NPA Classification
NPA (Non-Performing Asset) Classification is the process of identifying and categorizing loans where the borrower has failed to make principal or interest payments for a defined period. Once a loan becomes overdue beyond the configured limit, it is classified as an NPA, indicating that it is no longer generating expected income for the lender.
Frappe Lending provides built-in NPA classification capabilities that help lenders monitor overdue loans, track Days Past Due (DPD), manage loan risk, and maintain accurate loan portfolio records.
Did You Know?
NPA classification is driven by Days Past Due (DPD) tracking, allowing lenders to identify overdue loans and take appropriate recovery or risk management actions.
Days Past Due (DPD) Update
The loan classification process runs daily and updates the Days Past Due (DPD) count for all active loans.
DPD is also updated in near real-time whenever repayment transactions or other relevant loan events are processed.
| Process | Description |
|---|---|
| Daily Classification Run | Updates DPD values for active loans based on overdue repayment obligations. |
| Event-Based Update | Updates DPD when repayment and related loan events affect outstanding dues. |
| Days Past Due Logs | Stores historical day-wise DPD information for tracking loan overdue trends. |
NPA Marking
A loan is automatically marked as NPA when its Days Past Due crosses the configured NPA threshold.
The NPA marking threshold is primarily configured at the Loan Product level through the Days Past Due Threshold for NPA setting.
Note
The Company-level Days Past Due threshold is used for auto write-off triggers and is not the primary threshold for NPA classification.
When the DPD exceeds the configured NPA limit, Frappe Lending automatically marks the loan as NPA based on the oldest overdue EMI demand considered during classification processing.
Manual NPA Marking and Unmarking
Frappe Lending allows users to manually override system-driven NPA classification when required.
| Action | Description |
|---|---|
| Manual NPA Marking | Allows users to manually classify a loan as NPA even if the configured threshold conditions are not currently met. |
| Manual Unmark NPA | Allows users to reverse NPA classification manually, subject to system restrictions in specific scenarios. |
After a manual override is applied, system behavior follows the configured override flags until those settings are changed again.
Watch Period After Loan Restructure
When a normal loan restructure is approved and the loan enters an NPA-related state, Frappe Lending sets a watch period end date based on the company setting:
Watch Period Post Loan Restructure (In Days)During the watch period:
- NPA classification follows watch-period-aware processing rules.
- Manual NPA unmarking may be restricted until the watch period ends.
Linked Customer and Loan NPA Propagation
NPA status updates can propagate across linked active loans belonging to the same applicant context.
The system maintains tracking through:
- NPA Log Records
- Days Past Due Logs
This provides visibility into NPA status changes across related loans.
Freeze Account Impact on DPD and NPA
For frozen loans, Frappe Lending applies freeze-aware processing rules while calculating DPD and NPA status.
This includes handling of:
- Demand and accrual reversals.
- DPD recalculation during freeze transitions.
- Adjusted classification processing based on freeze periods.
Line of Credit Loan Behavior
For Line of Credit (LoC) loans, DPD tracking is performed at the individual disbursement level.
The system calculates the maximum DPD across disbursements and uses it for overall loan-level status handling.
| Loan Type | DPD Tracking Method |
|---|---|
| Regular Loan | DPD is tracked at the loan level. |
| Line of Credit Loan | DPD is tracked per disbursement and aggregated to determine overall loan status. |
Auto Write-Off Trigger
When DPD crosses the Company-level configured threshold:
Days Past Due Threshold For Auto Write OffFrappe Lending can automatically initiate loan write-off creation during the classification process.
Best Practices
- Configure NPA thresholds at the Loan Product level based on lending policies.
- Regularly review Days Past Due Logs for overdue loan monitoring.
- Use manual NPA overrides only when required and maintain proper records.
- Review restructure watch periods before changing NPA status.
- Monitor auto write-off thresholds to align system behavior with recovery policies.
