as Non-Performing Loans (NPL) when the asset given as loan falls under the same category.

    NPA refers to those loans that have stopped making any returns, i.e., defaulted loans. Formally, these are defined as “loans on which debtors have failed to make contractual payments at the pre-determined time”.

    The concept of NPA came into existence with the recommendations of the Narasimaham committee in the year 1992-93.As per the committee recommendation, NPA is defined as a loan asset which has stopped to generate any income for a bank whether in the form of interest repayment or principal repayment. In order to adopt international practices and to ensure more transparency, it was decided to adopt the ‘90 days’ overdue norm for identification of NPA’s from the year ending 31/03/2004. In accordance with it, a Non Performing Asset should be a loan or an advance where:

    • Interest and/or installments of principal payments remain overdue for a period greater than 90 days with respect to a term loan.
    • The account remains ‘out of order’ for a period greater than 90 days with respect to an overdraft/cash credit.
    • The bill remains overdue for a period greater than 90 days in the case of bill purchased or discounted.
    • Interest and/or installments of principal remain overdue at least for two harvest seasons but for a period  which does not exceed two half years in the case of an advance granted for agricultural purpose.
    • Any amount to be received overdue for a period greater than 90 days with respect to other accounts.

    NPLs result from what are termed “Bad Loans”. These loans can occur primarily due to two reasons:

    • Bad lending practices
    • Banking crisis

    As per The Reserve Bank of India’s (RBI) Website, the actual definition of Non-Performing Assets are

    An asset, including a leased asset, becomes non- performing when it ceases to generate income for the bank.

    A non-­performing asset (NPA) is a loan or an advance where;

    1. Interest and/ or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan,
    2. The account remains ‘out of order’ as indicated at paragraph 2.2 below, in respect of an Overdraft/Cash Credit (OD/CC),
    3. The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted
    4. The instalment of principal or interest thereon remains overdue for two crop seasons for short duration crops,
    5. The instalment of principal or interest thereon remains overdue for one crop season for long duration crops,
    6. The amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction
    7. Undertaken in terms of guidelines on securitisation dated February 1, 2006.
    8. In respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.

    Banks should, classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter.

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