What is the full form of NPA?

What is NPA?

NPA can be expanded as Non-Performing Assets. It is a loan whose interest has not been paid for the past 90 days. An asset is termed as non-performing if it does not earn any revenue for a bank. An asset can be anything which can be used by banks to generate revenue. Loan is one of them as it brings income through a loan. If a company or an individual stops paying interest, it is called NPA.

What is GNPA?

GNPA can be expanded as Gross Non-Performing Assets. It is the total amount of all the non-performing assets for a particular quarter or a financial year.

What is NNPA?

NNPA can be expanded as Net Non-Performing Assets. When provisioning is separated or subtracted from the GNPA, it becomes NNPA. If you want to know the exact data which does not include bank provisioning, you should calculate NNPA.

Types of NPA

Nor-performing assets are of many types and we will discuss them here.

Sub-Standard Assets

If the NPA period for an asset is less than or equal to 12 months, it is termed as Sub Standard Asset.

Doubtful Assets

If the NPA period for an asset is more than 12 months, it is called a doubtful asset.

Loss Assets

An asset is termed as a loss asset if its value is very little and cannot be collected.

Reasons behind NPAs

NPAs can occur due to the following reasons −

• Borrowers have stopped paying the interest on the loan

• The economic condition has deteriorated due to natural calamity, political reasons, and others

• Bank employees are bribed for loans which borrowers may not pay

• Banks provide loans to those borrowers whose credit history is bad

• Borrowers use the borrowed money for other purposes rather than those mentioned on the loan documents. These borrowers lack money to repay the loan

How does NPA work?

Non-performing assets or NPAs are the loans which stop making money and bringing revenue to a bank. The income and profits of a bank start falling when the number of bank loans increases but there is no payment. Various policies and methods have been introduced by the government and RBI which banks can use to reduce the amount of Non-Performing assets.

NPA Provisioning

Banks always put some amount aside to meet the loss caused by the non-performing assets. This amount is taken from profits or income. Banks use this system so that books of accounts can be easily maintained. Provisioning is done on the basis of the category to which an NPA belongs. Provisioning also depends on the type of bank as rules for provisioning are different for each of them.

Disadvantages of NPA

NPA has many disadvantages and some of them are listed below −

• Income is reduced

• Difficult to recover the loan

• Cash flow is reduced

• CIBIL is reduced

• Funding issues may occur

Conclusion

NPA stands for Nom-Performing Assets. NPAs are loans whose interest has not been paid for the past 90 days. Banks can deal with NPAs by allocating extra amounts earned from profits and income. NPAs are of three types which include Sub-Standard Assets, Doubtful Assets, and Loss Assets.

FAQs

FAQ 1: What is NPA?

Ans: NPAs are assets that do not bring any revenue to the bank. A loan is considered as an NPA if interest has not been paid for 90 days.

FAQ 2: What banks can do to deal with NPAs

Ans: Loan restructuring, litigation recovery, and selling NPAs to reconstruction businesses are some of the methods to deal with NPAs.

FAQ 3: What do banks do with NPAs?

Ans: Banks may go to court to force the lender to give the money back so that assets can be liquidated. Another way is that banks can make the NPAs as bad loans.

FAQ 4: How NPA is calculated?

Ans: The formula for calculating NPA is as follows:

Net NPA = Gross NPA - Provisions

FAQ 5: What happens if a bank declares a loan as NPA?

Ans: If a bank declares a loan as NPA, it sends a notice period of 60 days and then takes legal action.