What is NPA or non-performing assets?

A non-performing asset or NPA is a term used to describe loan or credit for which the principal or interest payment remained overdue for 90 days or more.

What is NPA?

An NPA refers to a non-performing asset and is a term which is commonly used in credit facilities where there is default. Non-performing asset (NPA) is a classification used by banks across the world, for loans on which the principal is past due and on which no interest payments have been made for a prolonged period.

 Types of NPAs

Banks further categories NPAs into the following three varieties:

Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.

Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.

Loss assets: Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.

 NPA in banking

NPA in banking means a debt liability where the borrower has failed to make the interest and principal repayments on previously agreed upon terms for an extended period of time. Under the RBI norms in India, an NPA in banking is a loan for which the principal or interest payment has remained overdue for a period of 90 days. (INFORMATIONS ONLY.COM)

 When does a property turn into an NPA?

  • A housing project becomes an NPA, when the developer fails to pay the principal and interest to the bank, forcing the latter to initiate various measures to cut losses. This often ultimately ends up in the lender approaching insolvency tribunals to recover losses, something we have seen in cases of Amarpali, jaypee and unitech.
  • When an individual fails to pay his home loan on time, his loan also becomes a NPA. In this situation, too, the bank would ultimately sell off the property in the market to recover its losses, unless the borrower is able to pay the dues.

 Buying a property through NPA auction? Take note

When banks sell off distressed real estate assets, it may seem like an opportunity to get a lucrative piece of property at affordable rates, as there are discounts involved. However, buyers must be acutely conscious of certain facts, before they get into a proposition such as this.

  • The bank may not be the absolute owner of the property and hence, the paperwork has to be examined carefully. For this purpose, it would be best to take the services of a lawyer and a chartered accountant.
  • Before making up your mind about the purchase, physically visit the property and check its physical condition. Do not go by how it looks on paper.
  • Look out for squatters, since the property will be sold by the bank on an ‘as-is-where-is’ basis. This means, it will be up to the buyer and not the bank, to deal with the squatters after taking control of the property. (INFORMATIONS ONLY.COM)

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