A Non-Performing Asset (NPA) is a loan on which the borrower has stopped making principal or interest payments for more than 90 days. Banks are required by RBI to classify such loans as NPAs, which impacts their financial health and lending capacity.
NPAs are sub-classified as: Sub-standard (NPA for up to 12 months), Doubtful (NPA for 12+ months), and Loss assets (identified as uncollectible). Banks must set aside provisions (reserves) against NPAs, reducing their profitability.
For borrowers, having an account classified as NPA severely damages credit scores, may trigger SARFAESI proceedings for secured loans, and makes obtaining future credit extremely difficult.
NPA classification has severe consequences for both lenders and borrowers. Understanding this helps borrowers avoid the circumstances that lead to default and NPA classification.
Nihal Fintech emphasizes the importance of regular repayments and proactive communication with lenders. We help clients facing financial difficulties explore restructuring options before accounts turn NPA.
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