What Happens When a Loan Becomes a Non Performing Asset?

By BillCut
Last updated: October 2026

Here is what happens when a loan becomes a non performing asset, or NPA. The lender stops treating the loan as healthy, tags it as overdue debt in its books, and moves it through stricter categories the longer it stays unpaid. For most term loans, the trigger is an instalment that stays overdue for more than 90 days. This guide explains the rule in plain words.

What is a non performing asset?

A non performing asset is a loan that has stopped bringing in the money the lender expects. The RBI Directions for commercial banks say that, for a term loan, interest or an instalment of principal that remains overdue for more than 90 days makes the loan an NPA. The label is an accounting status. It is not a court order.

Does the 90 day rule apply to credit cards?

Yes, with its own wording. Under the same Directions, a credit card account is classified as an NPA if the minimum amount due is not paid fully within 90 days from the payment due date in the statement. So paying a small part of the bill does not stop the clock if the minimum due is still unpaid in full.

How do lenders classify an NPA over time?

The RBI Directions place an NPA in one of three groups. The longer the account stays an NPA, the lower the group.

Category	What the RBI Directions say
Substandard asset	An asset that has remained an NPA for a period less than or equal to twelve months
Doubtful asset	An asset that has remained in the substandard category for a period of twelve months
Loss asset	An asset where loss has been identified by the bank, its auditors or the RBI, and it is seen as uncollectible

These definitions come from the RBI Income Recognition, Asset Classification and Provisioning Directions, 2025. The page we read applies to commercial banks. Other lenders have their own rules, so check with yours.

What changes for the borrower?

The RBI page defines the classification, not a list of steps against you. What a borrower sees in practice depends on the lender and the loan. Common experiences include:

• A weaker credit report, since long overdue dues are visible to future lenders.
• Difficulty getting new credit while the account is unpaid.
• Penal charges for late payment. The RBI says these must not be levied as penal interest or capitalised on covered loans.

CIBIL notes that part-payments or minimum payments can signal difficulty in repaying dues, and that missed payments can affect a score for up to two years. Our guide on how an EMI bounce affects borrowers goes deeper on this.

Can an NPA go back to a standard account?

Yes, but the bar is clear. The RBI Directions say an account may be upgraded to standard only if the entire arrears of interest and principal are paid. If you have several loans or facilities with the same lender, the arrears on all of them must be cleared. A small overdue amount is far easier to clear than a large one.

What does the timeline look like? An illustrative example

This is an illustrative example with round numbers. It is not a BillCut offer and it is not a prediction.

Stage	What it looks like
Day 1	An EMI of 10,000 rupees is due and is not paid
Day 91 or later	Overdue for more than 90 days, so the loan can be classed as an NPA
Up to 12 months after	Substandard period
After 12 months in substandard	Doubtful category

What can you do before a loan reaches 90 days overdue?

1. Call the lender early and ask what repayment options exist. Keep a written record.
2. List every loan and card due, with the amount, due date and interest rate. Our list of credit card debt warning signs can help you spot trouble early.
3. Pay at least what you can, and ask in writing how the lender will treat part-payments.
4. Look at whether moving costly dues into one structured EMI could lower the monthly strain.

If you disagree with how a lender has acted, first complain to the lender. The RBI says a complainant must first approach the regulated entity and can go to the Integrated Ombudsman Scheme if the reply is not satisfactory. Filing is free. For recovery contact rules, see our post on recovery rules for Indian borrowers.

Check your options with BillCut

How BillCut can help

BillCut is a balance transfer and debt reduction platform. It works with lending partners to help eligible borrowers move high interest dues, such as credit card balances and personal loan EMIs, into one structured EMI. BillCut earns from helping borrowers refinance, so it has an interest in this option. Approval and terms depend on the partner lender.

Frequently asked questions

Disclaimer: This article is general information and not legal, tax or financial advice. Rules differ by lender and loan type, and outcomes depend on your facts. Speak to a qualified professional about your situation.