## Non-Performing Assets (NPA) — Definition and Identification
### What is an NPA?
An advance becomes Non-Performing when it ceases to generate income for the bank. The RBI defines three triggers:
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#### (a) Term Loans
Interest and/or principal instalment remains OVERDUE for more than 90 days.
> Overdue = Any amount not paid on its due date.
> Example: EMI due 15-Feb-2025 is not paid → overdue from 16-Feb. If still unpaid after 90 days → NPA.
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#### (b) Overdraft / Cash Credit — 'Out of Order'
An OD or CC account becomes Out of Order (and hence NPA) if:
- Outstanding balance continuously exceeds the sanctioned limit or drawing power, OR
- Balance is within limits but there are no credits for 90 continuous days as at the Balance Sheet date, OR
- Credits exist but are not sufficient to cover interest debited during the period.
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#### (c) Bills Discounted and Purchased
The bill remains overdue for more than 90 days beyond the due date of the bill.
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### SMA (Special Mention Account) — Early Warning System
Before crossing the 90-day threshold, accounts pass through SMA stages:
| Stage | Overdue Period | Stress Signal |
|---|---|---|
| SMA-0 | 1–30 days | Early warning |
| SMA-1 | 31–60 days | Moderate stress |
| SMA-2 | 61–90 days | High stress |
| NPA | >90 days | Non-performing |
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### Critical Rule: Borrower-Wise Classification (NOT Facility-Wise)
If any one facility of a borrower becomes NPA, ALL facilities of that borrower are classified as NPA — regardless of the repayment status of other facilities.
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### Impact of NPA Classification
| Impact | Detail |
|---|---|
| Provisioning | Bank must set aside provisions — directly reduces profit |
| Income Recognition | Interest recognised only on cash basis (not accrual basis) |
| Income Reversal | Any interest booked but not received on this account must be reversed |