In banking, NPA stands for Non-Performing Asset, which refers to a loan or advance that is in default or in arrears. A loan is in arrears when principal or interest payments are late or missed, while a loan is in default when the lender considers the loan agreement to be broken and the debtor is unable to meet their obligations. NPAs are recorded on a banks balance sheet after a prolonged period of non-payment by the borrower. Carrying a significant amount of NPAs on the balance sheet over a period of time is an indicator to regulators that the financial fitness of the bank is at risk. NPAs can be classified as a substandard asset, doubtful asset, or loss asset, depending on the length of time overdue and probability of repayment. When the ratio of NPAs in a banks loan portfolio rises, its income and profitability fall, its capacity to lend falls, and the possibility of loan defaults and write-offs rise. NPAs can have a negative impact on a banks liquidity, profitability, and reputation.