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Sujai Adithya
Business Development and Banking & Financial Services Expert
Asked a question 9 months ago

What does NPA mean?

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Sujai Adithya
Business Development and Banking & Financial Services Expert

Non-performing Assets (NPA) are those assets which do not generate a regular income.

Types of assets: 

Standard assets - Assets which are generating regular income to the bank

Sub-standard assets - An asset which is overdue for a period of more than 90 days but less than 12 months

Doubtful assets - An asset which is overdue for a period of more than 12 months.

Loss assets - Assets which are doubtful and considered as non-recoverable by bank, internal or external auditor or central bank inspectors

Sub-standard assets, Doubtful assets and Loss assets are NPA.

Causes of NPA:

Economic conditions - The economic condition of a region affected by natural calamities or any other reason may cause NPA.

No more proper risk management - Speculation is one of the major reason behind default. Sometimes banks provide loans to borrowers with bad credit history. There is a high probability of default in these cases.

Mismanagement - Often ill-minded borrowers bribe bank officials to get loans with an intention of default. 

Diversion of funds - Many times borrowers divert the borrowed funds to purposes other than mentioned in loan documents. It is very hard to recover from this kind of borrowers.