What kills the spread: NPAs
Asset classification: the ladder a bad loan slides down
Once a loan turns NPA it's graded down: standard → sub-standard → doubtful → loss.
Why it matters
Each step down the ladder forces a bigger provision, so it hits reported profit directly — which is why credit and ops teams live by recovery timelines.
A worked example
A ₹1 crore loan costs almost nothing in provisions while standard, ₹15 lakh once sub-standard, and the full ₹1 crore once it's a loss.
The picture
What it leads to
Each rung sets a provisioning percentage — the link between a deteriorating loan and the P&L hit.
Where it sits in the map
Follow the causation