What is a Non Performing Asset (NPA)?

By Pradeep Yuvaraj | March 15, 2011

A loan that is not meeting its stated principal and interest repayments is called non-performing asset or NPA. Any commercial loans which are more than 90 days overdue are usually classified as nonperforming assets by banks.

Loans of this type are considered nonperforming because the bank is no longer receiving a return on the investment made since the borrower is no longer paying on the principle or the interest of the loan. The criterion used to determine if a loan is nonperforming varies slightly from lender to lender, but there are a few basic guidelines that are used by most types of lenders.

Once the defaulted loans (loans of any kind – home loan, mortgage loan, car loan etc.) are considered as NPA, any repayments to these loans will not be considered as income by the bank. Banks usually have a provision allotted in the balance sheet to handle NPA’s. The loan which has remained NPA for a period less than or equal to 12 month is called substandard Asset. An asset would be classified as doubtful if it remained in the sub-standard category for 12 months. A loss asset is one which considered noncollectable/irrecoverable and of very little value even if there may be some salvage or recovery value.

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Pradeep Yuvaraj

About Pradeep Yuvaraj

Pradeep Yuvaraj is a Co-Founder and Director at Finerva Financial Solutions Private Limited, a financial education company focused on personal finance education. He has penned over 250 articles relating to Personal Finance and clocked over 500 hours of educating individuals on managing personal finance. He is a serial entrepreneur and has been associated with 7 Start-ups. His entrepreneurial experience spans industries as varied as Education, Gas Engineering, Automobile Design, Software development and more recently a Pure play presentation design company. Prior to turning entrepreneur in 2005, he has worked for 3 of the top ten companies of the world - Shell, ExxonMobil and Total SA. This experience included handling Branch Operations, Channel Sales and Business Development across 5 states over a period of 8 years. He holds an MBA from Symbiosis and an Electronics Engineering Degree from the University of Pune.

2 thoughts on “What is a Non Performing Asset (NPA)?

  1. LOKESH

    HELLO
    I HAVE A LONE FROM MAHINDR & MAHINDRA FINANCE COMPANY FOR A USED CAR LONE AFTER THAT THE LONE IS IN NPA AND NO ONE CAN GIVE ME A LONE HOW I RECOVER IT AND MY CREADIT SCORE IS ALSO DOWN WHT I DO I AM HELPLESS PLESE GIVE SUGEASATION

    Reply
    1. Team BankBazaar

      Hi Lokesh, While there’s nothing wrong in taking multiple loans, you should ensure that you’re repaying your loans on time. Your Credit Score will sink if you default on your loan. You may speak with your bank and see if you can settle the loan so that your Credit Score improves. Cheers, Team BankBazaar.

      Reply

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