When does a loan become NPA? Under RBI rules, a term loan becomes a non-performing asset (NPA) when interest or an instalment of principal stays overdue for more than 90 days. Before that, the account passes through three warning stages: SMA-0, SMA-1 and SMA-2. A bank’s system sets each date automatically at the end of the day, and the NPA date it records is the one that starts every recovery remedy that follows. The whole journey from the first missed payment to NPA takes about three months.
This article explains NPA classification India in plain terms: the day counts for each stage, how the classification date is fixed, what happens to cash credit and overdraft accounts, how an NPA is graded and upgraded, and what the date means for SARFAESI Act NPA recovery, the DRT and the IBC.
The four stages, in days
The RBI uses Special Mention Account (SMA) categories to flag stress before a loan turns into an NPA. For term loans and other accounts that run on due dates, the stages depend on how long any principal, interest or other amount has been overdue:
| Stage | Days overdue | What it means |
| SMA-0 | Up to 30 days | First signs of stress; the amount is overdue but within the first month |
| SMA-1 | More than 30 and up to 60 days | A recognised warning stage |
| SMA-2 | More than 60 and up to 90 days | The last stage before NPA |
| NPA | More than 90 days | Interest or principal instalment overdue for more than 90 days in respect of a term loan |
This is the NPA 90 days rule. It applies to term loans, and also to bills purchased or discounted that stay overdue past 90 days. The categories are applied on a borrower-wise basis: if one facility of a borrower slips, the bank looks at the borrower’s exposures together.
A worked example from the RBI’s own approach
The RBI explains the day count with an illustration. Suppose an instalment is due on 31 March 2021 and is not paid before the bank runs its day-end process for that date. The account is then overdue from 31 March. If it stays overdue, the system tags it SMA-1 when 30 days of continuous overdue are complete, which gives an SMA-1 date of 30 April 2021. It tags it SMA-2 on 30 May 2021, and classifies it as an NPA on 29 June 2021.
Two points come from this. First, the classification is a system-driven, day-end event. The SMA or NPA date is the calendar date on which the day-end process was run, not a date the bank picks later. Second, the clock starts from the due date of the unpaid amount, not from the date the bank notices the problem. A borrower who thinks a loan is “still fine” until the bank calls may already be in SMA-1.
Cash credit and overdraft accounts work differently
Revolving facilities such as cash credit and overdraft do not have fixed instalments, so the RBI tests them on the balance instead. For SMA-1 and SMA-2, the test is whether the outstanding balance stays continuously above the sanctioned limit or the drawing power, whichever is lower, for more than 30 days and up to 60 days (SMA-1) or more than 60 and up to 90 days (SMA-2).
A revolving account becomes an NPA when it is “out of order” and stays that way. An account is out of order if any one of these is true:
- the balance stays continuously above the sanctioned limit or drawing power for 90 days;
- the balance is within the limit but there are no credits for 90 continuous days; or
- the credits during the previous 90 days do not cover the interest debited in that period.
For a business that runs its working capital through a cash credit line, this makes the drawing power statement important. A stock or receivables statement that is out of date can reduce the drawing power, which can push a balance above the permitted level without any new borrowing.
The NPA grades: sub-standard, doubtful and loss
Once an account is an NPA, the bank grades it by how long it has stayed one:
- Sub-standard: an NPA for up to 12 months.
- Doubtful: an account that has remained sub-standard for 12 months. Banks further grade doubtful assets by age.
- Loss: an asset where loss has been identified by the bank, the auditors or the RBI, but which has not been written off in full.
These grades drive how much the bank must set aside as provision, which is why banks begin to push for resolution or recovery as an account ages. The exact provisioning rates and the treatment of secured and unsecured portions are set out in the RBI Directions, and counsel or a finance professional should confirm the current figures for a particular account.
Getting out of NPA: the upgrade rule
An NPA can be upgraded to standard only when the entire arrears of interest and principal are paid by the borrower. Where a borrower has several facilities with the bank, the arrears on all of them must be cleared. Paying the overdue instalment on one loan does not lift the others.
This is a common source of confusion. Borrowers who pay the amount they believe is due, or a part of it, often find the account is still tagged NPA. The test is full payment of all arrears, not a partial payment or a promise to pay.
What the NPA date triggers
The NPA classification date is the starting point for the main recovery routes. It matters because each route builds on it.
SARFAESI. A secured creditor can issue a Section 13(2) notice only after it has classified the borrower’s account as an NPA. The notice has to state the NPA classification and the date of classification, and it gives the borrower 60 days to pay. The bank can then proceed under Section 13(4) if the dues are not discharged. This sequence is why SARFAESI Act NPA recovery usually follows quickly after the 90th day. The earliest a bank can move to possession is therefore roughly five months after the first missed payment: about 90 days to NPA, then the 60-day notice period. For borrower rights at the notice stage, see Hectogon’s guide to the Section 13(2) notice and the 60-day window.
The DRT. A bank can also file a recovery application before the Debts Recovery Tribunal. A DRT filing does not need to wait for a SARFAESI notice, and the two routes can run in parallel. See Hectogon’s comparison of NPA resolution routes India 2026 for how SARFAESI, the DRT and the IBC differ in timing and cost.
The IBC. A financial creditor can file an application under Section 7 of the Insolvency and Bankruptcy Code once there is a default of at least Rs 1 crore. The NPA classification is often part of the evidence of default. Since 26 May 2026, the NCLT must decide a Section 7 application within 14 days, and must admit it once default is proved, the application is complete, and no disciplinary proceeding is pending against the proposed resolution professional.
Settlement. An NPA account is also the point at which a borrower can ask the bank for a one-time settlement. RBI’s framework for compromise settlements (RBI/2023-24/40, DOR.STR.REC.20/21.04.048/2023-24, dated 8 June 2023) sets the rules banks work within, and each bank’s board-approved policy governs eligibility and the minimum settlement amount.
These routes make debt recovery India a layered process. A borrower in the SMA-1 or SMA-2 stage is not yet facing any of them, but the clock toward NPA is running.
Common misreadings of the 90-day rule
Several mistakes recur when borrowers read their own accounts through the SMA-1, SMA-2 and NPA sequence.
- “The 90 days start when the bank writes to me.” They start from the due date of the unpaid amount, as recorded by the system.
- “SMA means the bank can enforce.” An SMA tag is a warning. A SARFAESI notice needs an NPA classification first. The SMA stages carry no enforcement right by themselves.
- “My other loans are fine, so one slipping loan does not matter.” Classification works borrower-wise, so a slipping facility can affect how the bank treats the others.
- “Once the account is NPA, interest stops.” The bank’s books stop recognising interest on an NPA as income unless it is collected, but that is an accounting rule. It does not cancel the borrower’s contractual liability.
- “NPA means I am a wilful defaulter.” NPA is an asset classification by the bank. Wilful default is a separate status with its own process and consequences, and the two should not be confused.
What changes from 1 April 2027
The RBI’s Directions of 27 April 2026 move commercial banks to an expected credit loss model for provisioning from 1 April 2027. Under this model, banks recognise expected losses in stages and earlier, including a stage for a significant increase in credit risk, rather than waiting for 90 days of default. Commentary on the Directions says the 90-day test for classifying an NPA is retained. For borrowers, the practical result is that banks may monitor accounts more closely, and provision earlier, in the period before a loan reaches NPA status. Until then, the 2025 Directions remain the rules for NPA classification in India.
What a borrower can do in the SMA stages
SMA-1 and SMA-2 are the periods in which a borrower has the most room. Steps that tend to matter:
- Check the due date and the overdue amount. Ask the bank for an account statement and confirm what it treats as overdue and from which date.
- Check how payments were applied. A payment applied to charges or to a later instalment can leave an earlier amount overdue.
- Talk to the bank before 90 days. Restructuring and settlement discussions before an NPA date give the bank more room than those after it. No outcome is assured, and each bank’s policy governs.
- Keep records. Written communications, proposals and acknowledgments can matter later, including for limitation if a dispute follows.
- Review the classification itself. A classification made before the account had been overdue for the required period, or based on a wrong overdue date, can be raised in objections to the bank and in a Section 17 application to the DRT. Whether it succeeds depends on the documents.
This article covers commercial banks. The rules for NBFCs, co-operative banks and agricultural loans differ in detail, and a borrower should check the rules that apply to their lender.
When professional review matters
The difference between SMA-2 and NPA can be a few days, and the dates drive every remedy that follows. A review by a qualified advocate or finance professional of the bank’s statement, the claimed overdue date and the classification date, before the 90th day if possible, is usually more useful than one after a SARFAESI notice has been issued. Clients in this situation typically consider having the account statement and classification date checked, along with the settlement and restructuring options, before the account is tagged NPA. No advisor can lawfully promise that a bank will agree to a particular outcome.
Frequently asked questions
How many days overdue does a loan become an NPA in India?
A term loan becomes an NPA when interest or an instalment of principal remains overdue for more than 90 days. Before that, the account is tagged SMA-0, SMA-1 or SMA-2 depending on how long it has been overdue. The bank’s day-end system records the classification date automatically.
What is the difference between SMA-0, SMA-1 and SMA-2?
They are warning categories before NPA status. SMA-0 means the amount is overdue for up to 30 days, SMA-1 means more than 30 and up to 60 days, and SMA-2 means more than 60 and up to 90 days. Beyond 90 days the account is classified as an NPA.
How does a cash credit or overdraft account become an NPA?
It becomes an NPA when it is out of order. That happens if the balance stays above the sanctioned limit or drawing power for 90 days, if there are no credits for 90 continuous days, or if credits in the previous 90 days do not cover the interest charged.
How can an NPA account be upgraded to standard?
Only when the borrower pays the entire arrears of interest and principal. If the borrower has several facilities with the bank, the arrears on all of them must be cleared. Paying part of the overdue amount, or one facility only, does not upgrade the account.
What happens after a loan becomes an NPA?
A secured creditor can issue a SARFAESI Section 13(2) notice stating the NPA classification and its date, giving the borrower 60 days to pay. The bank can also pursue a DRT application or an IBC Section 7 application, and the borrower can ask about a settlement.
