When Does a Cash Credit Account Become NPA? Renewal, Drawing Power and the 2027 Rules
As of October 2026, a commercial bank's cash credit account becomes NPA if it stays out of order for 90 days, runs 90 days on stock statements over three months old, or is not renewed within 180 days of the due date. RBI's new Directions, effective 1 April 2027, do not list non-renewal as an NPA trigger.
When does a cash credit account become NPA?
As of October 2026, RBI's rules for commercial banks make a cash credit (CC) account a non-performing asset (NPA) in four situations. The balance stays above the sanctioned limit or drawing power for 90 days in a row. The account gets no credits for 90 days, or its credits do not cover the interest debited over 90 days. The bank allows drawings for 90 days against stock statements more than three months old. Or the limit is not reviewed or renewed within 180 days of its due date.
These tests sit in RBI's Commercial Banks Income Recognition, Asset Classification and Provisioning Directions, 2025, updated as on 1 October 2026, and they apply until 31 March 2027. RBI's Asset Classification, Provisioning and Income Recognition Directions, 2026, issued on 27 April 2026, replace them on 1 April 2027. The new list of NPA triggers keeps the 90-day and stock statement tests, widens the out of order test, and does not list the 180-day renewal condition.
This guide covers commercial banks. Small finance banks, local area banks, co-operative banks and NBFCs follow their own RBI Directions, so confirm the rules that apply to your limit with your lender.
What do the key terms mean?
| Term | Plain meaning |
|---|---|
| Cash credit (CC) | A revolving working capital limit you draw against stock and receivables, up to the sanctioned limit and subject to drawing power. RBI's 2026 Directions describe the outstanding as repayable on demand. |
| Overdraft (OD) | A limit that lets you draw beyond the credit balance in your account, secured by deposits or other securities, or unsecured. |
| Sanctioned limit | The maximum amount the bank has approved. |
| Drawing power (DP) | The part of the limit you can actually use, worked out from your latest stock and receivables statement after the margins in your sanction. |
| Out of order | RBI's test for when a CC or OD account is irregular enough to be classified NPA. |
| SMA-1 and SMA-2 | Special mention account flags. For CC and OD, the balance has stayed above the lower of the limit and DP for more than 30 days (SMA-1) or more than 60 days (SMA-2). |
| NPA | An account that has stopped generating income for the bank under RBI's tests. |
| Renewal | The bank's fresh review of a CC or OD limit whose sanctioned term has lapsed or is about to lapse. |
| Stage 2 | From 1 April 2027, the expected credit loss (ECL) stage for loans whose credit risk has risen significantly. The bank then provides for losses over the loan's whole life. |
The four NPA triggers for cash credit today (until 31 March 2027)
1. Balance above the limit or drawing power for 90 days
Para 5(7) of RBI's 2025 Directions treats a CC or OD account as out of order if the balance stays continuously above the sanctioned limit or drawing power for 90 days, and para 42(2) makes an out of order account NPA. RBI's circular of 12 November 2021 made the test continuous: banks check it at every day-end, not only at the balance sheet date.
2. No credits, or credits that do not cover interest, for 90 days
The account is also out of order if the balance is below the limit or DP but there are no credits for 90 days in a row, or the credits do not cover the interest debited in the previous 90 days. A business that keeps its CC within limit but routes sales receipts through another account can trip this test.
3. Drawings on stock statements older than three months
Para 15 says drawing power must come from a current stock statement, no older than three months, and any outstanding based on an older statement is deemed irregular. Para 42(3) makes a working capital account NPA if irregular drawings are permitted for 90 days in a row, even if the unit is working and the borrower's finances look sound.
4. Limit not reviewed or renewed within 180 days
Para 42(5) of the 2025 Directions makes an account NPA if its regular or ad hoc limits are not reviewed or renewed within 180 days of the due date or the date of ad hoc sanction. Banks should review limits within three months of the due date (para 16), follow a Board-approved policy on how often they renew (para 18), and avoid repeated short ad hoc renewals without reason (para 19). RBI also says a delay beyond six months is not desirable (para 21).
Para 45 adds a balance. A bank should not classify an account as NPA merely because of temporary deficiencies, such as a stock statement not submitted or a limit not renewed on its due date. The NPA call rests on the record of recovery. The 180-day rule is where a temporary delay stops being treated as temporary.
What changes on 1 April 2027?
RBI issued the Commercial Banks Asset Classification, Provisioning and Income Recognition Directions, 2026 (RBI/DOR/2026-27/398) on 27 April 2026. Para 2 brings them into force on 1 April 2027, and para 3 repeals the 2025 Directions on that date. Five changes matter to cash credit borrowers.
1. The 180-day renewal trigger is not listed
RBI's Directions of 27 April 2026 list the NPA triggers in para 8. A limit not renewed within 180 days is not listed as an NPA trigger in the new Directions effective 1 April 2027. For CC and OD, para 8 keeps out of order status and 90 days of drawings on stock or receivable statements older than three months. Until 1 April 2027, the current 180-day rule applies.
Late renewal is still not harmless. RBI's Resolution of Stressed Assets Amendment Directions, 2026 (RBI/2026-27/23), also in force from 1 April 2027, add delays in review or renewal of a loan account against its pre-determined schedule to the list of signs of financial difficulty. The 2026 Directions also describe a cash credit balance as repayable on demand.
2. The out of order test gets wider
Para 6(17) of the 2026 Directions keeps the same three 90-day tests but drops the condition that the balance must be below the limit or DP for the no-credit and interest tests. Its Explanation 2 applies the definition to all funded loan products that are not term loans, except credit cards. Today the definition covers products offered as an overdraft facility.
3. An overdrawn CC moves to Stage 2
Under para 33 of the 2026 Directions, a revolving facility whose balance stays continuously above the lower of the limit and DP carries a rebuttable presumption of a significant increase in credit risk, for a period RBI's text describes as "up to 60 days". The bank must then provide for lifetime expected losses. For loans to small and micro enterprises, para 82 sets the minimum ECL floor at 0.25% in Stage 1 and 5% in Stage 2, twenty times higher. Expect banks to act on overdrawn accounts well before day 90.
4. Renewal becomes a real credit review
Para 46(2)(ii) lets a bank treat a CC or OD renewal date as the end of the loss measurement period only if its renewals are substantive. The bank has to show that renewals lead to cuts or withdrawal of limits, extra security, repricing or non-renewal when a borrower's position changes. Expect renewal files to be read more closely.
5. Existing NPAs do not reset
Para 103 says accounts classified NPA on 31 March 2027 are not upgraded just because the new Directions start. They stay NPA until the deficiency that caused the classification is fixed.
| Test for a cash credit account | Today (2025 Directions, updated 1 October 2026) | From 1 April 2027 (2026 Directions) |
|---|---|---|
| Balance above limit or DP for 90 days in a row | NPA (paras 5(7)(i), 42(2)) | NPA (paras 6(17)(i), 8(2)) |
| No credits for 90 days | NPA, where the balance is below limit or DP (para 5(7)(ii)) | NPA, without the balance condition (para 6(17)(ii)) |
| Credits do not cover 90 days of interest | NPA, where the balance is below limit or DP (para 5(7)(iii)) | NPA, without the balance condition (para 6(17)(iii)) |
| Drawings for 90 days on statements over three months old | NPA, stock statements (paras 15, 42(3)) | NPA, stock or receivable statements (para 8(3)) |
| Limit not reviewed or renewed within 180 days of due date | NPA (para 42(5)) | Not listed in para 8; delayed review or renewal is a sign of financial difficulty (RBI/2026-27/23) |
| Early warning | SMA-1 after 30 days and SMA-2 after 60 days above the lower of limit and DP | SMA flags continue; Stage 2 presumption for overdrawn revolving facilities (para 33) |
| One facility turns NPA | All the borrower's facilities are NPA (para 44) | Same, at borrower level (para 8(9)) |
| Upgrade back to standard | Entire arrears of interest and principal paid (para 69) | Entire arrears on all facilities paid (para 8(10)) |
| Products covered by "out of order" | Products offered as an overdraft facility | All funded products that are not term loans, except credit cards |
Cash credit vs overdraft vs term loan: how the NPA tests differ
| Point | Cash credit | Overdraft | Term loan |
|---|---|---|---|
| What makes it NPA | Out of order for 90 days; 90 days of drawings on stale statements; until 31 March 2027, no renewal within 180 days | Out of order for 90 days; stale statement test only where DP is based on stock or receivables; until 31 March 2027, no renewal within 180 days | Interest or principal overdue for more than 90 days |
| Early warning (SMA) | Balance above the lower of limit and DP: SMA-1 after 30 days, SMA-2 after 60 days | Same as cash credit | Amount overdue: SMA-0 up to 30 days, SMA-1 more than 30 and up to 60, SMA-2 more than 60 and up to 90 |
| Drawing power | Yes, from current stock and receivables | Linked to the security, such as a deposit, or unsecured; stock-based DP only if the sanction sets one | No; fixed disbursement and repayment schedule |
| Renewal | Periodic, under the bank's Board-approved policy | Periodic, under the bank's Board-approved policy | No renewal; runs to maturity |
For how the two revolving limits compare on cost and use, read cash credit vs overdraft.
Worked example: drawing power, SMA dates and the renewal clock
Illustrative example: a trader has a ₹1 crore cash credit limit, stock of ₹80 lakh, unpaid creditors for goods of ₹20 lakh and receivables under 90 days of ₹50 lakh, and the sanction sets a 25% margin on stock and 40% on receivables.
| Item | ₹ lakh |
|---|---|
| Stock | 80 |
| Less: unpaid creditors for goods | 20 |
| Net stock | 60 |
| Less: 25% margin | 15 |
| Eligible stock | 45 |
| Receivables under 90 days | 50 |
| Less: 40% margin | 20 |
| Eligible receivables | 30 |
| Drawing power | 75 |
The usable limit is the lower of ₹1 crore and ₹75 lakh, so ₹75 lakh. With a balance of ₹82 lakh, the account is ₹7 lakh above DP even though it is well inside the sanctioned limit. Margins and the age cut-off for receivables are set in each lender's sanction, not by RBI.
When the flags would fall
Same illustration, assuming the balance first stays above DP at the day-end of 1 December 2026 and is never brought back within DP, and using the day count in RBI's own illustration:
| Date | Status under today's rules |
|---|---|
| 1 December 2026 | Balance above DP at day-end |
| 31 December 2026 | SMA-1 |
| 30 January 2027 | SMA-2 |
| 1 March 2027 | Out of order for 90 days, so NPA |
Two moves stop the clock: bring in ₹7 lakh of credits, or submit a fresh stock statement that supports a higher DP. With the same creditors and receivables, stock of about ₹89.3 lakh would lift DP to ₹82 lakh. RBI also asks banks to handle accounts with a solitary credit just before the balance sheet date with care (para 47), so a one-day top-up is not a fix.
The renewal clock
Same illustration, assuming the limit was due for renewal on 30 September 2026. The bank should complete its review within three months, by 30 December 2026. If the limit is still not reviewed or renewed 180 days after the due date, which is 29 March 2027, the account can be classified NPA under para 42(5), because that date falls before 1 April 2027.
If the due date were 31 December 2026 instead, 180 days later would be 29 June 2027, after the 2025 Directions are repealed. The new para 8 does not list a renewal trigger, but the delay would still count as a sign of financial difficulty, and the balance stays repayable on demand.
What happens once a cash credit account is NPA?
- All your facilities with that bank follow. RBI applies NPA classification at the borrower level (para 44 today, para 8(9) from 1 April 2027).
- Upgrade needs the entire arrears. The account returns to standard only when the entire arrears of interest and principal are paid, on all facilities (para 69 today, para 8(10) from 1 April 2027).
- Your loan contract should show the dates. Since RBI's 12 November 2021 circular, loan agreements must give examples of SMA and NPA classification dates. From 1 April 2027, para 13 of the 2026 Directions also asks lenders to illustrate the impact on the borrower's credit profile.
For how the limit itself is sized, see how banks calculate your working capital limit. To turn slow receivables into cash sooner, compare invoice discounting, factoring and bill discounting.
How to keep your CC limit regular and renewed on time
- File stock and receivables statements on time. Never let the latest one be more than three months old.
- Track the lower of limit and DP, not the limit. Your usable limit falls when stock or eligible receivables fall.
- Route collections through the CC. Regular credits that cover interest keep the no-credit and interest tests away.
- Start the renewal file before the due date. Have financial statements, the stock and debtor position, and projections ready. See the documents lenders ask for.
- Talk to the bank early if DP will fall short. An ad hoc limit, a temporary enhancement or a part repayment is easier to agree before SMA-1 than after.
- Plan for tougher renewals from April 2027. Expect closer questions on margins, security and pricing at each renewal.
How MoneyKarma helps
MoneyKarma is a loan distribution platform for Indian businesses and real estate developers, with 90+ lenders. Not a lender. Our lending partners include public sector banks, private banks, NBFCs and financial institutions. If your cash credit limit is due for renewal or short on drawing power, we help you prepare the stock, receivables and financial file lenders ask for, and compare working capital options from lenders whose appetite fits your business. The lender makes the credit decision. Share your requirement or read more on working capital.
This guide is general information, not financial, legal or tax advice. Rules change. Confirm the terms in your sanction letter and loan agreement, and with your lender and advisers.