NPA Full Form-Performing Assets

Understanding Non-Performing Assets (NPAs): Causes, Impact, and Solutions

Non-Performing Assets (NPAs) are loans overdue for 90 days, posing challenges to banking stability and economic health.

This article explores the concept, causes, impacts, and solutions for NPAs.

What are Non-Performing Assets (NPAs)?

NPAs are loans with overdue interest or principal payments for 90 days, categorized as:

• Sub-standard: Non-performing for ≤12 months.
• Doubtful: Non-performing for >12 months.
• Loss: Deemed unrecoverable.

Causes of NPAs

NPA contributors:

• Economic Slowdown: Reduces corporate earnings.
• Poor Appraisal: Inaccurate borrower assessment.
• Wilful Defaults: Intentional non-repayment.
• Sector Risks: Downturns in infrastructure, steel.
• Legal Issues: Regulatory delays, disputes.
• Fraud: Fund diversion, corruption.

Impact of NPAs

NPA consequences:

• Profitability: Reduces bank earnings.
• Credit Crunch: Limits lending capacity.
• Confidence: Lowers investor trust.
• Economy: Causes stagnation, job losses.
• Instability: Risks bank failures.

Solutions to Reduce NPAs

NPA mitigation strategies:

• Credit Appraisal: Robust risk assessment.
• Resolution: Use IBC, DRTs for recovery.
• ARCs: Offload bad loans to recovery firms.
• Monitoring: Deploy AI analytics for early warnings.
• Legal Framework: Enforce anti-default laws.
• Governance: Promote transparency.
• Policy Reforms: Support stressed sectors.

Non-Performing Assets (NPAs) threaten financial stability, but risk management, policy reforms, and monitoring can ensure a resilient banking sector.

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