# Understanding Non-Performing Assets (NPA) in Banking
> Learn about Non-Performing Assets (NPA): their classification, causes, impact on banks, and management strategies like SARFAESI and IBC.

Tags: npa, banking-finance, bad-loans, asset-classification, rbi, financial-stability, india-banking, economics
## Non-Performing Assets (NPA): Understanding the Impact
- NPAs are loans where interest or principal is overdue for 90 days or more.
- Also known as 'Bad Loans' or 'Stressed Assets' in the banking sector.

## Classification of NPAs
- **Substandard Assets**: Overdue for 90 days to 12 months; requires 15% provisioning.
- **Doubtful Assets**: Overdue for more than 12 months; full recovery is unlikely.
- **Loss Assets**: Identified as uncollectible and must be written off entirely.

## Leading Causes of NPAs
- Poor credit appraisal and inadequate borrower assessment.
- Weak monitoring of funds post-disbursement.
- Economic downturns and global recessions.
- Wilful default and financial fraud.

## Impact on the Banking System
- **Reduced Profitability**: Banks must set aside funds (provisions) for bad loans.
- **Capital Erosion**: Critical capital is locked up and cannot be used for new lending.
- **Credit Crunch**: Less money available for new loans slows economic growth.

## Management and Resolution Mechanisms
- **SARFAESI Act 2002**: Allows asset seizure without court intervention.
- **Debt Recovery Tribunals (DRT)**: Fast-track recovery courts.
- **Insolvency & Bankruptcy Code (IBC)**: Structured resolution for defaults.
- **Asset Reconstruction Companies (ARCs)**: Entities that buy bad loans from banks.

## Indian Banking Statistics
- GNPA ratio in India has seen a significant downward trend: from 11.5% in 2018 to a decade low of 3.9% in 2023.
- Peak Gross NPA in 2018 was ₹8 Lakh Crore.
- Approximately 75% of total NPAs originate from Public Sector Banks (PSBs).
---
This presentation was created with [Bobr AI](https://bobr.ai) — an AI presentation generator.