Published on: August 18, 2021



What is in news : Banks in Karnataka have reported a 26 per cent rise in non-performing assets (NPA) in priority sectors, including agriculture, a fallout of the economic distress caused by the Covid-19 pandemic and the drought-flood situation in the state.


  • Generally speaking, NPA is any asset of a bank which is not producing any income.
  • In other words, a loan or lease that is not meeting its stated principal and interest payments.
  • On a bank’s balance sheet, loans made to customers are listed as assets. The biggest risk to a bank is when customers who take out loans stop making their payments, causing the value of the loan assets to decline.


  • Loans don’t go bad right away. Most loans allow customers a certain grace period. Then they are marked overdue. After a certain number of days, the loan is classified as a nonperforming loan.
  • Banks usually classify as nonperforming assets any commercial loans which are more than 90 days overdue and any consumer loans which are more than 180 days overdue.
  • For agricultural loans, if the interest and/or the instalment or principal remains overdue for two harvest seasons; it is declared as NPAs. But, this period should not exceed two years. After two years any unpaid loan/instalment will be classified as NPA.


Sub-Standard Doubtful Loss Assets
When The Npas Have Aged <= 12 Months When The Npas Have Aged > 12 Months When The Bank Or Its Auditors Have Identified The Loss, But It Has Not Been Written Off


Impact of the NPAs:

  • It will bring a scarcity of funds in the Indian security markets.
  • Few banks will be willing to lend if they are not sure of the recovery of their money.
  • Shareholders of the banks will lose a lot of money as banks themselves will find it tough to survive in the market. This will lead to a crisis of confidence in the market.
  • The price of loans, i.e. the interest rates will shoot up badly. Shooting of interest rates will directly impact the investors who wish to take loans for setting up infrastructural, industrial projects etc.
  • Lower growth rates and of course higher inflation because of the higher cost of capital.
  • This trend may continue in a vicious circle and deepen the crisis.
  • Total NPAs have touched figures close to the size of UP budget. Imagine if all the NPA was recovered, how well it can augur for the Indian economy.

NAMMA QUESTION FOR MAINS – Elucidate the ways to handle Non-performing assets