In banking terminology, bad loans on which interest or principal has not been paid for a specified period are generally known as what?

Introduction / Context:
Banks lend money to individuals and businesses but sometimes borrowers do not repay on time. When a loan remains overdue beyond a prescribed period, it is classified as a bad or stressed loan. Banking regulators use specific terminology for such loans. This question checks whether you know the standard term used to describe such bad loans in banking practice and regulation.

Given Data / Assumptions:

• The loans in question have interest or principal overdue for more than a specified number of days.
• The context is formal banking and prudential norms issued by regulators.
• We are looking for the commonly accepted label for such bad loans.
• Other options may mention unrelated or misleading terms.

Concept / Approach:
When a borrower fails to pay interest or principal for a certain period, regulators require banks to treat the loan as a Non Performing Asset, usually abbreviated as NPA. This classification triggers stricter provisioning and monitoring. Prime loans and prime assets typically refer to high quality, low risk exposures, and BPOs refer to outsourced business processes, not to bad loans. Therefore, we should choose the option that explicitly mentions Non Performing Assets or NPAs.

Step-by-Step Solution:
Step 1: Recall that the standard regulatory term for overdue bad loans is Non Performing Asset. Step 2: Identify option A, which states Non performing assets (NPAs). Step 3: Examine option B, which refers to prime loans, usually considered high quality, which is the opposite of bad loans. Step 4: Examine option C, which expands BPOs as business process outsourcing and is unrelated to loan quality. Step 5: Examine option D, prime assets, again a label for good quality assets, not for loans that are not performing.

Verification / Alternative check:
To verify, think of common banking reports and news articles. When banks report stressed assets or mention the ratio of gross NPAs to total loans, they are referring to loans where payments are overdue and performance has stopped. These loans require provisioning and may ultimately be written off if recovery fails. No news or regulatory discussion describes such loans as prime assets or BPOs, which confirms that NPAs is the standard term used for bad loans.

Why Other Options Are Wrong:
Option B is wrong because prime loans usually refer to loans offered to borrowers with strong credit standing, often at attractive interest rates, not to overdue or defaulted loans. Option C is wrong because business process outsourcing is a practice where a firm contracts out operations to another company and has nothing to do with loan classification. Option D is wrong because prime assets suggest high quality assets, which again contradicts the idea of a bad loan. None of these reflect the regulatory label for non paying loans.

Common Pitfalls:
A frequent error is to confuse NPAs with general terms like bad debts or doubtful debts, forgetting the specific regulatory category. Another pitfall is to assume that any fancy term like prime assets must refer to important items, even though it is the opposite of non performing assets. To avoid mistakes, always link the phrase bad loans in banking with Non Performing Assets or NPAs and remember that these require special monitoring and provisioning.

Final Answer:
Bad loans in banking terminology are generally known as Non performing assets (NPAs).