NPA (Non-Performing Asset)

RBI Master Circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning

A loan or advance where: (i) interest and/or instalment of principal remains overdue for more than 90 days in respect of a term loan; (ii) the account remains "out of order" for more than 90 days in respect of an overdraft/cash credit; or (iii) the bill remains overdue for more than 90 days in case of bills purchased/discounted. NPA classification is a prerequisite for SARFAESI enforcement.

This entry sets out the technical limbs of NPA classification that counsel actually argue over: term loans, overdraft/cash-credit accounts that go "out of order," and overdue purchased or discounted bills, each tested against the 90-day rule. In practice the limb matters because each is computed differently; an overdraft turns NPA on "out of order" status, not merely on a missed instalment, so the bank must show the account breached the drawing power or had no credits sufficient to cover interest for the relevant period. Borrowers exploit mis-application of the correct limb, arguing for instance that a cash-credit account was wrongly classified on term-loan logic. Because NPA classification is the precondition for the Section 13(2) notice, an error in identifying or computing the limb can void the enforcement. For counsel, the working tool is a ledger-level reconstruction tied to the right RBI test. Well-advised creditors confirm the applicable limb and its computation before issuing notice.