This document defines and discusses non-performing assets (NPAs) for banks and financial institutions. It states that an asset becomes non-performing when it stops generating income for the bank. It is considered non-performing when principal or interest payments on a loan are overdue for 90 days. High levels of NPAs can put pressure on banks and lead to write-downs. The document outlines reasons for NPAs like bad lending practices or economic downturns. NPAs can negatively impact depositors, shareholders, and the overall economy by redirecting funds from viable projects to non-performing loans.

1. Non-performing asset

2. • An asset, including a leased asset, becomes
non performing when it ceases to generate
income for the bank.
RBI

3. A Non-performing asset (NPA) is defined as
a credit facility in respect of which the interest
and/or installment of principal has remained
‘past due’ for a specified period of time. In
simple terms, an asset is tagged as non
performing when it ceases to generate income
for the lender.

4. • NPA is used by financial institutions that refer to
loans that are in jeopardy of default. Once the
borrower has failed to make interest or principle
payments for 90 days the loan is considered to be
a non-performing asset. Non-performing assets
are problematic for financial institutions since
they depend on interest payments for income.
Troublesome pressure from the economy can lead
to a sharp increase in non-performing loans and
often results in massive write-down

5. Reasons for NPA
• Usual banking operations /Bad lending practices
• A banking crisis (as happened in South Asia and
Japan)
• Overhang component (due to environmental
reasons, natural calamities,business cycle,Disease
Occurrence,etc...)
• Incremental component (due to internal bank
management, like credit policy, terms of credit,
etc...)

6. The Problems caused by NPAs
• Depositors do not get rightful returns and many times
may lose uninsured deposits. Banks may begin
charging higher interest rates on some products to
compensate Non-performing loan losses
• Bank shareholders are adversely affected
• Bad loans imply redirecting of funds from good
projects to bad ones. Hence, the economy suffers due to
loss of good projects and failure of bad investments.
• When bank do not get loan repayment or interest
payments, liquidity problems may ensue.

7. Accordingly, with effect from March 31, 2004, a non-
performing asset (NPA)is a loan or an advance where;
• Interest and/or installment of principal remain overdue for a period
of more than 91 days in respect of a term loan,
• The account remains ‘out of order’ for a period of more than 90
days, in respect of an Overdraft/Cash Credit (OD/CC),
• The bill remains overdue for a period of more than 90 days in the
case of bills purchased and discounted,
• Interest and/or installment of principal remains overdue for two
harvest seasons but for a period not exceeding two half years in the
case of an advance granted for agricultural purposes, and
• Any amount to be received remains overdue for a period of more
than 90 days in respect of other accounts.
• Non submission of Stock Statements for 3 Continuous Quarters in
case of Cash Credit Facility.
• No active transactions in the account (Cash Credit/Over
Draft/EPC/PCFC) for more than 91days

8. Out of order
• An account should be treated as ‘out of order’ if the
outstanding balance remains continuously in excess of
sanctioned limit /drawing power. Even if the outstanding in
the account is within limit/DP, but there are no credits
continuously for 90 days or credits are not enough to cover
interest debited, the account should be treated as ‘out of
order’.
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13. In USA
Source http://bankregdata.com

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