Non-Performing Asset (NPA)

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Definition of 'Non-Performing Asset (NPA)'

A non-performing asset (NPA) is a loan or other financial asset that has not generated any interest or principal payments for a specified period of time. NPAs are considered to be a high-risk asset because they are unlikely to be repaid in full.

There are a number of reasons why an asset may become non-performing. For example, a borrower may default on a loan payment, or a company may be unable to make interest payments on its debt. In some cases, an asset may become non-performing simply because the value of the underlying asset has decreased.

NPAs can have a number of negative consequences for both borrowers and lenders. For borrowers, NPAs can lead to foreclosure, bankruptcy, and other financial problems. For lenders, NPAs can reduce their profits and increase their risk of default.

There are a number of ways to deal with NPAs. Lenders may try to work with borrowers to restructure their loans or to sell the assets to other investors. In some cases, lenders may be forced to write off the assets as a loss.

The NPA ratio is a measure of the proportion of a lender's assets that are non-performing. This ratio is used to assess the financial health of a lender and to identify potential problem areas.

The NPA ratio is calculated by dividing the total amount of NPAs by the total amount of assets. A high NPA ratio is considered to be a sign of financial distress.

NPAs are a significant problem for the financial system. They can lead to losses for lenders, borrowers, and investors. In addition, NPAs can contribute to economic instability.

Governments and regulators have a number of tools to address the problem of NPAs. These tools include loan guarantees, asset purchases, and regulatory oversight.

By taking action to address NPAs, governments and regulators can help to promote financial stability and protect the interests of borrowers, lenders, and investors.

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