Bank asset classification: NPA triggers, exceptions and upgrades
Use the current 2025 IRAC Direction, updated on 1 October 2026. The separate 2026 ECL Direction starts on 1 April 2027; its publication did not replace the current rules early.
Finin2min · Updated 25 October 2026
Rules, scope and practical implications
Which banks and which edition?
The current Direction applies to the defined commercial banks and excludes Small Finance Banks, Payments Banks and Local Area Banks from that definition. It operates alongside the Resolution of Stressed Assets Direction. Paragraphs 2–3 of the 2026 Asset Classification, Provisioning and Income Recognition Direction expressly keep the 2025 IRAC Direction in force until the new framework commences on 1 April 2027.
Sources: RBI Commercial Banks Income Recognition, Asset Classification and Provisioning Directions, 2025 — updated 1 October 2026 — paragraphs 1–4; RBI Commercial Banks Asset Classification, Provisioning and Income Recognition Directions, 2026 — effective 1 April 2027 — paragraphs 1–5
Term loans and overdrafts have different tests
A term loan becomes NPA when interest or a principal instalment remains overdue for more than 90 days. An OD/CC facility uses the defined out-of-order test: continuous excess over the sanctioned limit/drawing power for 90 days, no credits continuously for 90 days, or credits insufficient to cover interest debited during the previous 90 days. That last period includes the day being classified. A balance below the limit does not by itself establish regularity.
Day-end dates and other triggers
Overdue status is flagged in the due-date day-end process; the classification date is the calendar date to which that process relates. RBI’s historical example uses an unpaid due date of 31 March 2021, SMA-1 on 30 April, SMA-2 on 30 May and NPA on 29 June, through the respective day-end processes. Other triggers include 180 days without the required credit-limit review/renewal, and the specified bill, securitisation-liquidity, derivative and credit-card conditions. Do not substitute one generic 90-day counter for all of them.
Borrower-wide classification and the limited exceptions
The general rule applies NPA/NPI classification to the bank’s facilities and investments in the borrower’s securities, not only the overdue facility. Paragraphs 50–62 contain express qualifications for specified LC bills, derivatives, consortium recoveries, PACS/FSS on-lending, eligible deposit/instrument-backed advances, moratoria, agriculture, guarantees, exports and takeout finance. Consortium classification depends on the individual member’s recovery record. The agriculture exception uses two crop seasons for the listed short-duration crop loans and one for the listed long-duration crop loans; other agricultural loans use the ordinary delinquency norm.
Security and government guarantees do not give a general exemption
Ordinary NPA identification follows recovery, irrespective of available security or the borrower’s net worth. The specified term-deposit/NSC/KVP/life-policy exemption requires adequate margin; gold ornaments and government securities are outside that particular exemption. Central Government-guaranteed credit has the stated classification exception until an invoked guarantee is repudiated, but that does not exempt income recognition. State Government-guaranteed advances follow the stated overdue classification and provisioning rules. Serious security erosion can require direct doubtful/loss treatment.
Upgrade only after the required cure
The ordinary upgrade requires payment of all arrears of principal and interest, across all the borrower’s credit facilities at the bank. Partial or technical write-off does not make the remaining balance standard. Restructured/DCCO cases must also meet the Resolution of Stressed Assets requirements. The qualifying calamity-plan rules in 62A–62B are separate conditional provisions. Automated classification, controlled exceptions and audit trails support these rules; an override cannot waive the prudential norm.
Practical illustration and assumptions
Hypothetical: one borrower has two ordinary facilities with overdue principal and interest. Paying all arrears on only the first does not upgrade the second or cure the borrower-wide NPA status. The bank must verify that all arrears on both facilities are paid and check any separate restructuring conditions before upgrading.
Questions answered
Does a fully secured term loan avoid NPA status?
Ordinary classification follows recovery. Only a specific applicable exception can change that result; the existence of collateral alone is insufficient.
Did the April 2026 ECL publication immediately repeal the 2025 IRAC Direction?
No. The new Direction specifies 1 April 2027 commencement and continues the 2025 Direction until then.
Official sources and editions
- RBI Commercial Banks Income Recognition, Asset Classification and Provisioning Directions, 2025 — updated 1 October 2026
- RBI Commercial Banks Asset Classification, Provisioning and Income Recognition Directions, 2026 — effective 1 April 2027
Illustrations are hypothetical and depend on the stated assumptions. Official blank formats and guidance are identified separately from completed reports.