what is npa

A Non-Performing Asset (NPA) is a debt obligation where the borrower has not made any previously agreed upon interest and principal repayments to the designated lender. A loan is considered to be in arrears when principal or interest payments are late or missed, and it is in default when the lender considers the loan agreement to be broken and the debtor is unable to meet their obligations. NPAs are recorded on a banks balance sheet after a prolonged period of non-payment by the borrower, and they place a financial burden on the lender. A significant number of NPAs over a period of time may indicate to regulators that the financial fitness of the bank is in jeopardy. NPAs can be classified as substandard assets, doubtful assets, or loss assets, depending on the length of time overdue and probability of repayment. Lenders have options to recover their losses, including taking possession of any collateral or selling off the loan at a significant discount to a collection agency.