What are Non-Performing Assets (NPAs)?

Non-Performing Assets (NPAs) are loans or advances given by banks and financial institutions that stop generating income for the lender. A loan becomes an NPA when the borrower fails to make interest or principal payments for a specified period, usually 90 days or more. NPAs are classified into substandard, doubtful, and loss assets depending on the duration of non-payment and chances of recovery. High levels of NPAs indicate poor asset quality, affecting the profitability and stability of banks. They can result from economic downturns, poor lending practices, or borrower defaults. Managing NPAs involves restructuring loans, improving recovery processes, and strict credit assessments to maintain financial health and ensure efficient functioning of the banking system.