NPA Full Form in Banking is Non-Performing Asset. It refers to loans or advances provided by banks that have ceased to generate income for the lender. Specifically, an asset is classified as “non-performing” when the borrower fails to make interest or principal repayments for a specified period, typically 90 days or more, as per Reserve Bank of India (RBI) guidelines.
Types of NPAs
- Substandard Assets: Loans that remain non-performing for less than 12 months.
- Doubtful Assets: Loans that have been classified as non-performing for more than 12 months.
- Loss Assets: Loans identified by the bank or external auditors as non-recoverable.
Causes of NPAs
NPAs can arise due to various reasons such as economic downturns, poor credit appraisal, mismanagement by borrowers, and external factors like changes in government policies or natural disasters. In some cases, willful defaults by borrowers also contribute to rising NPAs.
Impact of NPAs
High levels of NPAs reduce a bank’s profitability, erode its capital, and affect its lending capacity. This can have a ripple effect on the economy by reducing credit flow to businesses and individuals.
Measures to Address NPAs
To tackle the issue of NPAs, the Indian government and the RBI have introduced several measures, including:
- Insolvency and Bankruptcy Code (IBC): A legal framework for resolving bad loans.
- SARFAESI Act: Empowering banks to recover secured loans.
- Asset Reconstruction Companies (ARCs): To buy bad loans and recover dues.
In conclusion, managing NPAs is critical for maintaining the financial health of banks and ensuring the stability of the overall economy. With proactive measures and sound credit practices, banks can minimize their exposure to such risks.