The term 'NPA' in banking sector is related to

The correct answer is Bad loans.

Key Points

• A loan is classified as a non-performing asset when it is not being repaid by the borrower. 
• It results in the asset no longer generating income for the lender or bank because the interest is not being paid by the borrower. In such a case, the loan is considered “in arrears.”
• In general, loans become NPAs when they i.e the interest on loans are outstanding for 90 days or more, though some lenders use a shorter window in considering a loan or advance past due.

Additional Information

Sub-Classifications for Non-Performing Assets (NPAs)

• Standard Assets: 
  • They are NPAs that have been past due for anywhere from 90 days to 12 months, with a normal risk level.
• Sub-Standard Assets: 
  • They are NPAs that have been past due for more than 12 months. 
  • Banks usually assign a haircut (reduction in market value) to such NPAs because they are less certain that the borrower will eventually repay the full amount.
• Doubtful Debts:
  • Non-performing assets in the doubtful debts category have been past due for at least 18 months. 
  • This class of NPA seriously affects the bank’s own risk profile.
• Loss Assets:
  • These are non-performing assets with an extended period of non-payment. 
  • With this class, banks are forced to accept that the loan will never be repaid, and must record a loss on their balance sheet. The entire amount of the loan must be written off completely.