NPA Classification: When a Loan Becomes a Non-Performing Asset
More than 90 days overdue and a loan stops counting as performing. Here's exactly how RBI draws the line.
An NPA (non-performing asset) is a loan that has stopped earning for the bank. For most loans, that means an EMI or interest payment has stayed overdue for more than 90 days. Once a loan becomes an NPA, the bank must stop counting its unpaid interest as income and must set money aside against a possible loss.
For recovery agents, NPA status is the line between early collection and serious recovery. Most allocation lists are sorted by how many days a loan is overdue, and the 90-day mark changes what the bank can do next, including legal action.
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When a Loan Becomes an NPA
RBI's rules list the triggers by loan type:
- check_circleTerm loans (home, vehicle, personal, business): interest or principal overdue for more than 90 days.
- check_circleCash credit or overdraft: the account is "out of order" (explained below).
- check_circleCash credit where the drawing limit is based on stock statements older than three months, and drawings continue for 90 days.
- check_circleCredit cards: the minimum amount due is not paid in full within 90 days from the payment due date on the statement.
- check_circleCrop loans: overdue for two crop seasons for short-duration crops, or one crop season for long-duration crops.
Key Terms
- Overdue
- Any amount not paid on its due date. The bank flags the account overdue on the due date itself, during that day's end-of-day processing.
- Out of order
- A cash credit or overdraft account where, for 90 days, the balance stays above the limit or drawing power, or there are no credits at all, or credits don't cover the interest charged.
- Borrower-level classification
- If one loan of a borrower becomes an NPA, all of that borrower's loans with the same bank are treated as NPA.
- Income recognition
- On an NPA, the bank books interest as income only when it is actually received in cash, not when it falls due.
Worked Example: A Two-Wheeler Loan
- 1
5 March: EMI not paid
The account is flagged overdue at that day's end-of-day run.
- 2
March to May: still overdue
The account is a stressed account (special mention account) but still a standard asset.
- 3
3 June: 90 days have passed
If the arrears are still unpaid, the account becomes an NPA at that day's end-of-day run. RBI's own example: due date 31 March, NPA on 29 June.
- 4
Paying one EMI does not fix it
An NPA is upgraded to standard only when the borrower clears the entire arrears of interest and principal, on all loans with that bank.
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The Three NPA Categories
Sub-standard
When
NPA for up to 12 months
What it signals
Clear weaknesses; the bank may lose some money if they are not corrected
Doubtful
When
Has stayed sub-standard for 12 months
What it signals
Full recovery is highly questionable on the facts known
Loss
When
Loss identified by the bank, its auditors or an RBI inspection, but not yet written off
What it signals
Treated as uncollectible, though some recovery may still be possible
| Category | When | What it signals |
|---|---|---|
| Sub-standard | NPA for up to 12 months | Clear weaknesses; the bank may lose some money if they are not corrected |
| Doubtful | Has stayed sub-standard for 12 months | Full recovery is highly questionable on the facts known |
| Loss | Loss identified by the bank, its auditors or an RBI inspection, but not yet written off | Treated as uncollectible, though some recovery may still be possible |
Which RBI Rules Apply in 2026
For commercial banks, NPA norms sit in RBI's Income Recognition, Asset Classification and Provisioning Directions, 2025, with matching Directions for other lender types. From 1 April 2027, new Directions bring in an expected-loss approach to provisioning, but they keep the same NPA classification rules described here.
How the DRA Exam Tests This
Expect number recall ("A term loan becomes NPA when overdue for more than ___ days") and category order (sub-standard, then doubtful, then loss). Traps: thinking a loan becomes NPA at 30 or 60 days (those are SMA stages); thinking one EMI payment upgrades an NPA (only full arrears do); and forgetting that one NPA loan drags the borrower's other loans with it.
Scenario questions may give a due date and ask the NPA date, or ask which category a loan falls into after it has been an NPA for 15 months (doubtful).
FAQs
After how many days does a loan become NPA?expand_more
When interest or principal stays overdue for more than 90 days for a term loan. For credit cards, when the minimum amount due is not paid within 90 days from the payment due date. Crop loans follow crop seasons instead of days.
Can an NPA account become regular again?expand_more
Yes, but only when the borrower pays the entire arrears of interest and principal. If the borrower has several loans with the bank, arrears on all of them must be cleared.
What is the difference between sub-standard, doubtful and loss assets?expand_more
A sub-standard asset has been an NPA for up to 12 months. It becomes doubtful after 12 months as sub-standard. A loss asset is one where a loss has been identified but the amount is not yet fully written off.
If my loan becomes NPA, does the bank stop charging interest?expand_more
Interest is still owed under the loan contract. What changes is the bank's accounting: it books that interest as income only when it is actually received.
Next steps
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