What is a Standard Asset?
By BYJU'S Exam Prep
Updated on: November 9th, 2023
A standard asset is a type of non-performing asset that does not disclose any problem or risk other than normal business risk. In respect of standard assets, no payment of interest is considered. Also, there is no default in the repayment of the principal. It can be caused by various factors and is a phenomenon rooted in the creative destruction of economic growth, change, and innovation. They can have systemic effects.
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Standard Assets
The standard asset is a key term for financial risk management to avoid economic loss after an asset has been converted into a liability. Accountants have methods of dealing with the loss of assets that ensure that an entity’s assets do not carry over more than their recoverable amount.
The asset in which the principal or the interest amount is low or does not have to be paid. In other words, the receiver is unable to pay the loan back, or the loan agreement is broken.
The non-performing assets are of the following types:
- Standard Assets: The standard asset is a kind of asset that is NPA in the real sense but carries a normal risk associated with the business. It creates continuous income when they become due.
- Sub-Standard Assets: Those assets (advances and loans) that are non-performing for a span of 12 months are categorized as Sub-Standard Assets.
- Doubtful Assets: Those assets that have been non-performing for more than 12 months are known as Doubtful Assets.
- Loss Assets: Loss assets are those assets that the lending institution cannot recover.
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