Non Performing Asset (NPA): All you need to know

A non-performing asset or NPA is a term used to describe loan or credit for which the principal or interest payment remained overdue for 90 days or more.

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What is NPA?

An NPA refers to a non-performing asset and is a term which is commonly used in credit facilities where there is default. Non-performing asset (NPA) is a classification used by banks across the world, for loans on which the principal is past due and on which no interest payments have been made for a prolonged period.

Types of NPAs

Banks further categories NPAs into the following three varieties:

Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.

Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.

Loss assets: Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.

NPA in banking

NPA in banking means a debt liability where the borrower has failed to make the interest and principal repayments on previously agreed upon terms for an extended period of time. Under the RBI norms in India, an NPA in banking is a loan for which the principal or interest payment has remained overdue for a period of 90 days.

When does a property turn into an NPA?

A housing project becomes an NPA, when the developer fails to pay the principal and interest to the bank, forcing the latter to initiate various measures to cut losses. This often ultimately ends up in the lender approaching insolvency tribunals to recover losses, something we have seen in cases of Amrapali, Jaypee and Unitech.
When an individual fails to pay his home loan on time, his loan also becomes a NPA. In this situation, too, the bank would ultimately sell off the property in the market to recover its losses, unless the borrower is able to pay the dues.

Buying a property through NPA auction? Take note

When banks sell off distressed real estate assets, it may seem like an opportunity to get a lucrative piece of property at affordable rates, as there are discounts involved. However, buyers must be acutely conscious of certain facts, before they get into a proposition such as this.

The bank may not be the absolute owner of the property and hence, the paperwork has to be examined carefully. For this purpose, it would be best to take the services of a lawyer and a chartered accountant.
Before making up your mind about the purchase, physically visit the property and check its physical condition. Do not go by how it looks on paper.
Look out for squatters, since the property will be sold by the bank on an ‘as-is-where-is’ basis. This means, it will be up to the buyer and not the bank, to deal with the squatters after taking control of the property.

FAQs

What is the full form of NPA?

NPA stands of non-performing assets.

What is NPA as per RBI?

An NPA is defined as a loan or credit facility, where the interest and/ or principal has remained overdue for a certain period of time.

How NPA affect banks?

An increase in NPAs, adversely affects the bank’s ability to offer credit and also impacts the financial stability of the bank.

How NPA affects home buyers?

If a home buyer defaults on his loan, resulting in the same being classified as an NPA, the bank may take possession of the property and sell it, to recover the outstanding amount on the loan.

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Sunita Mishra

An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.

In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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