NPA (Non-Performing Asset)

Definition

A Non-Performing Asset (NPA) is a loan on which the borrower has stopped making principal or interest payments for more than 90 days. Banks are required by RBI to classify such loans as NPAs, which impacts their financial health and lending capacity.

NPAs are sub-classified as: Sub-standard (NPA for up to 12 months), Doubtful (NPA for 12+ months), and Loss assets (identified as uncollectible). Banks must set aside provisions (reserves) against NPAs, reducing their profitability.

For borrowers, having an account classified as NPA severely damages credit scores, may trigger SARFAESI proceedings for secured loans, and makes obtaining future credit extremely difficult.

Frequently Asked Questions

What happens when a loan becomes NPA? ▾

The borrower's credit score drops severely, the lender may initiate recovery proceedings (including SARFAESI for secured loans), and obtaining any new credit becomes extremely difficult.

Can an NPA loan be resolved? ▾

Yes — through full repayment, settlement (paying a negotiated lower amount), restructuring, or one-time settlement (OTS). Each option has different credit and financial implications.

How do I avoid NPA classification? ▾

Make timely payments, contact your lender proactively if facing difficulties, and explore restructuring options before missing payments. Even paying the minimum due prevents NPA classification.

Why It Matters

NPA classification has severe consequences for both lenders and borrowers. Understanding this helps borrowers avoid the circumstances that lead to default and NPA classification.

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