Direct answer: A loan becomes NPA when EMIs are unpaid for 90 days. After NPA classification, the lender assigns recovery agents, reports to credit bureaus, and may initiate legal proceedings. However, NPA can be reversed by paying all overdue EMIs. If full repayment is not possible, settlement (OTS) is available for most NPA accounts. Act quickly — the longer the NPA, the fewer your options.
What is NPA?
NPA stands for Non-Performing Asset. In banking, it refers to a loan or advance where the borrower has stopped making scheduled payments.
Under RBI's Prudential Norms for Income Recognition, Asset Classification and Provisioning (IRACP), a loan becomes NPA when the principal or interest payment remains overdue for more than 90 days. For overdraft or cash credit accounts, it is when the account remains "out of order" (exceeding sanctioned limit or no credits to cover interest) for 90 days.
For the borrower, NPA is not just a label — it triggers a series of actions by the lender that affect your credit score, financial standing, and access to future loans.
When does a loan become NPA?
The 90-day rule applies from the date an EMI payment was due but not received. Here is how the timeline works:
| Days Overdue | Account Status | Lender Action |
|---|---|---|
| 1–30 days | Overdue (Special Mention Account — SMA-0) | Reminder calls and SMS |
| 31–60 days | SMA-1 | Escalated follow-up; branch manager involved |
| 61–90 days | SMA-2 | Recovery agents assigned; settlement discussions may begin |
| 91+ days | NPA — Substandard | Credit bureau reporting, formal recovery proceedings, SARFAESI possible for secured loans |
| 12+ months as NPA | NPA — Doubtful | Stronger legal action; higher provisioning; OTS may be offered |
| Identified as unrecoverable | NPA — Loss | Written off from books; recovery still pursued through legal means |
Note for agricultural loans: The 90-day rule is replaced by crop season periods. For short-duration crops, NPA is triggered after 2 crop seasons (typically 12–18 months). For long-duration crops, it is 1 crop season after the due date.
What happens after NPA classification?
NPA classification sets off a sequence of lender actions. Here is what typically happens:
Credit bureau reporting
The account is reported to CIBIL, Experian, Equifax, and CRIF with NPA or "Doubtful" status. Your credit score drops significantly. Future lenders can see this in your credit report.
Recovery agent assignment
The lender formally assigns a recovery agent or collection agency to your account. Calls and visits to your home will increase. These must still comply with RBI Fair Practices Code (7 AM–7 PM, no harassment). Know your rights with recovery agents.
Legal notice and proceedings
For unsecured loans, the lender may file a case in Debt Recovery Tribunal (DRT) or a civil court. For secured loans (home, car), a SARFAESI Section 13(2) notice may be issued, giving you 60 days to respond before possession proceedings begin. Learn how to respond to legal notices.
Doubtful classification and write-off
The account moves to "Doubtful" classification. Lenders may offer One Time Settlement (OTS) at this stage as they want to improve their NPA ratios. If the account is ultimately deemed unrecoverable, it may be written off — removed from the lender's balance sheet, though recovery efforts continue.
Can NPA be reversed?
Yes. NPA classification can be reversed by clearing all overdue payments, bringing the account back to "regular" status. This process is called upgradation.
To reverse NPA status:
- Pay all overdue EMIs (not just one or two — all unpaid installments)
- Pay any penalties or interest that accrued during the default period
- Confirm with the lender in writing that the account has been upgraded to Standard
- Verify the credit bureau update within 30–45 days of payment
The lender must report the upgrade to credit bureaus within 30 days of the account becoming regular. Your credit score will improve after upgradation, but the historical record of late payments will remain visible for 7 years.
If paying all overdue dues is not possible, the alternative is an OTS (One Time Settlement). Read our complete settlement guide.
Your options if your loan is NPA
Full repayment — Upgradation Best outcome
Pay all overdue EMIs plus penalties. The account is upgraded from NPA to Standard. Your credit score recovers more quickly than after settlement because the account is marked "Closed" or "Regular." Choose this if you can arrange the total overdue amount.
One Time Settlement (OTS) Most common NPA resolution
Negotiate a lump sum payment — typically 30–65% of the outstanding — to close the account. The lender marks it "Settled." This is better than remaining in NPA and gives you a clean break. Score impact is negative but finite. Read the settlement guide.
Loan restructuring When cashflow is the issue
Negotiate with the lender to restructure the loan — reduce EMI amount, extend tenure, or grant a moratorium period. RBI has periodic restructuring schemes (especially post-COVID). Restructuring avoids NPA classification or can reverse it if done before 90 days. Ask your bank about their current restructuring policy.
Sale of collateral Last resort for secured loans
For secured loans (home, vehicle), consider selling the asset voluntarily before the lender seizes and auctions it. A voluntary sale typically fetches a better price than a bank auction, and you can use the proceeds to clear the loan — potentially avoiding a full NPA entry or settling it quickly.
Resolve your NPA loan
credfix negotiates settlements and closures with lenders — even for NPA accounts.
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