Non-performing asset (NPA) is a financial term used to describe loans or other financial assets that are not generating any income for the lender or the investor. Specifically, an NPA is a loan or an asset where the borrower has not made payments for a certain period of time, typically 90 days or more, and is in default. In other words, the borrower is not meeting their obligations as per the loan agreement.
Banks and financial institutions are the most common entities that experience NPAs. When an asset becomes non-performing, it has to be declared as a bad debt, and the lender needs to set aside a provision against it, in order to cover potential losses. This affects the financial health of the bank or financial institution and may result in lower profits, higher provisions, and reduced lending capacity.
In India, the Reserve Bank of India (RBI) is responsible for the calculation and management of non-performing assets (NPAs). The RBI requires all banks and financial institutions to classify their loans and other financial assets as performing or non-performing based on the number of days they are overdue. The RBI also sets the criteria for identifying and recognizing NPAs, as well as the provisioning requirements for these assets.
The RBI has established various guidelines and regulations for banks and financial institutions to manage and report their NPAs. These guidelines include regular reporting of NPAs, provisioning requirements, and the resolution of NPAs through various measures such as restructuring or recovery. The RBI also conducts regular inspections and audits of banks and financial institutions to ensure compliance with its guidelines and regulations.
The concept of Non-Performing Assets (NPAs) in India emerged in the 1990s after the introduction of economic reforms. However, the first significant increase in NPAs in India occurred in the early 2000s.
The first major NPA crisis in India was triggered by the global financial crisis of 2008-2009, which had an impact on the Indian banking sector. The crisis led to a significant increase in NPAs, especially in sectors such as real estate, infrastructure, and power.
The first major NPA account in India that received a lot of media attention was the Kingfisher Airlines account, which was declared an NPA in 2009. The airline, owned by businessman Vijay Mallya, had taken loans from various banks but failed to repay them. The account was one of the largest NPAs in India at the time and remained unresolved for several years, becoming a symbol of the NPA crisis in India.
It is unlikely that any country in the world can be considered completely NPA-free. Non-performing assets (NPAs) are a common phenomenon in the banking and financial industry, and they can arise due to a variety of reasons such as economic downturns, political instability, fraud, or mismanagement.
That being said, some countries may have a lower incidence of NPAs compared to others, due to factors such as strong regulatory frameworks, effective risk management practices, and robust credit assessment processes. For example, countries like Switzerland, Norway, and Canada have historically had lower NPA ratios compared to other countries, due to their strong banking systems, stable economies, and prudent risk management practices.
However, even in these countries, there may be instances of NPAs, albeit at lower levels compared to other countries. Therefore, while some countries may have lower levels of NPAs compared to others, it is unlikely that any country can be considered completely NPA-free.