A loan or advance where the borrower has stopped making interest or principal payments for 90 or more days, classified by banks as a stressed asset.
Non-Performing Assets (NPAs) are loans that have ceased to generate income for the lender. Under RBI guidelines, an asset becomes NPA when: interest/installment remains overdue for more than 90 days (for term loans), the account remains out of order for 90 days (for overdraft/cash credit), or bills remain overdue for 90 days (for bills purchased/discounted). NPAs are further classified as: Sub-Standard (NPA for up to 12 months), Doubtful (NPA for more than 12 months), and Loss (identified as uncollectable). Banks must make provisions: 15% for sub-standard, 25–100% for doubtful (depending on security), and 100% for loss assets. India's gross NPA ratio has improved from 11.2% (2018) to about 2.8% (2024). High NPAs reduce bank profitability, limit lending capacity, and pose systemic risk to the financial system.
A bank has total advances of ₹10,000 crore. Gross NPAs: ₹300 crore (3.0% GNPA ratio). Provisions made: ₹180 crore. Net NPAs: ₹120 crore. Net NPA ratio: 120 ÷ (10,000 − 180) = 1.22%. Sub-standard: ₹100 crore, Doubtful: ₹150 crore, Loss: ₹50 crore.
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Once classified as NPA: further credit becomes difficult, CIBIL score drops significantly, the bank may initiate recovery proceedings (SARFAESI Act), assets may be seized and auctioned, and the borrower's directors may be flagged as wilful defaulters (barring them from future bank loans and board positions).
The Insolvency and Bankruptcy Code (IBC) 2016 allows creditors to initiate Corporate Insolvency Resolution Process (CIRP) for defaults above ₹1 crore. A resolution professional is appointed, a resolution plan is sought from bidders within 180+90 days, and if no plan is approved, the company goes into liquidation. IBC has been a key tool in reducing India's NPA burden.
A credit facility where a bank allows a business to withdraw more than its account balance up to an agreed limit, charging interest only on the amount overdrawn.
A fixed monthly payment amount made by a borrower to a lender to repay a loan, consisting of both principal and interest components.
Interest calculated on both the initial principal and the accumulated interest from previous periods — 'interest on interest'.
A liability of uncertain timing or amount recognized in the financial statements when a present obligation exists and a reliable estimate can be made.
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