Test: Non-Performing Assets (NPA) - 1 - Banking Exams MCQ

Non-Performing Asset is a classification used by financial institutions for loans and advances on which the principal is past due and on which no interest payments have been made for some time.

• NPA stands for Non-Performing Asset.
• It is an asset when it ceases to generate income for the bank and becomes overdue for more than 90 days.
• It places a financial burden on the lender.
• NPA is categorized into 3 categories:
  • Sub-standard assets: For less than 12 months.
  • Doubtful assets: For more than 12 months.
  • Loss assets: The one that needs to be fully written off. 
• 'Project Sashakt India AMC' has been implemented by the government to tackle the problem of NPAs.
• The project is recommended by Sunil Mehta Committee.
• SBI has the highest NPA in India with over Rs. 1.86 lakh crore followed by Punjab National Bank and Bank of India.

Causes of NPA:

1. Business Management problems
2. Internal bank Management
3. Credit Policy
4. Lack of adequate resources

NPA is a loan account becoming NPA for non – renewal, for not obtaining stock statements and non- recording the due date after re-phasing / restructuring of a loan account.

If an NPA remains for a period less than or equal to 12 months is considered to be Sub- Standard Assets.

The asset which remains substandard for a period of 12 months are doubtful assets.

In any of the four situations listed below, a person or company is considered a "wilful defaulter": When a borrower (person or business) fails to meet their payment obligations, although having the financial means to do so. There is a planned plan to default on the debt.

A loan granted for short duration crops will be treated as NPA, if the instalment of principal or interest thereon remains overdue for two crop seasons.

Causes of PCA:

1. Capital Adequacy Ratio (CAR)
2. Asset quality
3. Profitability
4. Total debt level or leverage, which measures the financial risk of the bank

Lok Adalats cover NPA up to Rs. 20 Lacs.