Banks accept deposits from the public and lend the money so collected in order to generate income to meet the commitment of interest that is payable on the deposit, to meet their operational costs and also earn a reasonable profit. While lending money the banks also collect some sort of security be it gold, bonds, machinery, LIC policies, shares, immovable properties, etc. All these and other forms of securities become the Assets of the financing bank. As stated above the intent of any bank lending money is to earn income by way of interest on the loan. This generation of income in short is the performance of the loan/asset.
If any borrower fails to re-pay the loan installments or fails to service the interest continuously over a period of time then that particular account and the asset relating to that account become NON PERFORMING ASSET. As of now in a loan account if three EMIs are not remitted continuously or interest for two quarters is not serviced continuously then that account will be classified as NON PERFORMING ASSET.
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