NPA: Asset
Classification and
Provisioning Norms
NPA Guidelines
• Term loans: Interest or installments overdue for a period of 90 days.
• Cash Credit/ Over draft: Account remains out of order for a period
of 90 days.
• Bills Account: Bills payable or Bills Discounting account remains
overdue or unpaid for a period of 90 days.
Asset classification
Group Definition
Standard. Accounts which are in order
Sub-standard. Accounts which have been
classified as NPAs for a period not
exceeding 12 months.
Doubtful: D1- Up to 12 months Sub standard accounts, which
D2: 24 months ( 1 to 3 years) have remained NPAs for period
D3: More than 3 years exceeding 12 months.
Loss assets. Accounts which have become
unrealizable, where losses have
been identified by the
bank/internal or external auditors/
RBI inspectors.
Out of order 22-01-2014 21-04-2014
Sub-standard 22-04-2014 21-04-2015
D-1 22-04-2015 21-04-2016
D-2 22-04-2016 21-04-2018
D-3 22-04-2018
Agriculture
➢Short duration crop: If installment or interest overdue for two crop
seasons.
➢Long duration crop: If installment or interest overdue for one crop
season.
COMPUTATION OF GROSS ADVANCES,GROSS NPA,NET
ADVANES,AND NET NPA
A. Gross advances = Standard Assets plus Gross NPA
B. Gross NPA as percentage of Gross advances = Gross NPA/Gross advances (in%)
C. Net advances = Gross advances minus Deductions (see D below)
D. Deductions (i) Provisions held in the case of NPA accounts (including prescribed additional
provisions) (ii) DICGC/ECGC claims received and held pending adjustment (iii) Part payment
received and kept in Suspense Account or any other similar account (iv) Balance in Sundries
Account (Interest Capitalization - Restructured Accounts), in respect of NPA accounts (v)
Floating Provisions
E. Net NPA = Gross NPA minus Deductions (listed above)
F. Net NPAs as percentage of Net Advances = Net NPAs/Net advances (in%) (i) Gross NPAs =
Principal dues of NPAs plus Funded Interest Term Loan (FITL) where the corresponding contra
credit is parked in Sundries Account (Interest Capitalization - Restructured Accounts), in respect
of NPA Accounts. (ii) ‘Gross Advances’ mean all outstanding loans and advances including
advances for which refinance has been received but excluding rediscounted bills, and advances
written off at Head Office level (Technical write off). (iii) Floating Provisions would be deducted
while calculating Net NPAs, to the extent, banks have exercised this option, over utilising it
towards Tier II capital.
SMA Sub- Basis for classification
categories
SMA-0 Principal or interest payment not overdue for more than
30 days but account showing signs of incipient stress
SMA-1 Principal or interest payment overdue between 31-60
days
SMA-2 Principal or interest payment overdue between 61-90
days
CATEGORY PROVISION REQUIREMENTS
Standard Agri. & Resi. Housing All other loans and
assets. SME sector Loans. & CRE advances
0.25% 0.75% &1.00% 0.40%
Sub-standard Secured Sub-standard Un-Secured Sub-Standard Infra-Project Loan
assets.
15% of out standing 25% of out standing 20%
Doubtful First 12 months Next 24 months Over 36 months
assets.
Secured: 25% Secured: 40% 100%
Uniformly.
Unsecured: 100% Unsecured:100%
Loss assets. The entire assets should be written off. If permitted to remain in the books for any reason,
100% of the outstanding should be provided for.
Standard Assets
A. Farm Credit to agricultural activities, individual housing loans and Small and Micro
Enterprises (SMEs) sectors at 0.25%;
B. Advances to Commercial Real Estate (CRE)1 Sector at 1.00%;
C. Advances to Commercial Real Estate – Residential Housing Sector (CRE - RH)2 at 0.75%
D. Housing loans extended at teaser rates (Some banks offer housing loans at
comparatively lower rates of interest in the first few years, after which rates are reset
at higher rates) at 2.00%. The provisioning on these assets would reduce to 0.40 per
cent after 1 year from the date on which the rates are reset at higher rates if the
accounts remain ‘standard;
E. Restructured advances – as stipulated in the prudential norms for restructuring of
advances.
F. Advances restructured and classified as standard in terms of the Master Direction –
RBI (Relief Measures by Banks in Areas affected by Natural Calamities) Directions
2018 – SCBs, as updated from time to time, at 5%.
G. All other loans and advances not included in (a) – (f) above at 0.40% (including Medium
Enterprises)
Q. Balance outstanding Rs. 10 lac and relaizable value of security
is Rs. 8 lac:
i. Standard-crop
ii. Standard
iii. Sub-standard-
iv. Doubtful- D1
v. Doubtful-D2
vi. Doubtful-D3
vii. Loss assets
viii. Loss assets with permitted to held by RBI
Stock Audit Guidelines
➢As per RBI Guidelines, to enhance reliability of stock valuation in NPA
accounts and Non NPA accounts with bank balance of Rs.5 crore and
more.
➢Annual stock audit is mandatory by external auditors.
NPA on account of erosion in the value of security.
▪ If realizable value of security is less than 50% the
account will be shifted to Doubtful category directly.
▪ If realizable value of security is less than 10% then
the account will be shifted to loss asset directly.
NPA: Asset
Classification and
Provisioning Norms
CATEGORY PROVISION REQUIREMENTS
Standard Agri. & Resi. Housing All other loans and
assets. SME sector Loans. & CRE advances
0.25% 0.75% &1.00% 0.40%
Sub-standard Secured Sub-standard Un-Secured Sub-Standard Infra-Project Loan
assets.
15% of out standing 25% of out standing 20%
Doubtful First 12 months Next 24 months Over 36 months
assets.
Secured: 25% Secured: 40% 100%
Uniformly.
Unsecured: 100% Unsecured:100%
Loss assets. The entire assets should be written off. If permitted to remain in the books for any reason,
100% of the outstanding should be provided for.
Q. Balance outstanding Rs. 10 lac and relaizable value of security
is Rs. 8 lac:
i. Standard-crop
ii. Standard
iii. Sub-standard-
iv. Doubtful- D1
v. Doubtful-D2
vi. Doubtful-D3
vii. Loss assets
viii. Loss assets with permitted to held by RBI
Q. If an account became sub-standard on Mar 30, 2015 and the
balance is Rs.10 lac and security value of Rs.6 lac. The amount of
provision as on 31.3.2019 would be :
a) 5 lac
b) 6 lac
c) 7.5 lac
d) 10 lac
e) None of the above
Q.
Outstanding Balance Rs. 10 lakhs
CGTMSE Cover
75% of the amount outstanding or
75% of the unsecured amount or
Rs.37.50 lakh, whichever is the least
Period for which the advance has More than 2 years remained
remained doubtful doubtful (say as on March 31, 2014)
Value of security held Rs. 1.50 lakhs
Calculate Provision required?
Q.
Outstanding Balance Rs. 10 lakhs
CGTMSE Cover
75% of the amount outstanding or 75%
of the unsecured amount or Rs.37.50
lakh, whichever is the least
Period for which the advance has More than 2 years remained doubtful
remained doubtful (say as on March 31, 2014)
Value of security held Rs. 1.50 lakhs
a) 5 lac
Balance outstanding Rs.10.00 lakh
b) 6 lac
c) 7.5 lac Less: Value of security Rs. 1.50 lakh
d) 10 lac Unsecured amount Rs. 8.50 lakh
e) 2.72 lacs
Less: CGTMSE/CRGFTLIH cover (75%) Rs. 6.38 lakh
Net unsecured and uncovered
Rs. 2.12 lakh
portion:
Provision for Secured portion @ 40%
Rs.0.60 lakh
of Rs.1.50 lakh
Provision for Unsecured & uncovered
Rs.2.12 lakh
portion @ 100% of Rs.2.12 lakh
Total provision required Rs.2.72 lakh
Q. An account showing outstanding amount of Rs. 45 lacs has been
classified as D1 on 31-3-2020. The realizable value of security is Rs. 20 lacs.
The account is covered under CGTMSE upto 75% with max upto Rs. 37.50
lacs. What will be the provision as on 30-03-2022?
A. 6 lacs C. 11.5 lacs
B. 5.5 lacs D. 13.5 lacs
E. Others
Q. An account become out of order on 22 January 2018. For a balance of
Rs. 10 lac, What will be amount of provision as on 31 March 2019,If the
value of security is Rs. 7 lac
a) Rs. 2 lac
b) Rs. 1.50 lac
c) Rs. 3.70 lac
d) Rs. 3.0 Lac
e) None of the above
Q. A pre-shipment account (doubtful above 1 year but less than 3
years has debit balance of Rs.4 lac. The principal security value is
Rs.1.50 lac and ECGC cover is available at 50%. What provision
will be made on this account as on 31.03.2019 :
a) Rs.1.85 lac
b) Rs.1.90 lac
c) Rs.1.95 lac
d) Rs.2.25 lac
e) account is secured by ECGC cover. Hence no provision.
Q.
Outstanding Balance Rs. 4 lakhs
ECGC Cover 50 percent
More than 2 years remained doubtful (say as on March
Period for which the advance has remained doubtful
31, 2020)
Value of security held Rs. 1.50 lakhs
Calculate Provision required?
Outstanding balance Rs. 4.00 lakhs
Less: Value of security held Rs. 1.50 lakhs
Unrealised balance Rs. 2.50 lakhs
Less: ECGC Cover Rs. 1.25 lakhs
(50% of unrealisable balance)
Net unsecured balance Rs. 1.25 lakhs
Rs. 1.25 lakhs (@ 100 percent of unsecured
Provision for unsecured portion of advance
portion)
Provision for secured portion of advance (as on Rs.0.60 lakhs (@ 40 per cent of the secured
March 31, 2012) portion)
Total provision to be made Rs.1.85 lakhs (as on March 31, 2020)
Q. The account became doubtful on Feb 12, 2014. The balance is Rs.6 lac.
The amount of provision as on March 31, 2017 will be:
a) 1.20 lac
b) 1.80 lac
c) 3.00 lac
d) 6 lac
e) None of the above
PCR (Provision Coverage Ratio)
✓With a view to improving the provisioning cover and enhancing the
soundness of the bank.
✓Total provisioning ratio of the bank should not be less than 70%
✓PCR= provion to NPA/Gross NPA*100
✓PCR should be disclosed in the notes to accounts to the balance
sheet.
Q. Balance outstanding Rs. 10 lac and relaizable value of security
is Rs. 8 lac:
i. Standard-crop
ii. Standard
iii. Sub-standard-
iv. Doubtful- D1
v. Doubtful-D2
vi. Doubtful-D3
vii. Loss assets
viii. Loss assets with permitted to held by RBI
Q. If an account became sub-standard on Mar 30, 2015 and the
balance is Rs.10 lac and security value of Rs.6 lac. The amount of
provision as on 31.3.2019 would be :
a) 5 lac
b) 6 lac
c) 7.5 lac
d) 10 lac
e) None of the above
Q.
Outstanding Balance Rs. 10 lakhs
CGTMSE Cover
75% of the amount outstanding or
75% of the unsecured amount or
Rs.37.50 lakh, whichever is the least
Period for which the advance has More than 2 years remained
remained doubtful doubtful (say as on March 31, 2014)
Value of security held Rs. 1.50 lakhs
Calculate Provision required?
Q.
Outstanding Balance Rs. 10 lakhs
CGTMSE Cover
75% of the amount outstanding or 75%
of the unsecured amount or Rs.37.50
lakh, whichever is the least
Period for which the advance has More than 2 years remained doubtful
remained doubtful (say as on March 31, 2014)
Value of security held Rs. 1.50 lakhs
a) 5 lac
Balance outstanding Rs.10.00 lakh
b) 6 lac
c) 7.5 lac Less: Value of security Rs. 1.50 lakh
d) 10 lac Unsecured amount Rs. 8.50 lakh
e) 2.72 lacs
Less: CGTMSE/CRGFTLIH cover (75%) Rs. 6.38 lakh
Net unsecured and uncovered
Rs. 2.12 lakh
portion:
Provision for Secured portion @ 40%
Rs.0.60 lakh
of Rs.1.50 lakh
Provision for Unsecured & uncovered
Rs.2.12 lakh
portion @ 100% of Rs.2.12 lakh
Total provision required Rs.2.72 lakh
Q. An account showing outstanding amount of Rs. 45 lacs has been
classified as D1 on 31-3-2020. The realizable value of security is Rs. 20 lacs.
The account is covered under CGTMSE upto 75% with max upto Rs. 37.50
lacs. What will be the provision as on 30-03-2022?
A. 6 lacs C. 11.5 lacs
B. 5.5 lacs D. 13.5 lacs
E. Others
Q. An account become out of order on 22 January 2018. For a balance of
Rs. 10 lac, What will be amount of provision as on 31 March 2019,If the
value of security is Rs. 7 lac
a) Rs. 2 lac
b) Rs. 1.50 lac
c) Rs. 3.70 lac
d) Rs. 3.0 Lac
e) None of the above
Q. A pre-shipment account (doubtful above 1 year but less than 3
years has debit balance of Rs.4 lac. The principal security value is
Rs.1.50 lac and ECGC cover is available at 50%. What provision
will be made on this account as on 31.03.2019 :
a) Rs.1.85 lac
b) Rs.1.90 lac
c) Rs.1.95 lac
d) Rs.2.25 lac
e) account is secured by ECGC cover. Hence no provision.
Q.
Outstanding Balance Rs. 4 lakhs
ECGC Cover 50 percent
More than 2 years remained doubtful (say as on March
Period for which the advance has remained doubtful
31, 2020)
Value of security held Rs. 1.50 lakhs
Calculate Provision required?
Outstanding balance Rs. 4.00 lakhs
Less: Value of security held Rs. 1.50 lakhs
Unrealised balance Rs. 2.50 lakhs
Less: ECGC Cover Rs. 1.25 lakhs
(50% of unrealisable balance)
Net unsecured balance Rs. 1.25 lakhs
Rs. 1.25 lakhs (@ 100 percent of unsecured
Provision for unsecured portion of advance
portion)
Provision for secured portion of advance (as on Rs.0.60 lakhs (@ 40 per cent of the secured
March 31, 2012) portion)
Total provision to be made Rs.1.85 lakhs (as on March 31, 2020)
Q. The account became doubtful on Feb 12, 2014. The balance is Rs.6 lac.
The amount of provision as on March 31, 2017 will be:
a) 1.20 lac
b) 1.80 lac
c) 3.00 lac
d) 6 lac
e) None of the above
PCR (Provision Coverage Ratio)
✓With a view to improving the provisioning cover and enhancing the
soundness of the bank.
✓Total provisioning ratio of the bank should not be less than 70%
✓PCR= provion to NPA/Gross NPA*100
✓PCR should be disclosed in the notes to accounts to the balance
sheet.
SARFAESI - SECURITISATION AND RECONSTRUCTION OF
FINANCIAL ASSETS AND ENFORSEMENT OF SECURITY INTEREST
Not applicable to
➢ Loans with outstanding up to Rs 1.00 lac
➢Agrilands
➢Where the O/s amount is less than 20% of the outstanding. Where security is
not charged and limitation period has expired.
Notice served under 13(2)-60 days
Sale notice-30 days notice in public newspaper
Under Sarfaesi Act-For making an Appeal to DRAT-Deposit of 50% of the due
amount should be made, DRAT may reduce it to 25%
Time periods in SARFAESI Act
Notice before possession 60 days
Reply to objection by borrower 15 days
Borrower can approach DRT against possession notice 45 days
Appeal to DRAT against decision of DRT 30 days
Notice before sale 30 days
Period of balance payment 75% by the buyer of assets 15 days
Important section in SARFAESI Act
60 days notice before possession Sec 13(2)
Assistance by chief metropolitan magistrate or district magistrate in taking possession Sec 14
Application to DRT against possession notice issued by the bank Sec 17
Appeal against DRT to DRAT by depositing 50% amount Sec 18
DRT- DEBT RECOVERY TRIBUNAL
✓Debt Recovery Tribunals DRTs are special types of courts for effecting
recovery of dues of banks and financial institutions.
✓DRTs are established under the Recovery of Debts due to banks and
financial institutions Act 1993
✓DRT is headed by a Presiding Officer. He is assisted by a Recovery Officer
and one Registrar.
✓Type of Cases: Cases involving recoverable dues of banks and Fls of Rs 20
lacs and above only are filed with DRTs. Such cases can not be filed in the
normal civil courts.
✓Once the case is decided in favour of the bank or Fl, the DRT issues a
Recovery Certificate. Recovery Officer who has powers such as
attachment etc. helps in recovery of dues through execution of the
decree passed by DRT.
✓Appeal against the order of the Recovery Officer can be made to DRT
within 30 days of passing the order.
✓Any appeal against the judgement of DRT can be preferred with Debt
Recovery Appellate Tribunal. The head of DRAT is called Chairperson. The
appeal is made within 45 days of the date of receipt of the order. If
borrower wants to appeal, 75% of the judgment amount is required to be
deposited which an be waived or reduced by the Chairperson of the DRAT
even to nil.
✓For being appointed as DRT, a person should qualify to be District Judge
and for being appointed as DRAT. the person should qualify to be a Judge
of the High Court.
✓There are 39 DRTs and 5 DRATs, which are single Member Tribunals.
Jurisdiction of DRATs
➢DRAT Allahabad (Jurisdiction over 6 DRTs)
✓DRT Allahabad, DRT Dehradun, DRT Jabalpur, DRT Lucknow,
DRT Patna and DRT Ranchi.
➢DRAT Chennai (Jurisdiction over 9 DRTs)
✓DRTs at Chennai (1, 2, 3), DRTs at Bengaluru (1, 2), DRT
Coimbatore, DRTs at Ernakulam (1, 2), and DRT Madurai.
➢DRAT Delhi (Jurisdiction over 7 DRTs)
✓DRTs at Delhi (1, 2, 3), DRTs at Chandigarh (1, 2, 3) and DRT
Jaipur.
➢DRAT Kolkata (Jurisdiction over 9 DRTs)
✓DRTs at Kolkata (1, 2, 3), DRT Cuttack, DRT Guwahati, DRTs at
Hyderabad (1, 2), DRT Siliguri and DRT Visakhapatnam.
➢DRAT Mumbai (Jurisdiction over 8 DRTs
✓DRTs at Mumbai (1, 2, 3), DRTs at Ahmedabad (1,2), DRT
Aurangabad, DRT Pune, DRT Nagpur.
DRT- DEBT RECOVERY TRIBUNAL
➢COVERS LOANS OF RS 20.00 LACS AND ABOVE
➢Presiding officer appointed by Central Govt for 5 years maximum age
of 62
➢Disposal of application within 180 days from the date of receipt.
➢Appeal can be made to DRAT(DEBT RECOVERY APPELATE TRIBUNAL)
within 45 days from the date Order subject to deposit of 75% of the
due amount.
➢DRAT to dispose the case within 180 days
LOK ADALAT
➢LOK ADALAT are created under legal services authority act 1987.
➢Account should be classified as Doubtful and Loss category.
➢Cases involving upto Rs 20.00 lacs.
➢Lok Adalat if conducted by DRT no ceiling is applicable.
➢Supreme court has suggested that personal loans upto Rs 10.00 lacs
should be settled through Lok Adalats
LOK ADALAT
• Repayment period to be within 1-3 years.
•
ARC (Asset Reconstruction Companies )
1. Asset Reconstruction Companies ARCS have been set up for taking over
NPAs irom banks/Fis and reconstruct or re pack these for sale
2. First ARC is Asset Reconstruction Company of india Ltd (ARCIL)
3. ARC will be set up as a joint stock company. Registration with RBI is must
before commencement of business as ARC.
4. ARC should start business within 6 months of registration with RBl. RBl
can extend it by another six months.
5. Net owned tunds of ARC should be 15% ot the acquired assets or Rs 100
crore whichever is less.
6. Capital Adequacy Ratio at all times should be at least 15%
7. ARC should invest at least 15% in security receipts created out of each
securitization.
Q. In which of the following cases an account becomes NPA:
a) where principal and / or interest in TL has become due and not paid
by the borrower for 75 days.
b) where the cash credit account has been out of order for more than
90 days
c) where the bill purchased/discounted has become overdue and
continues to be overdue for 87 days
d) where amount remains unpaid for less than two crop seasons for
short duration and less than one crop season for long duration crop
in case of all agriculture accounts.
Q. In which of the following, the cash credit or overdraft account does
not become out of order but becomes NPA directly:
a) where there is no credit for 90 days as on date of balance sheet
although balance is within the limit & Drawing Power.
b) where the credit is less than interest debited during the same period
although balance is within the limit & Drawing Power.
c) where the borrower has not submitted due stock report for 3 months
d) where account remains above‘ the sanctioned limit or Drawing Power
e) where the limit has not been renewed for more than 6 months after it
had fallen due for renewal
Q. In a cash credit account, the party has not given due stock
statement for the last 9 months. The account is showing a balance
of Rs.2.56 lac with a limit of Rs.3 lac and DP of 2.80 lac based on
the last stock report. The party has paid interest regularly. The
account is otherwise conducted as per terms of the sanction. The
account classification shall be:
a) standard account
b) out of order account
c) sub-standard account
d) at discretion of the bank
e) None of the above
Q. Which of the following statements match in connection with time
period for an NPA account:
a) remains sub-standard for 90 days.
b) remains special mention a/c for 12 months
c) remains in doubtful more than 3 years category for 3 years
d) remains in doubtful first sub-category for 1 year and 2nd sub-category
for 2 years
Q. In a cash credit account, if the due stock statement is not
submitted for _ months, the account would be treated as _
a) 3 months, sub-standard
b) 6 months, sub-standard
c) 6 months, irregular
d) 3 months, irregular
e) None of the above
Q. In case of agricultural loans, the period for which the account can
remain irregular (standard) before it is classified as substandard is:
a) 90 days for all agriculture accounts
b) two or one crop season, for all agriculture accounts
c) two or one crop seasons for agriculture accounts where recovery is
based on crop
d) 90 days for all indirect agriculture accounts and two or one crop
season for all direct agriculture loans
Q. A doubtful more than 1year up to 3 year (DF-2) category loan of Rs.20 lac
has been sold by bank A to Bank B for Rs.14 lac on Jan 16, 2017. Bank B will
make a total provision of as on 31.03.2017:
a) 0.25%
b) 0.4%
c) 10%
d) 20%
e) 40%
Q. If one account of the borrower has become sub-standard
(which statement does not match):
a) his other accounts in all branches of that bank shall be
treated as NPA even though regular account
b) his other accounts in other banks, shall be treated NPA if it is
a consortium account
c) his other accounts in other branches shall not be treated
NPA if running regular
d) his other accounts including against the security of bank
deposit shall be treated as NPA and provided for.
