When an individual or a company or an organization fails to pay the money borrowed from a lender or a bank then it becomes an NPA (Non-performing asset) in the books of the financial institution. There is no assurance that the lender receives or will not receive the loan money.
A borrower comes under an NPA, When he/she fails to pay the loan amount for 90 days. 90 days is a standard period which is fixed to decide whether a specific borrower will fall under NPA or not. Once the borrower fails to pay the loan amount for 90 days.
Types of Non Performing Assets:
• Standard Assets
• Sub-Standard Assets
• Doubtful Assets
• Loss Assets
Standard Assets: When a borrower fails to make repayment on time and misses the regularity then it is called a Standard non-performing asset.
Sub-Standard Assets: An asset that has been NPA for less than 12 months and the bank has to maintain 15% of its reserves then it is called a Sub-Standard non-performing Asset.
Doubtful Assets: An asset that has been NPA for more than 12 months then it is called a doubtful asset.
Loss Assets: An asset in which the loss has been identified by the lender, through the internal or external auditing or by the central bank officers. The loan amount has not been written off, completely or partly then it is called a loss Asset.
Reasons for NPA
- Industrial Crisis
- Willful Defaulters
- Lenient lending Norms
One of the external factors which are the main cause of the rise in NPAs in the country is Industrial Crisis. The main source of the investment for the Industries are banks. They borrow money and invest in the projects to fulfill the main requisite resource for the project. If any industrial crisis comes they will become NPA,s and will be very effective as they borrow a big amount of money.
There is another type of non paying assets which are called Willful Defaults. A person/organization who has defaulted in doing its payments/repayment obligation to the banker/lender even when they can honor the obligations then they are called willful defaulters. There are few such cases in India of which one of the most know cases is Kingfisher Airlines.
Lenient Lending Norms:
Few banks increase leniency in lending Norms for various reasons such as marketing or to attract the borrowers. This has become one of the main
There will be many more reasons like a few of the borrowers take a wrong way like bribing or some other fake documents to get loans and the main reason for taking the loan is to become a defaulter or not paying back the loan amount. So if the banks/lenders can make their loaning process a little more secure by adding multiple verification methods which will increase the change of not facing any kind of NPAs that will help the Indian economy as well.