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About This Video :

In the context of banking, NPA stands for Non-Performing Asset. It refers to loans or advances that have stopped generating income for the bank. Specifically, an asset (loan or advance) is classified as non-performing when the borrower has failed to make the required payments, either in terms of principal or interest, for a specified period, usually 90 days or more.

Key Points About NPA:
Criteria: A loan is considered an NPA when the borrower is unable to pay the interest or principal for a set period (commonly 90 days).

Types of NPAs:

Substandard Assets: These are NPAs that have been non-performing for less than or equal to 12 months.

Doubtful Assets: Assets that have been non-performing for more than 12 months but still have a possibility of recovery, though it’s uncertain.

Loss Assets: Assets where the loss has been identified by the bank, and it’s not recoverable or only partially recoverable.

Impact on Banks:

Financial Health: A higher NPA ratio can indicate that a bank has more loans that are unlikely to be repaid, which negatively impacts its profitability and liquidity.

Provisioning Requirements: Banks are required to set aside a certain amount of their funds as provisions for NPAs. The higher the level of NPAs, the greater the provisions required, which can affect the bank's financial stability.

Regulatory Measures: Regulatory authorities, like the Reserve Bank of India (RBI) in India, enforce guidelines and frameworks to monitor and reduce NPAs. They require banks to classify loans into performing and non-performing categories and set aside provisions for the same.

Recovery Measures:

Debt Recovery Tribunals (DRTs): In many countries, banks can approach specialized tribunals for recovery of defaulted loans.

SARFAESI Act (in India): A law that empowers banks and financial institutions to recover loans without the involvement of courts.

Resolution: Banks work to recover or resolve NPAs through measures like restructuring loans, selling off bad debts to asset reconstruction companies, or applying for debt recovery via legal methods.