EMI default: what happens month by month with a bank or NBFC

When you miss an EMI, the loan becomes overdue the same day. It is flagged as SMA-0 up to 30 days, SMA-1 from 31 to 60 days, SMA-2 from 61 to 90 days, and becomes a non-performing asset (NPA) once it is overdue for more than 90 days. The NPA stage is when secured lenders can issue a SARFAESI notice, when a recovery case can be filed, and when the credit report suffers most. Missing one EMI is a civil default: nobody can be arrested for it.

Month 1: the first 30 days (overdue and SMA-0)

Most EMIs are collected by auto-debit (NACH) or post-dated cheques. If the account is short on the due date, the loan is overdue from that day. Three things usually follow at once. The lender adds a bounce charge and penal charges as per your agreement. Your own bank may charge you for the failed mandate. And a collection executive starts calling.

Under RBI’s instructions on fair lending practice (issued in August 2023, applicable from 1 January 2024), banks and NBFCs may charge only penal charges for default, not “penal interest” on top of your rate. Penal charges must be reasonable, must be disclosed in the loan agreement and Key Facts Statement, and must not be capitalised, which means no interest can be charged on them. If your statement shows interest running on penalties, write to the lender and ask for a reversal.

A bounced mandate can also become a criminal matter in limited cases. Section 25 of the Payment and Settlement Systems Act 2007 treats dishonour of an electronic payment for insufficient funds in a manner similar to a cheque bounce, after notice. A single missed EMI that the lender simply reminds you about is a civil default.

In this month, do four things. Read your sanction letter and Key Facts Statement for the charges and default clauses. Download the loan statement. Email the lender explaining why you missed the EMI and when you will pay. And start saving every call log and message from the collection team.

Month 2 and 3: SMA-1 and SMA-2

From day 31 the account is reported internally as stressed. Collection pressure rises: more calls, field visits, a “legal notice” from the lender’s advocate, sometimes an arbitration or Lok Adalat notice for NBFC and bank loans. A lender’s reminder letter is not the same as a statutory notice, so read what section it cites.

The calling rules apply from the first call. RBI’s circular of 12 August 2022 bars recovery calls before 8 a.m. and after 7 p.m., persistent or anonymous calls, threats, and messages that humiliate you or intrude on the privacy of your family, friends and referees. If an agent visits, ask for identity card and the lender’s authorisation, never hand over cash without an official receipt, and do not sign blank papers. The separate guide on recovery agent harassment and RBI rules covers this in detail.

This is also the best window to negotiate. A lender is more flexible before day 90 because the account has not yet been classified as an NPA. Restructuring is not a right: RBI’s COVID-era schemes ended long ago, and today it is the lender’s commercial decision under its Board-approved policy. But a written request with proof of hardship (termination letter, hospital bills, GST returns) and a concrete plan works better than silence. For example: “interest-only payments of ₹9,000 for 4 months, then EMI of ₹21,000 with tenure extended by 24 months”.

If you can arrange money from family or by selling an asset, paying the full arrears before day 90 prevents the NPA classification.

After day 90: NPA and what opens up for the lender

Once the loan is an NPA, several things become possible:

• SARFAESI notice. For a secured loan (home loan, loan against property, secured business loan), the lender can issue a demand notice under Section 13(2) giving 60 days to pay. If you do not, it can take possession and sell the property without going to court. The guide on the SARFAESI notice under section 13(2) explains your objection and appeal rights.
• Recovery case. For debts of ₹20 lakh or more the lender can file an application in the Debts Recovery Tribunal. For smaller debts it uses a civil suit (often a summary suit), arbitration if your agreement has an arbitration clause, or a Lok Adalat. See DRT recovery case: process and borrower’s options.
• Credit report. The default is reported to the credit information companies and your score falls sharply.
• Wilful default review. Only for outstanding amounts of ₹25 lakh or more, under RBI’s Master Direction of 30 July 2024. Inability to pay because of illness or job loss is not wilful default.

Unsecured loans, such as personal loans and credit cards, cannot be enforced under SARFAESI. The lender has to sue, arbitrate or settle. A gold loan is a pledge, so SARFAESI does not apply to it either: the lender recovers by auction under RBI’s rules after notice.

Why one EMI does not fix an NPA

RBI clarified in November 2021 that an NPA account can be upgraded to standard only when the borrower pays the entire arrears of principal and interest. If you have more than one loan with the same lender, arrears on all of them must be cleared. This catches many people: Deepak, a shop owner in Indore, misses the EMIs due on 5 March, 5 April and 5 May. In late May he pays one EMI. The oldest instalment is still unpaid, so once it crosses 90 days in early June the account still turns NPA.

The lesson is to use whatever money you have as part of a written proposal, not as scattered part-payments. Also remember that a signed written acknowledgement of the debt can give the lender a fresh three-year limitation period under Section 18 of the Limitation Act 1963, so check the figure in any balance confirmation letter before you sign it.

Common mistakes borrowers make

• Switching off the phone instead of writing to the lender.
• Taking a new app loan to pay the EMI, which multiplies cost and harassment.
• Believing an oral promise from a branch officer. Ask for a written reply.
• Ignoring a Section 13(2) notice or a Section 138 cheque bounce notice.
• Selling or gifting a mortgaged property after a SARFAESI notice. Section 13(13) bars it without the lender’s written consent.
• Paying “settlement” money on a phone call, to an agent’s personal account.

Frequently asked questions

Can the bank send police to arrest me for missing EMIs?

No. Non-payment of a loan is a civil default. Threats of arrest by agents are false and breach RBI’s rules on recovery. Criminal exposure arises only in specific cases, such as a cheque or mandate dishonoured after a notice, or cheating where the intention to deceive existed when the loan was taken.

How many missed EMIs make a loan an NPA?

The test is days, not number of instalments. A term loan becomes an NPA when interest or principal stays overdue for more than 90 days. With monthly EMIs, that usually means about three unpaid instalments, counted from the oldest unpaid one.

Will my credit score fall after one missed EMI?

A late payment can appear in your credit report within weeks, because lenders now report to credit information companies at least every fortnight (RBI Credit Information Reporting Directions, in force from 1 January 2025). A short delay hurts less than a 90-day default. For credit cards, an account can be reported as past due only after more than three days from the due date.

Can the lender take my house after 90 days?

Only through the lawful steps: a Section 13(2) notice with 60 days to pay, possession measures after that, a 30-day notice of sale, and valuation. You can object and can also challenge the measures in the Debts Recovery Tribunal within 45 days.

Who do I complain to about harassment?

First the lender’s grievance officer, in writing. If it rejects your complaint or does not reply within 30 days, file free at cms.rbi.org.in under the RBI Integrated Ombudsman Scheme 2026. Threats and forcible action should go to the police or 112 at once.

Quick quiz

Want the full step-by-step with model letters? See Borrowers’ Rights: EMI Default, Recovery Agents, SARFAESI and DRT, or browse all certificate courses.

Sources

• RBI circular on resolution of stressed assets and income recognition and asset classification norms (SMA categories; NPA at more than 90 days); RBI clarification of 12 November 2021 on upgrade of NPA accounts
• RBI instructions on Fair Lending Practice: Penal Charges in Loan Accounts (August 2023, from 1 January 2024)
• RBI circular of 12 August 2022 on recovery agents; RBI guidelines on recovery agents engaged by banks (2008)
• Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002, sections 13(2), 13(13), 17
• Recovery of Debts and Bankruptcy Act 1993, section 1(4) and 2018 notification (₹20 lakh threshold)
• Payment and Settlement Systems Act 2007, section 25; Limitation Act 1963, section 18
• RBI Master Direction on Treatment of Wilful Defaulters and Large Defaulters (30 July 2024); RBI Credit Information Reporting Directions 2025

This page is for education and general information, not legal advice for a specific case. Law as on 7 November 2026.