A Non-Performing Asset is a loan that has gone bad — the borrower has stopped paying for 90+ days. When a bank lends money and the borrower defaults, that loan becomes an NPA. High NPAs mean the bank is sitting on bad loans that may never be repaid — eating into profits and threatening solvency.
India's banking sector faced a massive NPA crisis peaking at Rs 10.36 lakh crore (about $130 billion) in March 2018. Public sector banks were the worst hit — Punjab National Bank, Bank of India, and others had NPA ratios exceeding 15%. The crisis was caused by reckless lending to infrastructure and steel companies that could not repay.
The cleanup involved IBC (Insolvency and Bankruptcy Code, 2016), bank recapitalization worth Rs 3.1 lakh crore, and aggressive write-offs. By 2024, gross NPA ratios dropped to under 3% — the lowest in a decade. Globally, NPAs remain a key banking health indicator — European banks struggled with high NPAs after the eurozone crisis.