What do you mean by NPAs? Discuss in brief steps taken by RBI to counter the problem of NPA in India.

Non-performing asset (NPA) is defined as a credit facility in respect of which the interest and/or instalment of Bond finance principal has remained ‘past due’ for a specified period of time.

According to RBI, terms loans on which interest or instalment of principal remain overdue for a period of more than 90 days from the end of a particular quarter is called a Non-performing Asset.

Steps taken by RBI are as follows:

Asset Quality Review (AQR)

  • initiated in 2015 for clean and fully provisioned bank balance-sheets revealed high incidence of non-performing assets (NPAs). As a result of AQR and subsequent transparent recognition by PSBs, stressed accounts were reclassified as NPAs and expected losses on stressed loans.

Strategic Debt Restructuring (SDR)

  • Allowed lending banks to to convert loans into equity if a borrower fails to adhere to set deadlines Though, a CRISIL report has pointed out that this may even lead to pushing of NPAs to the future

Revamped the 5/25 scheme:

  • Allowed the banks to extend the re-payment schedule of loans to 25 years, with an option to re-finance them at the end of 5 years


Prompt Corrective Action

  • The RBI assesses the bank’s financial health on the basis of certain indicators like Capital Ratio and Asset Quality, and take corrective action to improve financial health or troubled and weak banks.


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