Non-Performing Assets (NPA): The Complete 2026 JAIIB & IIBF Guide

Few topics in banking carry as much weight as non-performing assets. For every JAIIB and IIBF aspirant. NPA is a guaranteed-marks chapter - rule-based.

Logical, and asked in almost every exam. A loan becomes a problem when the borrower stops paying. The rules that decide when.

How. And how much a bank must set aside are exactly what examiners love to test.

This 2026 guide breaks down non-performing assets from first principles. You will learn the 90-day NPA rule. How assets are classified.

The exact provisioning percentages. And how a bad account is upgraded back to standard. Everything here maps directly to the JAIIB PPB and AFM syllabus.

So you can revise it the night before and walk in confident.

What Are Non-Performing Assets?

A non-performing asset is simply a loan or advance that has stopped earning income for the bank. The borrower has fallen behind on interest, principal, or both. When this overdue period crosses the prescribed limit. The asset is officially classified as an NPA.

The framework comes from RBI's prudential norms. In 1991. On the recommendation of the Narasimham Committee. RBI issued these guidelines, implemented from 1992. They cover three pillars - income recognition, asset classification, and provisioning.

These prudential norms also extend to accounting, capital adequacy, and exposure. The accounting side is the one we care about most here. It tells a bank when to recognise income. How to classify each asset. And how much money to provide against it.

The 90-Day NPA Rule: When a Loan Turns Bad

The single most important concept is the cut-off that converts a healthy loan into an NPA. Different products have different triggers. But the famous 90-day rule sits at the centre. Learn each criterion below - they appear in the exam almost every time.

Term Loans

A term loan becomes an NPA when interest or an instalment of the principal - or both - remains overdue for more than 90 days. The moment the 90-day mark is breached, the account is non-performing.

Cash Credit and Overdraft (CC/OD)

A cash credit or overdraft account is classified as an NPA if either of these happens:

• The account remains "out of order", or
• The limit is not reviewed within 180 days from the due date of renewal.

An account is treated as "out of order" in any of these situations:

1. The outstanding balance stays continuously above the sanctioned limit or drawing power.
2. There is no credit continuously for 90 days. Or the credits are less than the interest debited during that period.
3. The stock statements have not been received for three months or more.

Bills

A bill is classified as an NPA if it remains overdue for more than 90 days from the due date of payment. The logic mirrors the term-loan rule.

Agricultural Accounts

Farm loans follow a crop-season logic instead of plain days:

1. For short-duration crops. The loan is an NPA if principal or interest is overdue for two crop seasons beyond the due date.
2. For long-duration crops. The loan is an NPA if principal or interest is overdue for one crop season beyond the due date.

The decision on what counts as short or long duration is taken by the State Level Bankers' Committee (SLBC). Remember the body, not just the rule.

Special Cases: Loans That Are Not Treated as NPA

Some advances get special treatment. Knowing these exceptions is what separates a 70% score from a 90% score.

Loans Against Specified Securities

Advances against National Savings Certificates (NSC) eligible for surrender. Term deposits. Kisan Vikas Patra (KVP). And life insurance policies are not treated as NPAs - provided sufficient margin is available.

However. Advances against gold ornaments. Government securities, and other securities do not get this exemption. They follow the normal NPA rules.

Government-Guaranteed Loans

A loan guaranteed by the central government is not treated as an NPA for asset classification. Provisioning - until the guarantee is repudiated by the government when invoked. The guarantee shields the account only while it stands.

Consortium Advances

For consortium advances. Classification is based on the record of recoveries of the individual member bank. Each bank looks at its own collections. Not the consortium as a whole.

Asset Classification: The Four Categories

Once an account is non-performing. The bank must place it in the right category. Two ground rules apply first:

• Classification is borrower-wise, not facility-wise. If one facility is bad. All facilities of that borrower are tagged accordingly.
• Assets fall into four buckets - Standard, Sub-standard, Doubtful, and Loss. Everything except Standard is an NPA.

When an account first becomes non-performing. It is classified as a sub-standard asset. As time passes without recovery, it slides further down. Here is the ageing logic:

• Sub-standard asset: an account that has remained an NPA for up to 12 months.
• Doubtful asset: an account that remains sub-standard or NPA for more than 12 months.
• Loss asset: an asset identified as a loss by the bank. Its internal or external auditors. Or RBI inspection - but not yet wholly written off.

Early Classification Before 12 Months

Sometimes an account can be downgraded faster. Based purely on the value of its security. This is a high-yield exam point:

• Loss asset: if the realisable value of the security in a secured account falls below 10% of the outstanding amount. Classify it as a loss asset immediately - no waiting.
• Doubtful asset: if the realisable value of the security is 10% or more. Less than 50% of the outstanding amount. Classify it as doubtful immediately. Regardless of how long it has been an NPA.

Provisioning Norms: How Much a Bank Must Set Aside

Provisioning is the money a bank keeps aside to absorb expected losses. Provisions are made on all assets - Standard, Sub-standard, Doubtful, and Loss. The weaker the asset, the higher the provision.

Provision on Standard Assets

Provisions on standard assets are shown as "Contingent Provisions against Standard Assets" in Schedule 5 of the balance sheet. Under "other liabilities and provisions".

Provision on Sub-Standard Assets

Here. An unsecured exposure means a loan where the realisable value of security is not more than 10%. Ab-initio. Of the outstanding amount. As assessed by the bank, approved valuers, or RBI inspecting officers.

Provision on Doubtful and Loss Assets

For doubtful assets. The bank splits the account into secured and unsecured portions. The unsecured portion needs full provision. While the secured portion depends on how long the account has been doubtful.

When No Provision Is Needed

No provision is made on the guaranteed portion of loans covered by CGTMSE (CGFT). ECGC, or CGFLHS. For loans against deposit slips. Life insurance policies. KVP, or NSC, provision is made on the basis of asset classification.

Provisioning Coverage Ratio and Floating Provisions

Beyond individual accounts, RBI also tracks the bank's overall buffer. The Provisioning Coverage Ratio (PCR) is the ratio that covers gross non-performing assets. As a rule. The PCR should not be less than 70%, including floating provisions.

A few presentation points often appear as one-mark questions:

• Provisions on standard assets are made on global balances. Provisions for NPAs are made on gross balances.
• Provision on standard accounts sits in Schedule 5 as part of "other liabilities".
• Doubtful accounts are provided separately for secured and unsecured portions.
• Standard and sub-standard accounts are provided on the full balance. Without splitting into secured and unsecured.
• Floating provisions can be treated as part of Tier-II capital or deducted from gross NPAs.

Upgradation of Non-Performing Assets

An NPA is not a life sentence. If the borrower clears the arrears of interest. Principal on a loan classified as an NPA. That account can be reclassified as standard immediately. Recovery resets the status - a comforting and frequently tested rule.

How to Study Non-Performing Assets for JAIIB

This chapter rewards structure over rote learning. Use this simple study plan to lock in the marks:

1. Anchor the 90-day rule first. Master term loans, bills, CC/OD, and agriculture before anything else.
2. Draw the classification ladder. Standard - Sub-standard - Doubtful - Loss. With the 12-month and security triggers.
3. Memorise the provisioning table. Practise the doubtful-asset percentages until they are automatic.
4. Solve case studies. NPA provision calculations are a favourite. Attempt our mock tests to build speed.
5. Revise with our notes. Pair this guide with our free guides on PPB and AFM for full coverage.

Common Mistakes Students Make

Even strong candidates drop easy marks here. Avoid these traps:

• Confusing the time limits. Term loans and bills use 90 days; CC/OD review uses 180 days. Do not swap them.
• Classifying facility-wise. Classification is always borrower-wise, never per facility.
• Forgetting the security shortcuts. Below 10% security means loss; 10-50% means doubtful, regardless of age.
• Mixing provisioning bases. Standard provisions use global balances; NPA provisions use gross balances.
• Overlooking exemptions. NSC. KVP. Term deposits. And LIC-backed loans are not NPAs with sufficient margin -. Gold and G-Sec loans are.

Quick Facts: Non-Performing Assets at a Glance

Note: provisioning percentages. Ratios are revised by RBI from time to time. Always confirm the latest figures on the latest official IIBF notification. RBI circulars.

Frequently Asked Questions (FAQ)

What are non-performing assets in simple terms?

Non-performing assets are loans or advances where the borrower has stopped paying interest or principal beyond the prescribed period - usually more than 90 days. Such an asset no longer earns income for the bank. Must be classified and provided for under RBI's prudential norms.

When does a loan become a non-performing asset?

A term loan or bill becomes an NPA when interest or principal is overdue for more than 90 days. A cash credit or overdraft account becomes an NPA when it is "out of order" or when its limit is not reviewed within 180 days. Agricultural loans use a crop-season trigger instead.

What are the four types of asset classification?

Assets are classified as Standard, Sub-standard, Doubtful, and Loss. Standard assets are healthy; everything else is an NPA. A fresh NPA is sub-standard.

Becomes doubtful after 12 months. And is a loss asset once identified as unrecoverable. Not yet written off.

How much provision is required on doubtful assets?

The unsecured portion of a doubtful asset needs 100% provision. The secured portion needs 25% of the realisable value of security if doubtful for under a year. 40% for one to three years, and 100% beyond three years. For exact current figures, confirm on the latest official IIBF notification.

Can a non-performing asset become a standard asset again?

Yes. If the borrower clears all arrears of interest. Principal on an account classified as an NPA. The account can be upgraded to standard immediately. Recovery of dues fully restores the account's healthy status.

Conclusion: Turn NPA Into Your Strongest Chapter

Non-performing assets is one of the most rewarding topics in the JAIIB. IIBF syllabus - rule-based. Predictable, and very scoring once the structure clicks.

Master the 90-day rule. The four-category ladder. The provisioning percentages.

And the upgradation rule, and these questions become guaranteed marks.

Revise the comparison tables the night before your exam. Drill case-study calculations until the percentages feel automatic. The JAIIB exam is conducted by IIBF - always confirm the latest exam dates.

Syllabus. And provisioning figures on the latest official IIBF notification at iibf.org.in. Now go make NPA one of your strongest chapters.

Related Guides

For more on non-performing assets. See the official IIBF circulars. Our chapter-wise free notes on iibf.store.