Non-Performing Asset

The bank being financial intermediaries are in the business of accepting deposits for the purpose of lending and to augment their resources at times they borrow money from other sources and meet the ever increasing borrowing requirements of their customers. However, most of the business is done by banks with the funds which are collected from the public by way of deposits. They are, therefore, answerable to the public at large, who are keeping their funds with the banks by reposing trust in the ability of banks that they will not put the depositors interest to jeopardy.

A non-performing asset in the banking sector may be termed as an asset not contributing to the income of the bank. In other words, it is a zero yield asset when applied particularly to loan and advances. The actual concept of NPA is that it is an asset which ceases to yield income for the bank and that any income accrued from such asset shall not be treated as income until it is actually realized. Classification of an asset as NPA should be a based on record of recovery. Therefore, an asset is to be classified as NPA when there is a threat of loss for the recoverability is in doubt. In spite of wide ranging reform measures initiated in the banking sector, the problem of non-performing assets assumed a central place in issues relating to banking sector.