Question

What is the full form of NPA in context of Banking System?
1. National Productivity Authority
2. National Productivity Association
3. Non-Paying Assets
4. Non-Performing Assets

Answer 1

Correct Answer - Option 4 : Non-Performing Assets

The correct answer is Non-Performing Assets.

• Non-performing asset (NPA) -
  • It is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
  • NPA as defined by the RBI, “if for a period of more than 90 days, the interest or installment amount is overdue then that loan account can be termed as a Non-Performing Asset.
  • There are different types of non-performing assets depending on how long they remain in the NPA category.
    • Sub-Standard Assets.
    • Doubtful Assets.
    • Loss Assets.

•  Reasons behind the rise of Non Performing Assets in India:
  • In the period from 2004 to 2009, there was a huge growth in the economy, which led to firms taking bank loans very aggressively.
  • Most of the investment was in infrastructure sectors like roads, power, aviation, steel.
  • Laxity in lending norms by the banks, without analyzing the financial health of the companies and their credit ratings.
  • The banning of mining projects, delay in the environmental permits, led to a rise in prices of raw materials and a big gap in demand and supply thereby affecting the power, steel, and iron industries.
  • This affected the capacity of the companies to repay the loans to banks which resulted in Non-Performing Assets (NPA).
• As per the Reserve Bank of India (RBI), an asset becomes non-performing when it stops generating income for the bank.
  • The Non Performing Assets in Public Banks are valued at approximately $ 62 Billion, which represents 90% of the total NPA in India.
• Impacts of Non-Performing Assets (NPA):
  • ​Banks won’t have sufficient funds for other development projects which will impact the economy.
  • To maintain a profit margin, banks will be forced to increase interest rates.
  • Due to the curb in further investments, it may lead to the rise of unemployment.