0
0

Non-Performing Assets (NPA)

Introduction

Non-Performing Assets (NPA) are one of the most important and repeatedly asked topics in Banking Awareness, especially in SBI and IBPS exams. Questions usually test the definition, time period, and basic classification of NPAs.

Clear understanding of NPAs is essential because it links banking operations with financial stability.

Pattern: Non-Performing Assets (NPA)

Pattern

The key idea is to identify loans or advances that stop generating income for the bank due to non-payment of principal or interest for a specified period.

Step-by-Step Example

Question

When is a bank loan classified as a Non-Performing Asset (NPA)?

Options:

  • A. When interest is unpaid for 30 days
  • B. When interest or principal remains overdue for more than 90 days
  • C. When the borrower requests restructuring
  • D. When collateral value decreases

Solution

  1. Step 1: Identify income-generating condition

    A performing asset must regularly generate interest or principal repayment.

  2. Step 2: Recall RBI classification rule

    As per banking norms, a loan becomes NPA if dues remain unpaid beyond 90 days.

  3. Step 3: Eliminate incorrect triggers

    Restructuring or collateral value change does not directly define an NPA.

  4. Final Answer:

    When interest or principal remains overdue for more than 90 days → Option B

  5. Quick Check:

    No income for 90+ days = NPA ✅

Quick Variations

• Performing Asset → Regular income for bank.

• NPA → No income for more than 90 days.

• Gross NPA → Total NPAs before provisions.

• Net NPA → NPAs after provisions.

Trick to Always Use

  • Step 1: Check if interest or principal is overdue.
  • Step 2: Remember the key number → 90 days.
  • Step 3: No income beyond 90 days → NPA.

Summary

Summary

  • NPA is a loan that stops generating income for the bank.
  • 90 days overdue is the standard NPA benchmark.
  • NPAs affect bank profitability and stability.
  • Reducing NPAs is critical for a healthy banking system.

Example to remember:
“No interest for 90 days = NPA.”

Practice

(1/5)
1. Which asset is classified as a Non-Performing Asset (NPA) for a bank?
easy
A. A loan that stops generating interest income
B. A loan backed by collateral
C. A newly sanctioned loan
D. A short-term advance

Solution

  1. Step 1: Identify income generation

    Performing assets generate regular interest or principal.

  2. Step 2: Apply NPA concept

    An asset that stops generating income becomes an NPA.

  3. Final Answer:

    A loan that stops generating interest income → Option A

  4. Quick Check:

    No income to bank = non-performing asset ✅
Hint: No income for bank = NPA.
Common Mistakes: Assuming collateral presence prevents NPA status.
2. After how many days of non-payment does a standard bank loan generally become an NPA?
easy
A. 30 days
B. 90 days
C. 180 days
D. 365 days

Solution

  1. Step 1: Recall RBI norm

    Banks follow a fixed overdue period for NPA classification.

  2. Step 2: Apply the rule

    If interest or principal is overdue beyond 90 days, the loan is an NPA.

  3. Final Answer:

    90 days → Option B

  4. Quick Check:

    90 days overdue = NPA benchmark ✅
Hint: Remember the number 90.
Common Mistakes: Choosing 180 days from older norms.
3. Which of the following best describes a performing asset?
easy
A. A loan under restructuring
B. A loan backed by collateral
C. A loan generating regular income
D. A loan overdue for 90 days

Solution

  1. Step 1: Identify income flow

    Performance depends on regular interest or principal payment.

  2. Step 2: Match with correct description

    A loan generating regular income is a performing asset.

  3. Final Answer:

    A loan generating regular income → Option C

  4. Quick Check:

    Regular income = performing asset ✅
Hint: Income coming in = performing.
Common Mistakes: Assuming collateral decides performance.
4. Which category of asset comes immediately after a loan is classified as NPA?
medium
A. Loss asset
B. Doubtful asset
C. Standard asset
D. Sub-standard asset

Solution

  1. Step 1: Recall NPA classification

    Once a loan becomes NPA, it is further classified.

  2. Step 2: Apply sequence

    The first category after NPA is sub-standard asset.

  3. Final Answer:

    Sub-standard asset → Option D

  4. Quick Check:

    NPA → Sub-standard is the first stage ✅
Hint: First NPA stage = Sub-standard.
Common Mistakes: Jumping directly to doubtful or loss assets.
5. Why are high NPAs a concern for banks?
medium
A. They reduce bank profitability
B. They increase customer deposits
C. They raise interest income
D. They improve liquidity

Solution

  1. Step 1: Identify impact of NPAs

    NPAs stop generating income for banks.

  2. Step 2: Link to profitability

    No income and higher provisions reduce profits.

  3. Final Answer:

    They reduce bank profitability → Option A

  4. Quick Check:

    No income + provisions = lower profits ✅
Hint: More NPAs = less profit.
Common Mistakes: Thinking NPAs improve liquidity.

Mock Test

Ready for a challenge?

Take a 10-minute AI-powered test with 10 questions (Easy-Medium-Hard mix) and get instant SWOT analysis of your performance!

10 Questions
5 Minutes