In simple words, the assets of the Banks which don't perform (means don't bring any return) are called Non Performing Assets. In more general sense they are "bad Loans".
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Any asset, including a leased asset, becomes non performing when it ceases to generate income for the bank.
However, there is a prescribed definition by the RBI which defines the NPAs as:
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Terms Loans on which interest and / or installment of principal remain overdue for a particular quarter for a period of more than 90 days from the end of that particular quarter.
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The Bills those remain overdue for a period of More than 90 Days from the end of a quarter.
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Any amount to be received remains overdue for a period of more than 90 days.
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The Cash Credit account remains out of order for a period of more than 90 days. Out of order means over the sanctioned limit.
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This period of 90 Days for the above categories was 180 days prior to 2004.
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So 90 Days is the thumb rule in the deciding the NPAs. However, there is an exception to this.
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A farmer has taken a loan for a paddy crop in the beginning of the Rabi Season and has not made a repayment. In which of the following situations, if Installment or interest is not paid for this loan, it would become a NPA (Non Performing Asset)?
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The answer of the above question is D i.e. 2 crop seasons from the due date. Please note the following:
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For short duration crop agriculture loans such as paddy, Jowar, Bajra etc. if the loan (installment / interest) is NOT paid for 2 crop seasons (means Kharif, and next Rabi in the above question) , it would be termed as a NPA.
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For Long Duration Crops, the above would be 1 Crop season from the due date.
