Every loan issued by a bank or NBFC is expected to generate income through regular interest payments. However, when the borrower stops making payments for a prolonged period, the loan turns into what’s called a Non-Performing Loan (NPL) or Non-Performing Asset (NPA).
At Vizzve Finance, we believe understanding the concept of NPAs helps borrowers maintain financial discipline and lenders manage credit risk efficiently.
Definition of Non-Performing Loan (NPL)
A Non-Performing Loan (NPL) is a loan on which the borrower has not paid interest or principal for 90 days or more.
In simple terms, it’s a defaulted loan that stops generating income for the lender.
According to RBI norms, any loan that remains overdue beyond 90 days is categorized as Non-Performing.
Classification of NPAs
Banks and financial institutions classify NPAs into different categories based on the duration of default:
| Type | Overdue Period | Meaning |
|---|---|---|
| Sub-Standard Assets | Up to 12 months | Newly classified NPAs |
| Doubtful Assets | More than 12 months | High risk of non-recovery |
| Loss Assets | Unrecoverable | Identified as total loss by the bank |
💬 Vizzve Finance Insight: These classifications help lenders estimate financial risk and plan recovery strategies effectively.
Common Causes of Non-Performing Loans
Financial Instability: Job loss, income reduction, or business failure can lead to missed EMIs.
High Borrowing Costs: Loans taken at high interest rates may become hard to manage.
Poor Financial Planning: Borrowers often underestimate repayment capacity.
Economic Downturns: Recession or inflation can reduce repayment ability.
Lack of Awareness: Many borrowers don’t understand the long-term effects of defaults.
Impact of NPAs
For Borrowers:
Drop in CIBIL score
Difficulty in getting new loans
Legal or recovery actions
Stress and reduced creditworthiness
For Lenders:
Loss of income
Reduced lending capacity
Increased provisioning and bad debt write-offs
💬 Vizzve Finance Perspective: Managing NPAs isn’t just a lender’s issue — borrowers also bear long-term credit consequences.
Example of a Non-Performing Loan
Let’s say you take a ₹2 lakh personal loan and miss EMIs for 3 consecutive months (90 days).
After this period, your loan is classified as NPA, and:
Late payment penalties are added.
The lender starts recovery procedures.
Your CIBIL score may drop significantly.
How to Avoid Loan Becoming Non-Performing
Pay EMIs on Time: Set up auto-debit or reminders.
Borrow Within Limits: Take loans only if you can manage repayments comfortably.
Avoid Multiple Loans: Too many EMIs increase default risk.
Restructure If Needed: Talk to your lender early if repayment becomes difficult.
Track Your Credit: Regularly check your CIBIL report for accuracy.
At Vizzve Finance, we help borrowers stay financially disciplined with responsible lending and repayment education.
❓ FAQs :
1. What happens when a loan becomes NPA?
The lender classifies it as a non-performing asset, stops treating it as income-generating, and may begin recovery or legal action.
2. Can an NPA loan be restructured?
Yes, lenders may allow restructuring to help the borrower repay through revised EMIs or extended tenures.
3. Does an NPA affect credit score?
Yes, it significantly reduces your credit score, making future borrowing harder.
4. How soon can an NPA status be cleared?
Once all dues (including penalties) are cleared, the account can be reclassified as “standard” after consistent repayments.
5. How does Vizzve Finance handle NPAs?
Vizzve Finance promotes timely repayment reminders, financial education, and borrower-friendly solutions to avoid loan defaults.
Final Thoughts
A Non-Performing Loan is a warning sign — both for lenders and borrowers. It represents missed repayments, financial stress, and lost credit opportunities.
At Vizzve Finance, our goal is to help individuals borrow wisely and repay responsibly, ensuring that their loans never turn into NPAs.
By maintaining payment discipline and financial awareness, you can protect your credit score and build a stable financial future.
Vizzve Finance — Empowering Smart Borrowers for a Stronger Tomorrow.
Published on : 4th November
Published by : SMITA
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