An interest-bearing (interest-paying) asset, such as a debt instrument or loan, that is not currently paying interest (not even timely principal repayment). For example, a non-performing loan (NPL) is one that carries a very high risk of default (100% probability of default), with the worst credit grade on an applicable scale. As the name implies, non-performing loans are those that do not function as intended in terms of full and timely payment of interest and repayment of principal.

A non-performing asset (NPA) can either be in default (actual state of default) or in arrears (a state of looming default). A loan is in arrears when principal and/ or interest payments are not paid on time or completely missed. A loan is in default when the lender considers the loan agreement to be breached (as per a provision within) due to inability of the debtor to meet its obligations.

Certain banking assets are deemed non-performing when the debtor/ borrower fails to make timely principal and interest payments for a specified period, usually 90 days or more. These NPAs indicate a higher risk of default and, as a result, may expose the lender (a bank) to a certain degree of financial instability.