Implications of the NPA on the Economy

Implications of the NPA on the Economy

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There are two different perspectives related to the implications of NPA or, the non-performing assets for the economy as discussed herein:

• From the standpoint of the banks: As a result of rising NPA rates, banks would likely experience considerable income losses that could harm their reputation. Also, banks will have to raise loan interest rates to retain their profit margin due to a lack of money.

• From the standpoint of the borrowers, banks will be leery of approving loans to a borrower whose accounts are already considered non-performing assets (NPA). The borrowers' reputation as a brand will be severely harmed.

Difference Between Gross and Net NPA - Banks are required to list their NPAs on their balance sheet. It is offered in two groups. These two metrics show how much a bank's non-performing assets are worth. The total of all loan assets that haven't been repaid by the borrowers within the allotted 90 days is known as gross NPA (GNPA). While the balance that remains after subtracting questionable and unpaid debts from the GNPA is known as Net NPA (NNPA). It represents the real loss incurred by the bank.