Non-performing Asset is the loan given by a bank on which previously agreed upon interest payments or repayments are not being received by the bank on time and has remained overdue for a period of 90 days. NPA is an asset that does not generate any income for the bank.
As per RBI guidelines, a term loan on which interest or instalment of principal remain overdue for a period of more than 90 days from the end of a particular quarter is called a Non-performing Asset.
In the balance sheet of the bank, loans made to customers are shown as assets and when customers who have taken the loan stop making their interest payments or principal repayments, the value of the loan assets starts declining in the balance sheet. The higher is the amount of NPAs, the weaker will be the bank's revenues.
NPAs are categorised into 3 major types:
For Agriculture Loans, there is some change while classifying loan as NPA as mentioned below:
Banks can neither credit the income nor debit the loss unless either recovered or identified as loss in case of NPA.
It is the amount which is outstanding in the books of bank regardless of any interest.
It is Gross NPA minus interest debited to borrower's account and not recovered as income.
If a bad loan has remained NPA for minimum of 2 years, the bank can resale such bad loan to the Asset Reconstruction Companies e.g. Asset Reconstruction Company (India) (ARCIL). Asset Reconstruction Companies purchase such bad loan on very less amount and then try to make maximum possible recovery of such loans from the defaulters.