Definition
Non-Performing Asset (NPA)
A Non-Performing Asset is a loan or advance on which the borrower has not paid interest or principal for 90 days or more, as defined by RBI norms.
The 90-day rule is the standard trigger for NPA classification in India. Once a loan turns NPA, the bank must stop booking interest on accrual and start setting aside provisions. NPAs are further graded into sub-standard, doubtful and loss assets based on how long they have stayed bad.
NPAs matter because they erode both profit and capital: the bank loses interest income and must provision against the principal. The RBI's provisioning norms, the SARFAESI Act and the IBC are the main tools Indian lenders use to recover or resolve NPAs.
Related terms
- Gross NPA Ratio (GNPA)The Gross NPA ratio is the share of a bank's total advances that have turned into non-performing assets, before deducting provisions held against them.
- Provision Coverage Ratio (PCR)The Provision Coverage Ratio is the proportion of a bank's gross non-performing assets covered by provisions, showing how well it is buffered against loan losses.
- Slippage RatioThe slippage ratio measures fresh non-performing assets added during a period as a percentage of standard advances at the start of that period.
- Special Mention Account (SMA)A Special Mention Account is a loan showing early signs of stress, classified by the RBI into SMA-0, SMA-1 and SMA-2 based on how many days payment is overdue, before it becomes an NPA.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.