What is a Non-Performing Asset (NPA)?

A Non-Performing Asset (NPA) is a loan or advance where the borrower has stopped making interest or principal repayments for a specified period. As per RBI guidelines, an asset is classified as an NPA when interest or principal remains overdue for more than 90 days (for term loans) or the account remains "out of order" for more than 90 days (for cash credit/overdraft). NPAs are a key indicator of the asset quality and financial health of banks and the banking system.

NPAs are classified into three sub-categories based on the period of default and realisability: Sub-standard assets (NPA for up to 12 months), Doubtful assets (NPA for more than 12 months), and Loss assets (identified as uncollectable by the bank or auditor but not yet written off). The Gross NPA (GNPA) ratio measures total NPAs as a percentage of total advances, while Net NPA (NNPA) deducts provisions made by banks from gross NPAs.

India's banking sector experienced a severe NPA crisis peaking at 11.2% GNPA ratio in FY2017-18, primarily due to reckless lending during 2008-2014, infrastructure project failures, and governance lapses. The government and RBI responded with a multi-pronged strategy including the Insolvency and Bankruptcy Code (IBC) 2016, Asset Quality Review (AQR) 2015, 4R strategy (Recognise, Resolve, Recapitalise, Reform), and the formation of NARCL (National Asset Reconstruction Company Limited) or "bad bank."

Key Features

# Feature Details
1 Definition Loan/advance overdue for more than 90 days
2 Sub-standard NPA for up to 12 months
3 Doubtful NPA for more than 12 months
4 Loss Asset Uncollectable but not fully written off
5 GNPA Ratio Gross NPAs as % of total gross advances
6 NNPA Ratio Net NPAs (after provisions) as % of net advances
7 Provisioning Banks must set aside funds (provisions) against NPAs
8 Resolution Mechanisms IBC, SARFAESI Act, DRT, NARCL, ARC route

Current Status / Latest Data

  • GNPA Ratio (September 2025): Historic low of 2.15% for Scheduled Commercial Banks (domestic operations), down from the peak of 11.2% in FY2017-18.
    • Public Sector Banks: 2.50%
    • Private Sector Banks: 1.73%
    • Foreign Banks: 0.80%
  • Net NPA Ratio (September 2025): 0.5% -- a multi-decade low.
  • March 2025 data: GNPA ratio at 2.58% (down from 9.11% in March 2021).
  • Capital Adequacy (CRAR): 17.2% as of September 2025 (well above the Basel III minimum of 10.5%).
  • NARCL: Operational since 2022; acquired select NPAs worth over Rs 50,000 crore from banks.
  • The Economic Survey 2025-26 highlighted that NPA ratios of public sector banks are at multi-decadal lows.

UPSC Exam Corner

Prelims: Key Facts

  • An asset becomes NPA when overdue for more than 90 days
  • Classification: Sub-standard (up to 12 months), Doubtful (>12 months), Loss
  • GNPA ratio peaked at 11.2% in FY2017-18; fell to 2.15% by September 2025
  • NARCL (bad bank) was set up in 2021 to acquire stressed assets
  • IBC 2016 is the primary resolution framework for NPAs
  • RBI's Asset Quality Review (AQR) of 2015 forced recognition of hidden NPAs

Mains: Probable Themes

  1. Analyse the twin balance sheet problem that led to India's NPA crisis and the effectiveness of the resolution framework
  2. Evaluate the role of the Insolvency and Bankruptcy Code in resolving NPAs vis-a-vis the earlier mechanisms (SARFAESI, DRT, CDR)
  3. Has the decline in GNPA ratio led to genuine improvement in credit culture, or is it a result of technical write-offs?
  4. Discuss the challenges facing NARCL (bad bank) in acquiring and resolving stressed assets

Sources: PIB - GNPA Historic Low September 2025, PIB - GNPA Reduction March 2021-2025, RBI Financial Stability Report 2025