Full Form of NPA

What is the Full Form of NPA?

The Full Form of NPA is Non-Performing Assets. It is a kind of classified assets that are used to differentiate loans and advances on which principal and/or interest is overdue, i.e., payments are in default/ arrears and generally as per set standards by regulatory authorities. The assets are considered NPA, where no recovery is made within the last 90 days.


Types of NPA

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#1 – Standard Assets

These are NPA, which remained overdue for a period of more than 90 days but less than 12 months. These assets bear the nominal risk as borrower fails to make payment regularly or on time.

#2 – Sub Standard Assets

These are NPA, which are overdue for more than 12 months, these loans have more risk, and the borrow has weak creditworthiness. What banks do is to create a haircut to such NPA as there is a risk of non-payment.

#3 – Doubtful Debts

These are Non Performing AssetsNon Performing AssetsNon-Performing Assets (NPA) refers to the classification of loans and advances on a lender's records (usually banks) that have not received interest or principal payments and are considered "past due." In the majority of cases, debt has been classified as non-performing assets (NPAs) when loan payments have been outstanding for more than 90 days.read more, which are overdue for more than 18 months, banks having a danger of recovery, and are known as doubtful debts. Such NPA affects bank creditworthiness as more of them could put the bank at risk.

#4 – Loss Assets

This is the last classification of NPA as under these; the loan amount is classified as non-recoverable by the bank itself. The bank can either write off the whole outstanding amount or can make provision for the full amount, which will be written off in the future.

How NPA Works?

NPA are normal loans and advances, but on non-recovery after a prolonged time, usually 90 days, are categorized as NPA. After the specified period and on giving prior notice to the borrower, the lender has the right to force the borrower to sell the asset which is pledged against the loan and realize proceedings for recovery, but in case there is no asset pledged, then the lender has to write offWrite OffWrite off is the reduction in the value of the assets that were present in the books of accounts of the company on a particular period of time and are recorded as the accounting expense against the payment not received or the losses on the assets.read more/advance as bad debtsBad DebtsBad Debts can be described as unforeseen loss incurred by a business organization on account of non-fulfillment of agreed terms and conditions on account of sale of goods or services or repayment of any loan or other obligation.read more and will align it with the collection agency at a discounted rate. A loan can be classified as NPA at any point during the tenure of the loan. It is placed in the balance sheet of financial institutionsFinancial InstitutionsFinancial institutions refer to those organizations which provide business services and products related to financial or monetary transactions to their clients. Some of these are banks, NBFCs, investment companies, brokerage firms, insurance companies and trust corporations. read more, which marks a negative impact on its image.


Justin Inc. borrowed a sum of $100M from a loan company and makes payment of $200000 monthly but due to some reasons; the company couldn’t pay the installments for three consecutive months, the lending company will be forced to classify this loan as a non-performing asset to meet the legal requirements.


The problem of NPA is alarming nowadays in our banking system. The more is the NPA. The less is the confidence of depositor, lender, or investor. It not only makes the availability of credit difficult but also disrupts the image of the institution. Following are some prominent impacts –

How to Reduce NPA – Indian Example

NPA Indian Exampels

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#1 – SARFAESI Act 2002 – This act gives the power to the bank to deal with NPA without the involvement of courts. It gives the bank right to

  • Asset reconstruction
  • Securitization
  • Enforcement of security

#2 – Debt Recovery Tribunal – In 1993 Indian Parliament Act brought DRT into existence, which empowers banks to recover loans of Rs 10 lakh and above.

#3 – Lok Adalats – Small loans up to Rs 5 lakhs can be recovered by this mechanism as per the guidelines of RBI.

#4 – Compromise Settlement – Used to settle loans up to 10 crore amounts where the borrower experiences genuine difficulties in repaying the amount under this method, the proportionate amount is recovered from the borrower.

#5 – Credit Information Bureau – Third-party agencies such as CIBIL keeps the record of the defaulters and financial health of the borrowers. Banks may seek the help of such agencies before lending money to them.


NPA is the most important tool to find out the soundness, performance, and health of any bank or financial institution, as the more is the NPA, performance is low as compared to other banks or institutions, and the bank is less creditworthy. It creates a negative effect on the goodwillThe GoodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company's net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company's net identifiable assets from the total purchase price.read more of a bank, and this can be judged only by total NPA. So it is a very important measure to be carried out. Mentioned below are some disadvantages  –


Non-Performing Assets (NPA) are assets classified on the basis of non-recovery of installments as per the agreed terms and conditions, usually classified after 90 days of non-recovery. They are further classified as standard, sub-standard, doubtful, and lost assets. It has an adverse impact on the organization’s profitability, financial strength, capital adequacy, and public image. There are various government organizations set up under the parliament act or other statutes for monitoring NPA of financial institutions and thereby reducing NPA and increasing the profitability of the organization and the economy as a whole.

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This has been a guide to the Full Form of NPA, i.e. (Non-Performing Assets). Here we discuss types, how does NPA works along with an example, impact, and limitations. You may refer to the following articles to learn more about finance –