NPA’s (Non-Performing Assets)

Non-Performing Assets are the bad-loans of the Banks. The criteria to identify such assets keep on changing from time to time.


In 2004, RBI shifted to a current policy. Under it, a loan is considered as NPA if it has not been serviced for one term (one term here signifies 90 days). This is known as ’90 day’ overdue norm.

For Agricultural norms period is tied with the period of the concerned crops – ranging from two crop season to one crop season.

Types of NPA’s

  1. Sub-standard : NPA’s for less than or equal to 18 months.
  2. Doubtful NPA’s : NPA’s for more than 18 months
  3. Loss Assets : in these the loss has been identified by the Banks or RBI but the amount has not been written off.

GNPA’s (Gross Non-Performing Assets) of scheduled commercial banks as a percentage of total gross advances increased to 4.5% in September 2014 from 4.1% in march 2014.

The main REASONS for this increase in NPA’s, could be following:

  • Increased interest rates in the recent past
  • Lower economic growth
  • Aggressive lending by banks in the past especially during good times.
  • Macroeconomic situation of the country

To resolve the issue of increasing NPA’s, RBI came out with new guidelines, those were:

  • Banks have to start act as soon as sign of stress is noticed in borrower’s actions and not wait for it to become an NPA.
  • Banks are required to give further loans to non-cooperative borrowers at higher rate of interests.
  • Independent evaluation of large scale restructuring (above 500cr rp.) made mandatory.
  • If a borrower’s interest or principal payments are overdue by more than 60 days, a Joint Lender’s Forum to be formed by the bankers for early resolution of stress.

SARFAESI Act, 2002

  • Securitization and Reconstruction of Financial Assets and Enforcement of Security of Security Interest (SARFAESI Act), 2002.
  • It is a very effective tool with the banks for the recovery of NPA’s.
  • But it’s applicable only in case the loan is a SECURED one.
  • Under this act, banks send a notice to the defaulting borrowers for discharging their liabilities within 60 days.
  • If the person fails to do so then banks got the right of ‘SEIZE and DESIST’ the deposited security for granting loan.
  • Banks perform this function with the help of Assets Reconstruction Companies (ARC’s).

Let’s learn a new term today


There are many people and entities who borrow money from money lending institutions but FAIL to repay. However, not all of them are called WILLFUL defaulters.

As the name suggests, a willful defaulter is one who does not repay a loan or liability, but apart from this there are other things also which define the willful defaulter.

According to RBI, a willful defaulter is one who

  • Is financially capable to repay and yet not to do so,
  • Or one who delivers the funds for purposes other than what the fund was availed for,
  • Or with whom funds are not available in the form of assets as funds have been siphoned off,
  • Or who has sold or disposed the property that was used as a security to obtain the loan.


Author: Priya Malikk

Reference : Indian Economy by Ramesh Singh