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

Shree Lakshmi Traders has a term loan with Veda Bank. The interest instalment due on 30 June 2025 remains unpaid, and the account is not otherwise irregular. Under the RBI prudential norms on asset classification, from which point does the term loan become a Non-Performing Asset?

A term loan becomes an NPA when interest or an instalment of principal stays overdue for more than 90 days. Shorter periods such as 30 days only indicate stress (SMA), and 180 days is not the test, so the 90-day rule applies.

  1. AWhen interest or instalment remains overdue for more than 90 daysCorrect
  2. BWhen interest or instalment remains overdue for more than 30 days
  3. CWhen interest or instalment remains overdue for more than 180 days
  4. DWhen the borrower is declared wilful defaulter

Explanation

Under the RBI IRAC norms, a term loan is an NPA when interest or an instalment of principal remains overdue for a period of more than 90 days. The 30-day and 180-day periods are not the NPA trigger for term loans. Wilful defaulter status is a separate classification and not needed for NPA.

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