How do Banks Handle NPA?

By BYJU'S Exam Prep

Updated on: November 9th, 2023

Banks deal with NPAs through methods such as asset reconstruction, debt recovery tribunals, and Lok Adalats. On September 16, 2021, Union Finance Minister Nirmala Sitharaman announced the establishment of a Bad Bank to assist banks in dealing with NPAs. NPA is an abbreviation for Non-Performing Assets.

Handling of NPA by Banks

In simple words, when banks offer you a loan, and if you do not pay the loan, then that amount is called NPA.

  • Bad Bank would be established as a separate organization that would buy non-performing assets from other banks in order to free up capital and resume normal operations.
  • Banks have identified bad debts worth approximately Rs 90 billion, which will be turned over to the National Asset Reconstruction Company Limited (NARCL).

Non-Performing Assets Account in Banks

The principal payment/interest remains overdue for a term loan continuously for more than 90 days.

  • The Cash Credit/Overdraft (CC/OD) portion of the account is “out of service.”
  • Billing that is 90 days past due.
  • For crops that grow for a short period of time, no principal or interest payments would be made for two harvest seasons.
  • Payment of interest or principal is past due for a crop season in the case of long-lived crops.
  • The amount of money that has been outstanding for 90 days in a row.

Types of NPAs

The various forms of NPA include:

  • A non-standard NPA is one that is less than or equal to 12 months past due.
  • Doubtful NPA: For 12 months or less, this NPA is classified as a Substandard NPA.
  • Non-performing assets: According to a Reserve Bank of India review, non-performing assets (NPAs) are when a bank or financial institution has recognized an NPA as a loss (RBI).


How do Banks Handle NPA?

To handle NPA, banks use several strategies, such as debt collection tribunals, asset reconstruction, and Lok Adalats. The bank has several legal options to pursue legal action against the person who took the loan and did not repay it.

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