What is NPA?
- A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
- Banks classify NPAs further into Substandard, Doubtful and Loss assets.
- Substandard assets: Assets which have remained NPA for a period less than or equal to 12 months.
- Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
- Loss assets: Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.
- With respect to agriculture, a loan granted for short duration crops will be treated as NPA, if the instalment of principal or interest thereon remains overdue for two crop seasons.
- A loan granted for long duration crops will be treated as NPA, if the instalment of principal or interest thereon remains overdue for one crop season.
Why in News?
- A latest survey has shown that asset quality of banks, which saw some improvement in the second half of 2020, is likely to worsen during the first six months of 2021.
- The findings are part of the 12th round of bankers’ survey carried out by FICCI-IBA between July and December 2020. The survey was conducted on 20 banks, including public sector, private sector and foreign banks.
- In the current round of the survey, half of the respondent banks reported a decline in NPAs during the second half of 2020. About 78% of participating state-run banks cited a reduction in NPA levels.
- However, in terms of outlook, nearly 68% of respondent bankers expect the NPA levels to be above 10% in the first half of 2021.