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Preet, 40, owns a restaurant in Delhi. During a difficult period, he missed three months of payments on a ₹5 lakh business loan. He did not know it at the time, but after 90 days, his account was classified as an NPA — Non-Performing Asset.
This did not just affect his credit score. His bank account was flagged. When he tried to open a current account for his restaurant at a different bank, he was told his loan account was "classified" and the account opening was declined. His loan account felt like a stamp on his forehead that everyone could see.
Understanding NPA — what it is, how it affects you, and how to reverse it — is essential for every borrower.
What Is NPA?
NPA stands for Non-Performing Asset. Under RBI's prudential norms, a loan becomes NPA when the borrower has not made any payment (interest or principal) for a period of 90 days or more.
This is a classification used by the lender for their own accounting and regulatory capital purposes — but it also gets reported to CIBIL and other credit bureaus, where it appears in your credit report and decimates your score.
The technical RBI definition: For loans with EMIs: NPA when EMI overdue for 90+ days For agricultural loans: different seasonality rules For credit cards: NPA when minimum payment overdue for 90+ days
How NPA Is Classified (The 4-Stage Progression)
Banks don't jump straight to NPA. There is a progression:
| Days Overdue | Status | CIBIL Impact |
|---|---|---|
| 0–29 days | SMA-0 (Special Mention Account) | Minor |
| 30–59 days | SMA-1 | Moderate |
| 60–89 days | SMA-2 | Significant |
| 90+ days | NPA (Sub-standard) | Severe |
| 12+ months NPA | Doubtful | Very Severe |
| 36+ months NPA | Loss | Near-permanent damage |
The earlier you act, the less damage is done.
How NPA Affects Your Life Beyond Credit Score
Most borrowers focus on the CIBIL score impact of NPA. But there are broader consequences:
Account opening: As Preet discovered, a CIBIL report showing NPA can cause banks to decline current account or savings account applications for business purposes.
Employment checks: Some employers, particularly in financial services, IT, and government contracting, run credit checks. NPA status can affect hiring decisions.
Business loans: An NPA on personal credit often disqualifies personal guarantors for business loans — even when the business itself is viable.
Future loan rates: Even after an NPA is resolved (cleared by payment), lenders may offer higher interest rates for the following 2–3 years.
Can NPA Status Be Reversed?
Yes — but only in one way: pay the overdue amount in full.
There is no negotiation about the NPA classification itself. As long as your account is overdue by 90+ days, it is NPA under RBI rules. The moment you pay all overdue EMIs, penalties, and interest, the account reverts to "Standard" and the NPA classification is removed from the lender's books.
The lender must then report the updated status to CIBIL. Typically, this takes 30–45 days to reflect on your CIBIL report after payment.
What about OTS (One-Time Settlement)?
If you cannot pay the full outstanding amount, you can negotiate an OTS. However, OTS results in a "Settled" status on CIBIL — not "Closed" and not removal of all negative marks. Settlement removes the NPA tag but replaces it with a "Settled" notation, which also has significant credit impact (see Article 21).
The Step-by-Step NPA Resolution Process
Step 1: Confirm the exact overdue amount
Call your lender and ask for a "loan account statement" or "demand notice" showing: Principal overdue Interest overdue (all months) Penalties (late fees, bounce fees) Total amount to regularise the account
Get this in writing.
Step 2: Negotiate penalties if possible
In cases of genuine financial hardship, some lenders will waive or reduce late fees and penalties as a goodwill gesture, particularly if you are paying the full principal and interest. This is not a right — it is a negotiation.
Step 3: Pay the full overdue amount
Pay through official lender channels (bank transfer, lender app). Keep the payment receipt and transaction reference.
Step 4: Get written confirmation
Immediately after payment, send a message or email to the lender: "I have paid the full overdue amount of ₹[X] on [DATE] for loan account [NUMBER]. Please confirm the account has been regularised (brought back to Standard category) and that you will update CIBIL within 30 days."
Step 5: Follow up on CIBIL update
After 45 days, pull your CIBIL report and check the account status. It should show "Standard" (or "Closed" if fully repaid). If still showing NPA, file a CIBIL dispute and a Nodal Officer complaint simultaneously.
Preet's Outcome
Preet paid his full overdue amount (negotiated a 50% waiver on the late fees). The lender regularised his account. After 40 days, his CIBIL report showed the account as "Standard."
He was able to open a current account for his restaurant six weeks after resolving the NPA.
His credit score, which had fallen to 520, was 618 eight months after regularisation — helped by new on-time payments rebuilding his history.
HeyZ AI calculates your NPA regularisation cost and drafts your lender communication — free at www.sahisujhav.com
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