Posts tagged ‘standard assest’


Non-Performing Asset or NPA, is a term which is used to refer to a situation when the banks or financial institutions are unable to retrieve the principal or interest from the advances or loans made by them to the borrowers. The term was used extensively in the case of Dr. Vijay Mallya, as he could neither pay back the principal amount nor the interest accrued on the same, to the banks and financial institutions, which he had borrowed from. Let us now study the concept of a Non-Performing Asset (NPA) in brief.

Non-Performing Asset (NPA) is a kind of a loan wherein the principal amount or the interest amounts are paid late or have not been paid by the borrower to the lender. In other words, if the customers do not repay the principal amount and the interest amount, for a certain period of time, then such loans are considered as Non-Performing Assets (NPAs). Non-Performing Assets (NPAs) are Non-Performing Loans. For an asset to be classified as a Non-Performing Asset (NPA), it takes a period of 90 days for the banks to do so, in India. Until 2004, the stipulated period for classifying a regular or standard account as a Non-Performing Asset, was 180 days. The said period was modified from 180 days to 90 days, keeping in mind the international norms and rules on the concept of classifying a regular account as a Non-Performing Asset (NPA).

Non-Performing Assets (NPAs) are classified into four types, depending on the possibility and probability of their recovery, namely,
1) Standard Assets: These are a kind of performing assets which create continuous income and repayments as and when they become due. They carry a normal risk and are not Non-Performing Assets (NPAs) in the real sense. No special provisions are needed for standard assets.
2) Sub-Standard Assets: These are loans which are in the nature of Non-Performing Assets (NPAs) for a period of 12 months.
3) Doubtful Assets: Assets which are non-performing for a period of over 12 months, fall under this category.
4) Loss Assets: Assets which are incapable of being recovered by the lending institutions, fall under this category.

When the defaulter or borrower pays to the bank the sums due from his end, whether it is the interest accrued on the advance or the principal amount itself, the bank will modify or convert such a Non-Performing Asset (NPA) back to a regular or standard account. Therefore, for a Non-Performing Asset (NPA) to become good or a regular account, all the dues must be paid by the borrower to the bank. This concept of regularisation is an incentive, since it encourages the borrowers to clear their dues with the banks, and restore their advances as regular accounts.

Authored by:

Advocate VISHNU PV