NPA Full Form – What Is NPA, Definition, Meaning, Uses

NPA Full Form Friends, in this article, we’ll look at the full form of the NPA. When a person or business takes out a loan from a bank, the property is given to the bank as collateral. A property or business that creates income is referred to as an asset. The loan asset belongs to the bank in the case of a loan. When a borrower is unable to repay a loan on time, or when several of his loan EMIs are not paid on time, the loan asset becomes a Non-Performing Asset (NPA) for the bank.

When a loan is not returned for more than 90 days, it is classified as a nonperforming asset (NPA) by the Reserve Bank of India. In layman’s terms, when we fail to pay the EMI on a loan for an extended period of time, the bank ceases to profit from that asset, and it becomes a nonperforming asset (NPA).

NPA Full Form

Non-Performing Asset is the full form of the NPA. It refers to bank assets, which are loans or advances for which the principal or interest has not been paid for at least 90 days. Loans or advances offered to non-performing customers yield no profit. A non-performing asset or a bad loan are both examples of non-performing assets.

NPA: Non-Performing Asset

NIOS Full Form
NIOS Full Form

This is the amount of a bank loan on which the bank is unable to conduct any transactions. When a bank gives a loan to a person or an organization and neither interest nor payment of the outstanding balance is received, the bank declares the loan as NPA (Non-Performing Assets) non-performing assets. There is a time limit for declaring a debt as non-performing.

For example, assume a bank has given a corporation a loan of 20 lakhs with a monthly interest rate of merely 10,000 rupees. To comply with regulatory standards, the bank must categorize the loan as a non-performing asset if the company fails to make payments for three months in a row. NPAs put a strain on lenders by preventing interest payments or reducing cash flow for the primary lender. This puts pressure on the budget, reducing profits and money available for future loans.

NPA has been broken into three parts by the Reserve Bank

Assets that are not up to par

It refers to assets that are non-performing assets (NPAs) or are past due for less than a year but more than 90 days. Sub Standard Assets are loans that have been nonperforming for 12 months or less. When the market value of the Security Fund is less than the loan amount, the bank is required to make provisioning of up to 15% of the outstanding amount. Provisioning up to 25% of the Security Fund must be made in the event of non-deposit.

Assets with Questionable Value

It refers to assets that are due in the next 12 months or longer. Doubtful Assets are NPAs that have been non-performing for more than a year. When an NPA continues as Doubtful Assets for a year, the bank is required to make provisions of up to 25% of the outstanding amount. If an NPA stays in the form of Doubtful Assets for three years, up to 40% provisioning must be paid on the outstanding amount, and if it is more than three years, 100% provisioning must be made.

Assets that are losing money

It refers to assets that banks, internal or external auditors, and central bank inspectors believe are questionable and not recoverable.

NPA is caused by a variety of factors

Some of the most common causes of NPAs are listed below –

  • Default refers to a borrower’s failure to pay a debt, such as a mortgage.
  • Economic Conditions – Unfavorable economic conditions caused by natural disasters, political events, or other factors.
  • Bad Credit History – Borrowers with a bad credit history are eligible for loans.
  • Negligence – Borrowers have been known to bribe bank officials in order to get loans with the goal of defaulting.
  • Borrowed money that is used for purposes other than those stated in the loan documentation is known as diversion of funds. The majority of such debtors default on their loans.

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