Non-Performing Asset (NPA)

RBI Prudential Norms on Income Recognition, Asset Classification and Provisioning (IRACP)

A loan or advance where interest or principal payment has been overdue for more than 90 days. NPAs are classified as Sub-Standard (up to 12 months NPA), Doubtful (12–36 months), or Loss Assets (recovery unlikely). RBI's Prudential Norms require banks to make provisions against NPAs. SARFAESI enforcement can only be initiated after an account is classified as NPA.

NPA classification is the legal trigger that unlocks recovery; nothing in SARFAESI can move until an account is correctly classified. In practice the 90-day overdue rule converts a stressed account into an NPA, after which the bank slots it as Sub-Standard, Doubtful or Loss and makes provisions under the RBI IRACP norms. The date of classification matters enormously: the Section 13(2) demand notice can issue only post-NPA, and an enforcement built on a premature or wrongly-dated classification is vulnerable to challenge before the DRT. Borrowers routinely contest the classification date, arguing the account was regularised or that interest application was erroneous, because if the NPA falls, so does the entire SARFAESI action. For counsel, reconstructing the account statement to pinpoint the exact day the 90-day window closed is foundational work. Well-advised creditors verify the classification is accurate and documented before serving the demand notice.