If the bank wants to pretend that everything is all right with the loan, it can only apply band aids – for any more drastic action would require NPA classification. Loan classification is merely good accounting – it reflects what the true value of the loan might be.
It is accompanied by provisioning, which ensures the bank sets aside a buffer to absorb likely losses. If the losses do not materialize, the bank can write back provisioning to profits. If the losses do materialize, the bank does not have to suddenly declare a big loss, it can set the losses against the prudential provisions it has made.