Banks must flag bad loans
- RBI told the National Company Law Appellate Tribunal (NCLAT) thatbanks had an obligation to mark bad loans as non-performing asset (NPA) after the default of 90 days.
- The banking sector regulator has moved the NCLAT seeking amodification of its February 25 order.
- An asset is tagged as non performing when it ceases to generate income forthe lender.
- You may note that for a bank, the loans given by the bank is considered as its assets. So if the principle or the interest or both the components of a loan is not being serviced to the lender (bank), then it would be considered as a Non-Performing Asset (NPA).
- Any asset which stops giving returns to its investors for a specified period of time is known as Non-Performing Asset (NPA).
- Generally, that specified period of time is 90 days in most of the countries and across the various lending institutions. However, it is not a thumb rule and it may vary with the terms and conditions agreed upon by the financial institution and the borrower.
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