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Non-performing assets: a guide
For a bank, assets are loans that it gives to individuals and companies and gets regular income from it in the form of interest. When these assets stop generating regular cash flow (or become non-performing), they are known as NPAs.
What are NPAs?
For a bank, assets are loans that it gives to individuals and companies and gets regular income from it in the form of interest. When these assets stop generating regular cash flow (or become non-performing), they are known as NPAs.
How is it classified?
If a loan instalment is not paid for 90 days, it is considered as an NPA. If you have taken an education loan and have been unable to repay the interest or the principal amount for three months, the bank from where you have taken this loan will record it in its books as NPA.
When do NPAs rise?
To tame inflation, the Reserve Bank of India (RBI) has tightened the monetary policy 13 times since March 2010. When RBI raises key policy rates, banks raise lending rates or an increase in loan tenor is possible. Soaring inflation and rates have seen the monthly budgets of many households go up. This has an immediate impact on EMIs. When many borrowers default, banks’ profitability is hit.
What does it mean for you?
If your loan turns into an NPA, the bank will try to recover as much as possible from you. Banks are also allowed to acquire assets if the borrower fails to repay. It can also affect your credit score.
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