A Non-Performing Asset (NPA) is a loan on which the borrower has stopped paying interest or principal for 90 days or more; the Twin Balance Sheet problem is the linked stress on over-leveraged corporates and the banks that lent to them.
- The RBI classifies a stressed loan as an NPA once it is overdue beyond 90 days; NPAs are graded as sub-standard, doubtful and loss assets, each needing higher provisioning.
- The Gross NPA ratio measures bad loans as a share of total advances; the Net NPA ratio is Gross NPAs minus provisions, a key bank-health indicator. Verify the latest sector ratio.
- The Twin Balance Sheet phrase, popularised in the Economic Survey 2016-17, captures the simultaneous strain on indebted infrastructure and steel firms and on public-sector banks.
- Resolution tools include the Insolvency and Bankruptcy Code (IBC), 2016, the RBI's June 2019 Prudential Framework on stressed assets, and bank recapitalisation; the National Asset Reconstruction Company (the "bad bank") was set up to buy out large legacy NPAs.
- High NPAs erode bank capital and choke fresh lending, hurting investment and growth.
The 90-day NPA rule, the Gross-versus-Net NPA distinction, the Twin Balance Sheet term and the IBC are recurring banking-reform items.
NPA (the bad loan itself) versus the Twin Balance Sheet problem (the joint corporate-and-bank stress); a loan turns NPA after 90 days of default, not immediately on a missed payment.
NPA is a loan overdue beyond 90 days; the Twin Balance Sheet problem is stressed corporates plus stressed banks, addressed mainly through the IBC.