NPA — Non-Performing Assets
A loan where the borrower has stopped paying interest or principal for 90 days or more — a debt the bank can no longer count on as reliably generating income.
Explain it like I'm 10
If you lent a friend ₹10,000 and they haven't paid back a single rupee — not even the interest — in three straight months, you'd stop counting that money as something you can rely on; in your own mental accounting, it's become a doubtful asset rather than money quietly earning you returns. Banks apply exactly this logic, formally: once a borrower misses payments on a loan for 90 days or more, the bank must reclassify that loan as a Non-Performing Asset (NPA) — an acknowledgment, built into its books, that the loan may never be fully recovered.
The formula
Gross NPA Ratio (%) = (Gross NPAs / Gross Advances) × 100 A loan is classified NPA once interest or principal remains overdue for 90 days or more
Historical data
A remarkable multi-decade improvement — from over 11% at the post-2018 asset-quality-review peak to a fresh historic low near 2.1-2.6% through 2024-25, driven by aggressive recognition, recovery through the Insolvency and Bankruptcy Code, and stronger underwriting discipline.
Who calculates it
The RBI sets the 90-day asset classification norm and publishes system-wide NPA trends through its half-yearly Financial Stability Report; individual banks report their own NPA figures in quarterly results.
Where this number can mislead you
- ⚠A falling headline NPA ratio can partly reflect aggressive write-offs of bad loans — removed from the balance sheet for reporting purposes, but not necessarily actually recovered — rather than a genuine, equivalent improvement in loan quality.
- ⚠NPA figures are a lagging indicator: economic stress building up today typically takes 12-18 months to show up as a 90-day overdue classification, so a currently low NPA ratio says little about stress already brewing but not yet visible.
- ⚠The RBI's own stress-test scenarios in its Financial Stability Report have projected the ratio could rise back up to between 3% and 5.3% by March 2026 under adverse conditions, even from today's multi-decade lows — a reminder that low current NPAs are not a guarantee against future deterioration.
- ⚠The aggregate ratio blends very different loan books — retail, corporate, agriculture, MSME — whose individual stress levels can diverge sharply from the headline system-wide number.
Reality check
India's banks brought their Gross NPA ratio down to a 12-year low of 2.6% by September 2024, and further to roughly a 20-year low of 2.31% by March 2025 — yet the RBI's own Financial Stability Report stress tests, in the same period, projected the ratio could climb back to between 3% and 5.3% by March 2026 under adverse macroeconomic scenarios, illustrating that even a historic low is treated by the regulator as a snapshot, not a permanent state.
Test yourself
When is a loan classified as a Non-Performing Asset (NPA)?