NPAs have been in the news regularly for a while, and there has been a fair bit of doom saying around them of late. Ever since the Nirav Modi-Punjab National Bank fraud became public knowledge, the central government seems keen to be perceived as being on a war footing against NPAs. There is a constant stream of news on Non Performing Assets of banks. Massive numbers - thousands of crores of rupees- are reported to the point where NPAs probably deserve their own segment in business news. They’ll be more interesting than weather forecasts for sure.

Let’s deconstruct this NPA business and try to understand what is going on.

An NPA, or a Non Performing Asset, is a way of classifying loans or advances that are in default, or are in arrears, on scheduled payments of principal or interest. Meaning, the principal or interest payment remained overdue, generally a period of 90 days. Bank consider loans that they have given as assets. An asset is classed as non-performing when it does not generate income for the lender anymore.

The total amount of such bad loans across the banking sector, what’s known as Gross NPA, was estimated to be around 8.4 lakh crores in December. This number is expected to hit a peak of 11 lakh crores when updated figures are released later. The Hindu reported in February this year that in March 2017, public sector banks accounted for 6.8 lakh crore of the 7.9 lakh crore bad loans; private sector banks held 91,900 crore and foreign banks the rest. In December, it claimed “…stressed assets held by Indian banks amount to around Rs.10 lakh crore or $150 billion, roughly twice the GDP of Sri Lanka.” Estimates suggested that PSBs accounted for over 88% of the total gross NPAs in December. These NPAs account for 12% of all banking loans in the country.