NPA prediction in banking sector: implications

 

NPA stands for Non Performing Assets. As it sounds, it covers the assets which do not earn any return. It’s commonly heard in banking terms. NPA in banks are usually loans that do not earn any income to the lender. They are not earning and also have other negative implications. The lender cannot carry it on the books, writing it as the bad debt will make it even worse. So, usually companies hold these assets with an intent that situation will change later, or the company will try to sell it to another company.

As predicted, NPAs are highly problematic for financial institutions like banks because they depend on interest payments for their income. Prolonged phases of lockdowns have resulted in many banks facing issues related to NPAs. Consequently, NPA prediction becomes an essential part of their day to day banking process.  

Every nation, in fact, the whole world requires a strong banking sector to ensure a flourishing economy. Banking sector growing downwards can have a negative impact on other sectors. Non-performing assets are one of the major concerns in the banking sector and has the power to destroy other sectors as well.

What falls under non-performing assets?

Banks categorise any commercial loans as NPA which are more than 90 days overdue. Problems in commercial loans are the major reasons in the rise of NPA. A lot of banks are dealing with such pending loan cases, which has a very bad impact on banks’ revenues. It also has a bad effect on the equity of the bank

NPA and cloud

Nowadays, a trend has emerged in the banking sector for risk management of customers to reduce NPA and resulting implications. They collect digital data of customers and use cloud for storage and processing for NPA prediction, risk assessment and other things. It is expected to help the financial sector largely.