A non-performing asset (NPA) is a loan that has gone bad — the borrower has stopped paying principal or interest for 90 days or more. From the bank's perspective, the loan is no longer generating income; it is a liability.
NPAs are classified in three stages: substandard (NPA for less than 12 months), doubtful (NPA for more than 12 months), and loss (where the loan is considered uncollectible). Banks must set aside increasing provisions (reserves) at each stage, directly hitting their profits.
India's banking sector has battled a massive NPA crisis — gross NPAs peaked at Rs 10.36 lakh crore ($125 billion) in 2018. The RBI's intervention through the Insolvency and Bankruptcy Code (IBC) and aggressive write-offs brought NPAs down significantly. High NPAs weaken banks, reduce lending capacity, and slow economic growth.