Non-Performing Assets i.e. ‘NPAs’ are those assets which are not earning adequate returns to the lending institutions. These are generally the bad loans in the books of the lenders, which may occur due to failure to meet the debt obligation on time/default by the borrowers of such loans.
Generally the assets i.e. the loans provided by the lenders are classified as ‘NPAs’ when its payment obligation is not served by the borrowers for more than 90 days.
Further the debts which are overdue may be classified in to Special Mention Accounts (SMAs) which shows symptoms of bad asset quality in the first 90 days itself. This is the period before an account is identified as ‘NPA’, where appropriate steps may be taken to prevent further decline in the asset quality.
When the accounts turn ‘NPA’, the lenders may suffer revenue loss, since the borrower is unable to meet the obligation on time. However the NPAs create difficulties not only for the lenders but for the borrowers as well, like impact on their credit rating, business operations, etc.
Summary- NPAs create difficulties for the lenders while these may be detrimental for the borrowers as well, as they may experience issues in their business due to NPAs.
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