What is an NPA?

[ecis2016.org] When does a property turn into a non-performing asset? We examine

What is an NPA and when does a property turn into an NPA or non performing asset? Let us find out.

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Non-performing asset meaning

An NPA refers to a non-performing asset and is a term which is commonly used in credit facilities where there is default. Non-performing asset (NPA) is a classification used by banks across the world, for loans on which the principal is past due and on which no interest payments have been made for a prolonged period.

NPA in banking

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NPA in banking means a debt liability where the borrower has failed to make the interest and principal repayments on previously agreed upon terms for an extended period of time. Under the RBI norms in India, an NPA in banking is a loan for which the principal or interest payment has remained overdue for a period of 90 days.

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When does a property turn into an NPA?

• A housing project becomes an NPA, when the developer fails to pay the principal and interest to the bank, forcing the latter to initiate various measures to cut losses. This often ultimately ends up in the lender approaching insolvency tribunals to recover losses, something we have seen in cases of Amrapali, Jaypee and Unitech.
• When an individual fails to pay his home loan on time, his loan also becomes a NPA. In this situation, too, the bank would ultimately sell off the property in the market to recover its losses, unless the borrower is able to pay the dues.

Buying a property through NPA auction? Take note

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When banks sell off distressed real estate assets, it may seem like an opportunity to get a lucrative piece of property at affordable rates, as there are discounts involved. However, buyers must be acutely conscious of certain facts, before they get into a proposition such as this.

• The bank may not be the absolute owner of the property and hence, the paperwork has to be examined carefully. For this purpose, it would be best to take the services of a lawyer and a chartered accountant.
• Before making up your mind about the purchase, physically visit the property and check its physical condition. Do not go by how it looks on paper.
• Look out for squatters, since the property will be sold by the bank on an ‘as-is-where-is’ basis. This means, it will be up to the buyer and not the bank, to deal with the squatters after taking control of the property.

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