When a loan account is classified as a Non-Performing Asset (NPA), banks stop recognising interest income in their profit and loss accounts. Instead, they park the accruing interest in a "suspense account" — an internal accounting measure. A common misconception among borrowers is that interest stops accruing when an account becomes NPA. The Hon'ble Supreme Court has clarified: interest does not stop accruing, and the bank can recover it.

What the Court Held

Interest accumulated in a suspense account after NPA classification continues to form part of the "debt" due from the borrower. The bank's internal accounting treatment — parking the interest in a suspense account rather than recognising it as income — does not extinguish the borrower's liability to pay that interest. Banks are entitled to claim this interest as part of their total outstanding dues.

The Orissa High Court had denied this interest to PNB, holding that interest maintained in a suspense account cannot be claimed as part of the debt. The Supreme Court reversed this — and allowed the bank's claim for full outstanding interest.

What Is an NPA and Why This Matters

An account becomes an NPA when the borrower fails to service it for 90 days. Banks are required by RBI guidelines to stop recognising interest income on NPA accounts and to park accruing interest in suspense accounts. This accounting measure exists to reflect the bank's actual recoverable income — it does not mean that the borrower no longer owes the interest.

For Borrowers in NPA

If you are settling an NPA account — whether through a one-time settlement (OTS), restructuring, or DRT proceedings — be aware that the bank will claim not just the outstanding principal and interest that was recognised before NPA classification, but also the interest that accumulated in the suspense account after NPA. This can be a significant additional amount, especially in long-running NPA cases.

Practical Guidance

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If you are negotiating an OTS with a bank on an NPA account: ask the bank for a full statement of outstanding dues including suspense account interest. Factor this into your settlement calculation — it can substantially increase the total amount the bank is claiming.

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In DRT proceedings, the bank will file an Original Application (OA) claiming the full outstanding amount including suspense account interest. This Supreme Court ruling confirms that such a claim is maintainable.

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Borrowers challenging the quantum of the bank's claim in DRT proceedings should verify the calculation of suspense account interest, the rate applied, and whether the compounding is in accordance with the terms of the loan agreement and RBI guidelines.

Case Reference
Punjab National Bank v. M/S. Shree Jyoti Education and Management Trust and Others | Hon'ble Justice Sanjay Kumar & Hon'ble Justice Sanjeev Sachdeva | August 12, 2026 | Hon'ble Supreme Court of India

Frequently Asked Questions

Questions people commonly search on this topic

Does interest keep accruing on an NPA loan account in India? +
Yes. The Supreme Court has held that the bank's internal accounting treatment of parking interest in a suspense account does not extinguish the borrower's obligation to pay interest. Interest continues to accrue on an NPA account and forms part of the total debt recoverable by the bank.
Can a bank claim interest from a suspense account in DRT proceedings? +
Yes. The Supreme Court has confirmed that interest accumulated in a suspense account after NPA classification remains part of the 'debt' due from the borrower and is recoverable in DRT proceedings along with the principal and pre-NPA interest.
What is a suspense account in banking? +
A suspense account in banking is an internal account where banks park interest accruing on NPA accounts. RBI guidelines require banks not to recognise NPA interest as income — instead it is recorded in a suspense account. This is an accounting requirement, not a waiver of the borrower's obligation to pay interest.
How can I challenge a bank's NPA interest claim? +
You can challenge the rate of interest applied, whether compounding is in accordance with the loan agreement, and whether the calculation method is correct — in DRT proceedings or through a writ petition. However, you cannot challenge the bank's right to claim interest on the ground that the account is NPA.