NON-PERFORMING ASSET (NPA)
Economics
Why in News?
Indian banks have recently highlighted their success in reducing non-performing assets (NPAs) or loans that borrowers have defaulted on over the past two years.
What is a Non-Performing Asset (NPA)?
An NPA refers to loans that are in default or arrears on scheduled payments of principal or interest. Typically, a loan is classified as non-performing if payments have not been made for at least 90 days.
- Gross NPAs: The total sum of defaulted loans.
- Net NPAs: The amount remaining after deducting the provision amount from the gross NPAs.
| What is a Bad Bank? A bad bank is a financial entity that buys NPAs or bad loans from banks to relieve them of the burden. This allows banks to lend more freely. The bad bank may later attempt to restructure and sell the NPAs at a higher price. Although the goal is not to generate profit, the primary objective is to reduce banks' stressed assets and encourage more lending. |