The term Bad Loan has been historically used in the banking and financial sector for ages. It is a loan account that is pending for repayment and overdue for a long time.
In India, after the implementation of Narsimhan Committee recommendations about npa management, the term NPA or Non-Performing Asset is being used.
NPA and Bad loan, a comparison
We must understand one thing that all bad loans are NPA, but all NPA are not bad loans. There is a thin line of demarcation between the two.
As far as NPAs are concerned, there are two types of it-willful NPA and non-willful NPA.
Willful NPA is bad because it is a loan taken by people who have the capacity to pay but they do not pay.
Non-willful NPA is where the borrower becomes defaulter because of reasons beyond his control, e.g., business failure or natural calamity.
It is possible to nurse back the account to good health by additional financing. Exceptionally, non-willful NPA turns into a bad account if npa account settlement doesn’t happen.
An NPA is also a loan on which no payment has been made for a period of 90 days or more. The same holds true with a bad loan as well.
Hence, technically, they are the same things. However, there is a possibility of receiving money when the account is classified in the category of NPA.
Keep the NPA and bad loan as low as possible
Whether you call it NPA or Bad Loan, it is not at all a desirable thing. Efforts should be made to keep both of them at the minimal level.
With the new regulations and rules, it has become difficult for a borrower to become NPA. Lenders take necessary precautions by hiring npa lawyers to check the credit risk before lending the money.
It is not possible to get loans if the credit score is below a certain level.