Ok solved my issue. I had two optional BIOS files in RetroArch/system/np2kai folder namely “bios9821.rom” and “d8000.rom”. Removing these files allowed me to run .d88 and .fdi files.
These BIOS files were listed as optional in libretro docs here > https://docs.libretro.com/library/neko_project_ii_kai/. Its possible I got a bad file dump.
Anyways thanks again @AZO234.