What are non-performing assets with examples?

By Ritesh|Updated : September 4th, 2022

Non-performing asset (NPA) means the classification of loans or credits that are overdue or overdue. 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.

Non-performing asset (NPA)

  • Non-performing assets (NPAs) are noted on the bank's balance sheet after a long duration of default by the borrower.
  • NPAs pose a financial burden to lenders; a considerable number of NPAs over a duration may indicate to regulators that a bank's financial solvency is at risk.
  • NPAs are divided as doubtful assets, loss assets, or non-standard assets based on the time length past due and repayment probability.
  • Non-performing assets are noted on the bank’s balance sheet or other financial institutions.
  • For example, suppose a company with a $10 million loan with interest-only payments of $50,000 per month misses a payment for three consecutive months. To meet regulatory requirements, a lender may be required to categorize a loan as non-performing.
  • Or 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, if 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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