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Banking and Insurance - Laws and Practice · Performing and Non Performing Assets

Performing and Non-Performing Assets: Concepts and the 90 Days Rule

Updated 11 October 2026 · Fact-checked

A performing asset is a loan that earns interest and repays principal as agreed. A non-performing asset (NPA) is a loan or advance where interest or principal stays overdue for more than 90 days, or an account that is out of order. To solve questions, check the facts against these tests.

Understand Performing and Non-Performing Assets Concepts

A bank earns most of its income from loans and advances. In the bank's books these are its assets, because the borrower owes the bank money. An asset is useful only if the borrower keeps paying.

A performing asset is a loan that works as agreed. Interest and instalments are paid on time, or any delay stays within the limits set by the RBI. The bank can record the interest as income.

A non-performing asset (NPA) is a loan that has stopped earning for the bank. Under the RBI's prudential norms on income recognition, asset classification and provisioning, a loan becomes an NPA when interest or instalment of principal remains overdue for more than 90 days (for a term loan). The rules for other facilities, such as cash credit, overdraft, bills and agricultural loans, are set separately.

Three terms matter. Overdue means any amount not paid on the due date fixed by the bank. Out of order is used for cash credit and overdraft accounts. An account is out of order if the outstanding balance stays continuously above the sanctioned limit or drawing power. It is also out of order if the balance is below that limit but there are no credits for 90 days, or the credits do not cover the interest debited during the period. Drawing power is the amount the borrower may draw, based on the value of the security.

Why does this matter? An NPA stops earning income, so the bank must stop recognising interest on it and must set aside money as provision. That reduces profit and capital. The classification after this, into sub-standard, doubtful and loss assets, is covered in the next topics on asset classification and provisioning.

Key rules to remember

Performing asset
Interest and principal paid as agreed, or overdue for 90 days or less
The account is standard, and interest can be taken to income.
NPA test for a term loan
Interest or instalment of principal overdue for more than 90 days = NPA
Day 90 is still performing. The account turns NPA after 90 days, so the test is more than 90.
Out of order account (cash credit and overdraft)
Outstanding balance continuously above sanctioned limit or drawing power, or no credits for 90 days, or credits not covering interest debited in 90 days
An out of order account is an NPA.
Overdue
Any amount not paid on the due date fixed by the bank
Overdue alone is not an NPA. Duration matters.

How to solve Performing and Non-Performing Assets Concepts questions

Use the same sequence for any case-based question on whether an account is performing or non-performing.

  1. 1Identify the type of facility: term loan, cash credit or overdraft, bill, or agricultural loan.
  2. 2Note the due date of each interest or instalment, and the date of the review.
  3. 3Count the days overdue from the due date to the review date.
  4. 4Apply the test for that facility: more than 90 days overdue for a term loan, or the out of order tests for cash credit and overdraft.
  5. 5Check for facts that change the answer, such as a balance within the limit but with no credits.
  6. 6State the conclusion: performing asset or NPA, with the reason.
  7. 7Add the consequence in one line: interest not recognised as income and provision required.

Quickest way: Count the days, then match the facility

When to use it: Use this when the question gives dates and amounts and asks only whether the account is an NPA.

  1. Find the oldest unpaid due date.
  2. Count days from that date to the reporting date.
  3. If it is a term loan, check whether the count is above 90.
  4. If it is a cash credit or overdraft, check the limit, the credits and the interest debited.
  5. Write the answer in one line with the reason.

Common mistakes in Performing and Non-Performing Assets Concepts

  • Treating every overdue account as an NPA.

    Students mix up overdue with non-performing.

    Fix: Overdue is the starting point. The account becomes an NPA only after the overdue period crosses 90 days, or the account is out of order.

  • Calling a loan an NPA on exactly day 90.

    Students read the rule as 90 days or more.

    Fix: The rule says more than 90 days. At 90 days the account is still performing.

  • Applying the term loan test to a cash credit account.

    Students remember only the 90 days rule.

    Fix: For cash credit and overdraft, test the out of order conditions: balance above limit or drawing power, or no credits or insufficient credits in 90 days.

  • Saying an account is out of order only because the balance is below the limit.

    Students read the limit test and ignore the credit test.

    Fix: A balance below the limit can still be out of order if there are no credits for 90 days or the credits do not cover the interest debited.

  • Writing only a definition and no conclusion on a case question.

    Students recall the theory but skip analysis of the facts.

    Fix: Use the order of provision, facts, conclusion, and give the consequence of the classification.

Worked examples

Example 1

Sundaram Textiles Ltd. has a term loan from a bank. The instalment due on 31 March was not paid. On 30 June of the same year, the account was reviewed. Is it an NPA?

Show the solution
  1. Facility: term loan, so the 90 days overdue test applies.
  2. Due date: 31 March. Days from 31 March to 30 June: 30 (April) + 31 (May) + 30 (June) = 91 days.
  3. 91 is more than 90, so the overdue period has crossed the limit.
  4. The account is therefore non-performing.

Answer: Yes. The instalment has been overdue for 91 days, which is more than 90 days, so the account is an NPA. The bank must stop recognising interest on it as income and make provision.

Example 2

Meera Traders has a cash credit limit of ₹10,00,000 with a bank. The balance has stayed at ₹7,00,000 for the past 100 days. There were no credits in this period, and the bank debited interest during it. Is the account out of order?

Show the solution
  1. Facility: cash credit, so test the out of order conditions.
  2. The balance of ₹7,00,000 is below the limit of ₹10,00,000, so the limit test is not breached.
  3. Credits test: there were no credits for 100 days, which is more than 90 days.
  4. Interest was debited during the period and no credit covered it, so the credits do not cover the interest.
  5. One condition is enough, so the account is out of order.

Answer: Yes. Although the balance is below the limit, there were no credits for more than 90 days. The account is out of order and is an NPA.

Exam tips

  • Write the definition first, then the 90 days test, then the conclusion. Case questions reward all three.
  • For cash credit and overdraft cases, list the out of order conditions and tick off each one against the facts.
  • Always count days carefully, using the actual days in each month.
  • Distinguish overdue, out of order and NPA in a single line. Examiners often ask for the difference.
  • End with the consequence: no interest income recognition and provisioning.

Practice questions from Performing and Non Performing Assets

Performing and Non-Performing Assets Concepts: frequently asked questions

What is the difference between a performing asset and an NPA?

A performing asset earns interest and gets repaid as agreed. An NPA is an advance where interest or principal is overdue for more than 90 days, or the account is out of order. An NPA stops earning income for the bank.

How does an account become NPA?

A term loan becomes an NPA when interest or an instalment stays overdue for more than 90 days. A cash credit or overdraft becomes one when it is out of order, meaning the balance stays above the limit or drawing power, or credits are absent or too small for 90 days.

What does out of order mean?

It describes a cash credit or overdraft account that is not working normally. The balance is continuously above the sanctioned limit or drawing power, or there are no credits for 90 days, or the credits do not cover the interest debited.

Is an overdue account always an NPA?

No. Overdue only means the payment was not made by the due date. It turns into an NPA only when the overdue period crosses 90 days or the account is out of order.