What Happens When Your Loan Becomes NPA, and What You Can Do
If you miss EMIs for 90 consecutive days, your loan is classified as a Non-Performing Asset (NPA). That triggers formal recovery proceedings, credit bureau reporting and, in some cases, legal action. But it isn’t the end of the road: you still have options.
Direct answer
A loan turns NPA when EMIs stay unpaid for 90 days. After classification, the lender assigns recovery agents, reports the account to credit bureaus, and may start legal proceedings. NPA status can be reversed by paying all overdue EMIs. If full repayment isn’t possible, a one-time settlement (OTS) is available for most NPA accounts.
Act quickly: the longer an account stays NPA, the fewer options you have.
What Is NPA in Banking? Non-Performing Asset Meaning
NPA stands for Non-Performing Asset. In banking, it describes a loan or advance on which the borrower has stopped making scheduled payments.
Under the RBI’s Prudential Norms on Income Recognition, Asset Classification and Provisioning (IRACP), a loan becomes an NPA when principal or interest remains overdue for more than 90 days. For overdraft and cash credit accounts, the test is whether the account stays “out of order” for 90 days, meaning it exceeds the sanctioned limit or has no credits to cover the interest.
For the borrower, NPA is more than a label. It sets off a series of lender actions that affect your credit score, your financial standing, and your access to future loans.
When Does a Loan Become NPA? The 90-Day Rule and SMA Timeline
The 90-day rule runs from the date an EMI was due but not received. The timeline works like this:
| Days overdue | Account status | Lender action |
|---|---|---|
| 1–30 days | Overdue (Special Mention Account, SMA-0) | Reminder calls and SMS |
| 31–60 days | SMA-1 | Follow-up is escalated and the branch manager gets involved |
| 61–90 days | SMA-2 | Recovery agents are assigned; settlement discussions may begin |
| 91+ days | NPA: Substandard | Credit bureau reporting and formal recovery proceedings; SARFAESI action possible for secured loans |
| 12+ months as NPA | NPA: Doubtful | Stronger legal action and higher provisioning; OTS may be offered |
| Identified as unrecoverable | NPA: Loss | Written off from the books; recovery is still pursued through legal means |
1–30 days
Account Status
Overdue (Special Mention Account, SMA-0)
Lender Action
Reminder calls and SMS
31–60 days
Account Status
SMA-1
Lender Action
Follow-up is escalated and the branch manager gets involved
61–90 days
Account Status
SMA-2
Lender Action
Recovery agents are assigned; settlement discussions may begin
91+ days
NPAAccount Status
NPA: Substandard
Lender Action
Credit bureau reporting and formal recovery proceedings; SARFAESI action possible for secured loans
12+ months as NPA
NPAAccount Status
NPA: Doubtful
Lender Action
Stronger legal action and higher provisioning; OTS may be offered
Identified as unrecoverable
NPAAccount Status
NPA: Loss
Lender Action
Written off from the books; recovery is still pursued through legal means
Agricultural loans: The 90-day rule is replaced by crop-season periods. For short-duration crops, a loan turns NPA after 2 crop seasons (typically 12–18 months). For long-duration crops, it happens one crop season after the due date.
What Happens After Your Loan Becomes NPA?
NPA classification sets off a sequence of lender actions. Here is what typically happens:
Day 91: NPA classification
Credit bureau reporting
The account is reported to CIBIL, Experian, Equifax, and CRIF with NPA or “Doubtful” status. Your credit score drops sharply, and future lenders can see the status in your credit report.
Weeks 1–4 after NPA
Recovery agent assignment
The lender formally assigns a recovery agent or collection agency to your account, and calls and home visits increase. They must still follow the RBI Fair Practices Code: contact only between 7 AM and 7 PM, and no harassment.
Months 2–6 after NPA
Legal notice and proceedings
For unsecured loans, the lender may file a case in the Debt Recovery Tribunal (DRT) or a civil court. For secured loans such as home or car loans, it may issue a SARFAESI Section 13(2) notice, which gives you 60 days to respond before possession proceedings begin.
12+ months as NPA
Doubtful classification and write-off
The account moves to “Doubtful.” At this stage lenders may offer a One Time Settlement (OTS), since they want to improve their NPA ratios. If the account is eventually judged unrecoverable, it may be written off, which removes it from the lender’s balance sheet while recovery efforts continue.
Can NPA Be Reversed? How Upgradation Works
Yes. You can reverse NPA classification by clearing all overdue payments, which returns the account to “regular” status. This process is called upgradation.
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 history of late payments stays visible for 7 years.
If you can’t clear all the overdue dues, the alternative is a One Time Settlement (OTS).
Read our complete settlement guideTo reverse NPA status
- 1Pay all overdue EMIs: not just one or two, but every unpaid instalment.
- 2Pay any penalties or interest that accrued during the default period.
- 3Get written confirmation from the lender that the account has been upgraded to Standard.
- 4Check the credit bureau update within 30–45 days of payment.
Your Options If Your Loan Is NPA: Upgradation, OTS, Restructuring and Collateral Sale
Best outcome
Full repayment (upgradation)
Pay all overdue EMIs plus penalties and the account moves from NPA to Standard. Your credit score recovers faster than after a settlement because the account is marked “Closed” or “Regular.” Choose this if you can arrange the total overdue amount.
Most common NPA resolution
One Time Settlement (OTS)
Negotiate a lump-sum payment, typically 30–65% of the outstanding amount, to close the account. The lender marks it “Settled.” This is better than staying in NPA and gives you a clean break. The score impact is negative but finite.
Read the settlement guideWhen cashflow is the issue
Loan restructuring
Negotiate with the lender to restructure the loan by lowering the EMI, extending the tenure, or granting a moratorium. The RBI runs restructuring schemes from time to time, especially after COVID. Restructuring can prevent NPA classification, or reverse it if done before 90 days. Ask your bank about its current restructuring policy.
Last resort for secured loans
Sale of collateral
For secured loans such as home or vehicle loans, 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.
NPA Loan FAQs: 90-Day Rule, Reversal and Classification
What is NPA in banking?
NPA stands for Non-Performing Asset. A loan becomes an NPA when EMIs have gone unpaid for 90 consecutive days. Once a loan is classified as NPA, the lender reports it to credit bureaus, assigns recovery agents, and may start legal proceedings. The 90-day rule applies to most retail loans; agricultural loans use crop-season periods instead.
Can NPA be reversed?
Yes. Pay all overdue EMIs plus penalties to bring the account current, a process called “upgradation.” The lender must update credit bureaus within 30 days. If full repayment is impossible, a One Time Settlement (OTS) is available, and the account is then marked “Settled” instead of remaining NPA. Both options are better than prolonged NPA status.
What is the 90-day NPA rule?
Under the RBI’s IRACP norms, a loan becomes NPA when interest or principal repayment is overdue for more than 90 days. The clock starts on the due date of the first missed payment. For cash credit accounts, the test is 90 days “out of order.” For agricultural loans, the threshold is 2 crop seasons for short-duration crops.
What happens to my loan after it becomes NPA?
Credit bureaus are notified (your CIBIL score drops sharply), recovery agents are formally assigned, legal notices may be issued, and for secured loans SARFAESI proceedings may begin. The longer the account stays NPA, the fewer options you have: upgradation is possible early on, but gets harder the deeper the account falls into default.
What are the NPA sub-categories?
The RBI classifies NPAs into three groups: (1) Substandard, for NPAs up to 12 months old; (2) Doubtful, for NPAs older than 12 months, with sub-categories D1, D2, and D3 based on the number of years; and (3) Loss, for assets auditors identify as uncollectible. As an account moves down these categories, lenders must set aside higher provisions, which motivates them to offer OTS at the Doubtful stage.
Know Your Rights Before You Respond
Keep a clear record, communicate in writing where appropriate, and use the correct complaint channel for your situation.
Related Guides on Loan Settlement, CIBIL Score and Legal Notices
This content is for informational purposes only and does not constitute legal or financial advice.