What are Non-Performing Assets with Examples?
By BYJU'S Exam Prep
Updated on: November 9th, 2023
Non-performing Asset (NPA) means the classification of loans or credits that are overdue. Examples of NPA are accounts with an overdraft or cash credit (OD/CC) that have been inactive for more than 90 days, agricultural loans with interest or principal instalment payments that are two crop/harvest seasons or one crop season past due, depending on the length of the loan, etc.
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Non-Performing Assets
A loan is in arrears when principal or interest payments are missed or late. A loan is in arrears when the lender believes the loan agreement is in violation and the borrower cannot meet its obligations. After the borrower has been in default for a considerable amount of time, Non-performing Assets (NPAs) are recorded on the bank’s balance sheet.
- NPAs are expensive for lenders, and a significant number of NPAs over time may alert regulators to a bank’s potential financial instability.
- Based on how far past due they are and how likely it is that they will be repaid, NPAs are classified as doubtful assets, loss assets, or non-standard assets.
- On the balance sheet of the bank or other financial institutions, non-performing assets are listed.
Examples of Non-Performing Assets
Consider a company that has a $10 million loan with interest-only payments of $50,000 per month and three consecutive missed payments.
- A lender might be required to designate a loan as non-performing in order to satisfy regulatory requirements.
- The loan may also be classified as non-performing if the company pays all the interest but cannot repay the principal when due.
Summary:
What are Non-performing Assets with Examples?
When a person is paying an amount or loan late due to a delay in payment of either installments or principal is known as a non-performing asset. For example, in case a company with a $10 million loan with interest-only payments of $50,000 per month will not pay for three consecutive months.
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