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.webp "Non Performing Assets")
Learn about Non-Performing Assets (NPAs), how they arise, and how they affect a bank's financial health.
Non-Performing Assets (NPAs) are indicators of a bank's financial health. They reflect the quality of a bank's loan book and its ability to recover money from borrowers. High NPAs signal financial stress, impact profitability, and hinder credit growth in the economy. This article explains what NPAs are, how they arise, their types, calculation method, impact, and the regulatory framework governing them.
Understanding what is a non performing asset: an NPA is a loan or advance for which the borrower has stopped making interest or principal repayments for 90 days or more. When a loan stops generating income for the bank, it is classified as non-performing.
In simpler terms, an NPA is a loan where:
Interest or EMIs remain overdue for more than 90 days
The loan meets the RBI's criteria for classification as a non-performing asset
The asset no longer contributes to the bank's revenue
In short, the non performing assets meaning centers on loans that have stopped contributing income to the lender. NPAs directly affect a bank's balance sheet, capital adequacy ratio, and liquidity position.
A loan does not become an NPA overnight. It goes through stages of delinquency. Here is how the process works:
Common reasons include loss of income, poor cash flow, industry slowdown, defaults in business, or willful non-payment.
A bad loan is a general, everyday term for a loan that is not being repaid as agreed. It is commonly used by the public and media and does not represent a separate formal category under banking rules.
An NPA, or non-performing asset, is a formal classification used by banks and regulators. In the case of a standard term loan, the account is generally classified as an NPA when the principal or interest remains overdue for more than 90 days. Different types of credit facilities may have specific classification rules.
In simple terms, an NPA may be called a bad loan, but the term bad loan is sometimes used more loosely even before the account officially qualifies as an NPA.
Banks group loans into different non performing assets categories based on the duration and severity of default:
Substandard Assets: Assets that remain NPA for less than 12 months
Doubtful Assets: Assets that remain NPA for more than 12 months
Loss Assets: Assets identified as uncollectible or of such little value that their continuance as bankable assets is not warranted by banks or auditors; a loss is confirmed
These categories help banks decide provisioning levels and assess the likelihood of recovery.
There are several types of non performing assets, which come in various forms depending on the loan structure:
Term Loan NPAs – EMI overdue for 90+ days
Overdraft/Cash Credit NPAs – Account remains out of order for 90+ days
Agricultural Loan NPAs – Overdue for two crop seasons (short-duration crops) or one season (long-duration crops)
Bills Purchased & Discounted – Remain overdue beyond the applicable RBI norms
Credit Card Dues – Non-payment beyond 90 days
A few simple non performing assets examples include:
A business loan where the borrower has not paid EMIs for over 3 months
A home loan where interest dues have accumulated for more than 90 days
A credit card account where the outstanding amount remains overdue beyond the applicable regulatory period for NPA classification.
A farm loan overdue beyond the allowed crop season cycle
These represent common NPA scenarios faced by banks.
The main metric used for non performing assets calculation is the NPA Ratio (or Gross NPA Ratio).
The formula is as follows:
Gross NPA Ratio = (Gross NPAs ÷ Gross Advances) × 100
Where:
Gross NPAs = Total value of non-performing loans
Gross Advances = Total loans issued by the bank
If a bank has:
Gross Advances = ₹1,000 crore
Gross NPAs = ₹80 crore
Gross NPA Ratio = (80 ÷ 1,000) × 100 = 8%
The NPA ratio is one measure used to assess a bank's loan portfolio quality.
NPAs have far-reaching consequences, including:
Reduced profitability because banks stop earning interest
Higher provisioning requirements, reducing available capital
Lower credit creation, affecting economic growth
Higher credit costs and tighter lending conditions for some borrowers
Reduced investor confidence in the banking sector
Persistently high NPAs may affect a bank's financial stability and, in some cases, result in regulatory intervention, capital infusion, restructuring, or consolidation.
Banks and regulators take several steps to reduce NPAs:
Stricter credit appraisal and monitoring
One-Time Settlement (OTS)
Restructuring stressed loans
SARFAESI Act recovery proceedings
Debt Recovery Tribunals (DRTs)
Sale of NPAs to ARCs (Asset Reconstruction Companies)
Insolvency and Bankruptcy Code (IBC) for large corporate defaulters
India's banking sector navigated a period of elevated NPAs after 2015, largely linked to stress in sectors such as steel, infrastructure, power, and telecom. Since then, reported figures for non performing assets india have moved as follows, based on RBI's Financial Stability Reports and related official data:
The gross non-performing assets (GNPA) ratio of Scheduled Commercial Banks was reported at 2.15% as of September 2025 (provisional data), per RBI/PIB data released in early 2026.
Public sector banks reported a GNPA ratio of 2.8% as of March 2025, compared to 3.7% as of March 2024, according to RBI's Financial Stability Report covering that period.
The net NPA ratio across Scheduled Commercial Banks was reported at 0.5% as of March 2025, per the same report.
These figures are based on RBI's periodic reporting and are subject to revision; readers should refer to the latest RBI Financial Stability Report for current data.
The classification and treatment of NPAs in India follow RBI's Prudential Norms, which include:
90-day overdue rule
Classification into substandard, doubtful, loss
Provisioning requirements for each category
Stringent income recognition rules
Guidelines for restructuring, write-offs, and recovery
RBI regularly updates norms to ensure transparency in reporting.
Non-Performing Assets represent loans on which repayments have stopped for 90 days or more, and they form one part of how a bank's loan portfolio is assessed. NPAs are classified into substandard, doubtful, and loss categories based on how long they remain unpaid, and are measured using the Gross NPA Ratio, which compares non-performing loans to total advances. Regulatory mechanisms such as SARFAESI, the IBC, and One-Time Settlements provide structured pathways for recovery once a loan is classified as an NPA.
Reflect the credit health and risk exposure of banks
Affect profitability, liquidity, and overall financial stability
Require monitoring, early detection, and disciplined lending
Recovery mechanisms such as SARFAESI, IBC, and OTS support resolution
The NPA ratio is one of several measures used to describe a bank's loan portfolio quality and credit risk profile
A non-performing asset refers to a loan or advance on which the borrower has not paid interest or principal for a period of 90 days or more, indicating that the account has stopped generating expected income for the lender.
Types of non-performing assets include term loan NPAs, overdraft and cash credit NPAs, agricultural NPAs, credit card NPAs, and other loan categories that fail to meet repayment obligations within stipulated timelines.
The NPA ratio is calculated by dividing the total gross non-performing assets by the total gross advances and multiplying the result by 100, giving a percentage that reflects the overall stress in a lender's loan portfolio.
The main causes of NPAs include inadequate credit assessment, economic slowdowns, operational challenges within borrowing entities, intentional non-repayment by borrowers, and unexpected events that disrupt business activity.
Non-performing assets are classified into substandard assets, doubtful assets, and loss assets, with each category reflecting the level of deterioration in the borrower's repayment capability.
Measures to reduce NPAs include loan restructuring, negotiated settlements, the use of recovery frameworks, proceedings under the Insolvency and Bankruptcy Code, and improved credit monitoring to detect stress early.
According to RBI's Financial Stability Report, the gross NPA ratio of Scheduled Commercial Banks was reported at 2.15% as of September 2025 (provisional data), with public sector banks reporting a GNPA ratio of 2.8% as of March 2025. These figures are periodically updated by the RBI, so the latest Financial Stability Report should be referred to for current data.
An NPA is a formal banking classification for a loan that meets the applicable non-payment conditions, generally after payments on a term loan remain overdue for more than 90 days. A bad loan is an informal term commonly used for a loan that is not being repaid as agreed.
A non-performing asset is a loan on which the borrower has stopped making interest or principal payments for 90 days or more, meaning the bank is no longer earning income from it.
The NPA ratio is calculated by dividing total gross non-performing assets by total gross advances and multiplying the result by 100.
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