An NPA, or Non-Performing Asset, is a loan that a bank classifies as seriously overdue, generally once payments have been missed for 90 days or more. This guide explains exactly what this means and its real consequences.
The Simple Idea
From a bank’s perspective, a loan is a financial asset, expected to generate income through interest. When a borrower stops paying, that asset stops “performing,” hence the term Non-Performing Asset.
The 90-Day Rule
In India, RBI generally classifies a loan as an NPA once it’s overdue for 90 days or more. This isn’t the first missed payment; it’s a sustained period of non-payment, following several less severe classification stages before reaching this point.
The Stages Before NPA Classificatio
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0-30 days overdue. Recently missed, often recoverable quickly with minimal lasting impact.
30-60 days overdue. More seriously overdue, with growing credit score impact.
60-90 days overdue. Approaching NPA classification, with substantial score damage and heightened lender concern.
90+ days overdue. Officially classified as an NPA, the most severe stage.
What Happens Once a Loan Becomes an NPA
The consequences intensify. Your credit score takes substantial, lasting damage. The lender may escalate recovery efforts significantly. For secured loans, formal proceedings toward asset recovery can begin, following due legal process. Future borrowing becomes considerably more difficult.
Does NPA Classification Apply to Individual Borrowers Too?
Yes. While the term is often discussed in the context of bank balance sheets and large corporate loans, it applies equally to personal loans, credit cards, and any other individual lending relationship that reaches this stage of overdue status.
Can a Loan Recover From NPA Status?
Yes, if you clear the overdue amount and resume regular payments, the loan can be reclassified as standard again, though the NPA classification itself, once it occurred, remains part of your credit history for a period, even after resolution.
A Quick Reference Table
Days OverdueClassificationSeverity0-30Standard, slightly overdueLow30-60Sub-standard concernModerate60-90Approaching NPAHigh90+NPASevere
Why Understanding This Timeline Matters
Knowing exactly when a loan crosses into NPA territory helps you understand the urgency of addressing an overdue payment. The difference between resolving something at 45 days versus letting it reach 90+ days is substantial, both for your credit profile and your relationship with the lender.
What to Do Before Reaching NPA Status
Contact your lender as early as possible, ideally at the very first sign of difficulty, not after several months have passed. Ask about a moratorium or restructuring, options that become harder to negotiate the further overdue you become. Prioritize the most severely overdue accounts first if you’re managing multiple debts and limited funds.
How NPA Status Affects Future Loan Applications
An NPA classification on your credit history is one of the most damaging marks a lender can see. It signals sustained, serious non-payment, not just a one-off missed payment. Future applications, at any lender, will likely face significant scrutiny, or outright rejection, while this remains prominent on your report.
Is There a Difference Between NPA and Default?
These terms overlap significantly, though “default” is sometimes used more broadly to describe any failure to meet loan terms, while NPA specifically refers to the formal 90-day-plus classification banks use. In practice, once you’re at NPA status, you’ve effectively defaulted in the eyes of most lenders reviewing your history.
How This Connects to Loan Recovery Actions
Once a loan reaches NPA status, banks and NBFCs can pursue more formal recovery mechanisms, always within RBI’s fair practices framework governing how recovery must be conducted. This is a more serious stage than routine collection calls for a recently missed payment.
Frequently Asked Questions
How many days overdue before a loan becomes an NPA?
Generally, 90 days or more, under RBI’s classification norms, following earlier stages of overdue status before reaching this point.
Can an NPA classification be reversed?
Yes, by clearing the overdue amount and resuming payments, though the classification event itself remains part of your credit history for a period afterward.
Does NPA status affect my ability to get future loans?
Significantly. It’s one of the most serious negative marks a lender can see, and typically makes future approval considerably harder while it remains prominent on your report.
What should I do if I’m approaching 90 days overdue?
Contact your lender immediately. Ask about restructuring or other options. Acting before reaching full NPA status gives you meaningfully more flexibility than waiting.
Can I prevent my loan from becoming an NPA?
Yes. Contact your lender before 90 days of overdue status and discuss options such as restructuring, a repayment plan, or other approved relief measures.
Conclusion
An NPA is more than a missed EMI; it signals prolonged repayment failure and can seriously affect your credit profile and future borrowing options. The most important step is to act before the account reaches 90 days overdue. Contact your lender early, discuss restructuring or other repayment options, and avoid letting temporary financial difficulty turn into a long-term credit problem.
Worried about a loan becoming seriously overdue? See how consolidating multiple debts into one manageable EMI could help.
