What is an NPA (non-performing asset)?
An account where payment is overdue beyond the prescribed period.
For most term loans, an account where interest or principal has remained overdue for more than ninety days. Classification is a consequence of the day-end position rather than a status somebody sets, and the same ninety-day basis applies across asset classes — the gold Directions, for instance, contain no asset-classification rule of their own.
How is NPA calculated?
Ninety days past due, measured from the oldest demanded and unpaid amount, evaluated at day-end for a named business date.
NPA: a worked example
An account with an instalment unpaid from 5 April becomes non-performing in the day-end process of 5 July. Interest accrued on it since classification is reversed, and from that date income is recognised only as it is received.
Why does NPA matter?
It changes three things at once: the account's classification, whether income may be recognised on it, and the provision held against it. Getting the date wrong moves all three.
What the regulations say about NPA
Upgrading back to standard requires the ENTIRE arrears of interest and principal to be paid — not part of them. That is the February 2021 clarification, and it is the rule most implementations get wrong, because part payment feels like progress and the code lets it act like a cure.
What a lending system has to do about NPA
Upgrade is refused while any demanded and unpaid amount remains, tested against the same schedule rows the DPD engine reads. Income reversal on classification is a posted event, and a correction is a reversing entry rather than an edit.
Related terms
- IRAC norms — Income recognition, asset classification and provisioning.
- SMA-0, SMA-1, SMA-2 — Special mention accounts — the stages before NPA.
- Provisioning — The amount set aside against expected loss.
- Interest accrual — Interest earned as time passes, whether or not it has been collected.
- Penal charges — What a lender may levy for a default — as a charge, not as extra interest.
From the people who wrote this
Run your lending on Lenviq
The section above describes what a lending system has to do about this term. Lenviq does it — on every account, computed at day-end, with the direction it comes from recorded against it.
Lenviq is loan origination, servicing and accounting for NBFCs, built by FastLegal Technologies.