Non Performing Assets or NPA- Meaning and Examples

Non-Performing Assets or NPA

Non-Performing Assets or NPA means those loan(Asset for the lender) provided by the Banks or financial Institutions which is not performing. It means these loans on which amount of interest, as well as the amount of principle, are not repaid by the customers(borrower) to banks or financial institutions.

The main source of income for banking sectors is interest earned on loans. Because most of the loan accounts are maintained for a long period and banks or financial institutions will get benefits from them for a long period of time so that’s why loans are treated as assets for the banks or financial institutions.  

So, If the interest earned form loan not received by the banks for the period of more then 90 days they will declare this asset as Non-performing Assets.

Types of Non-performing Assets or NPA: –

To understand the types of Non-performing assets first we have to know about the different types of loan provided by the banking system to their customers. These are shown as follows: –

  1. Term Loan 
  2. Agriculture Loan 
  3. Cash Credit or Overdraft 

1. Term Loans: – 

Term loans mean those type of loans which have fixed term of repayment. In other words in this type of loan customer knows the Predefine EMI for the fixed period of time. 

Examples of Term loans: –

House Loan, Car loan, Personal Loan and consumer goods loans

When Term Loans converted into the Non-performing Assets or NPA?

When customer or borrower did not pay interest and the principal amount of loans more than 90 days, then this loan will declare as Non-performing Asset or NPA.

2. Agriculture Loans: –

Agriculture Loans means that loan which is provided to the farmer for cultivation. The amount of loan is sanction as per the land owned by the farmer. 

When Agriculture Loans converted into the Non-performing Assets or NPA?

When the payment of interest, as well as the principal amount of loans, remain unpaid more than two crops(if short term crops) and one crop (if long term crop), then this loan will declare as Non-performing Asset or NPA.

3. Cash Credit or Overdraft: 

Cash Credit or Overdraft limit is provided by the banks or financial institution to their customer by providing credit card and limit on house building with housing loan, on agriculture land and to the business owner on their stock or inventories. 

When Cash Credit or Overdraft converted into the Non-performing Assets or NPA?

When customer or borrower did not pay interest and the principal amount of loans more than 91 days, then this loan will declare as Non-performing Asset or NPA.

and for business, if they did not submit the stock statement for the last three quarters. 

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