What do you mean by non performing assets?

The Non-Performing Assets meaning refers to the principal and interest payments that are paid late or missed. The loan amount and advances that are in default or arrears when ceases to produce the income for the bank is known as non-performing assets. Generally, this kind of principal or interest remains overdue for 90 days. This is Non Performing Asset meaning in simple terms.

What do you mean by Non Performing Assets?

Well, just a simple Non Performing Assets definition may not clear your doubt. So, let us understand the types of NPAs. Bank has classified NPAs into Substandard, Doubtful, and Loss assets. 

Define non-performing assets classification:

1. Substandard Assets: Assets that became NPA for a duration less than or equal to 12 months.

2. Doubtful Assets: Doubtful assets are assets that fall into the substandard category for a duration of 12 months.

3. Loss Assets: According to RBI "Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.”

Types of Non Performing Assets:

Now that we know non performing assets meaning, let us take a look at the types of non performing assets:

1. Term Loans

2. Overdraft and cash credits facility not working for more than 90 days

3. Principal and instalments overdue for agricultural advances

4. Expected payments are overdue for a period of 90 days.

Points to Remember:

• NPAs create a negative impact on a bank's balance sheet

• The lender has to consider liquidating the assets that were pledged or writing it off as bad debt and he can collect the dues through tribunals.

• The lender can restructure the loan to cover the loss.

• Bad loans can be transferred to equity.

• Lenders can sell the loans to companies or banks at a low price and recover the amount.

Due to NPAs, the bank may increase the rate of interest. They may not have sufficient funds for lending to other companies. Unemployment can rise using NPAs.

I hope you understand Non Performing Asset meaning now.

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