🎯 What is an NPA?
Non-Performing Assets (NPAs) are loans where the borrower hasn’t paid interest/principal for 90+ days.
Example: If you miss home loan payments for 3 months, your loan becomes an NPA.
📅 Key NPA Criteria
| Loan Type | NPA Trigger |
|---|---|
| Term Loans | 90+ days overdue |
| Overdrafts | No credits for 90 days or over limits |
| Agricultural (Short-term 🌾) | 2 crop seasons overdue |
| Agricultural (Long-term 🌾) | 1 crop season overdue |
| Bills | 90+ days overdue |
🏷️ Types of NPAs
- Technical NPA:
- Old stock statements (>3 months) or unrenewed credit limits (>180 days).
- Asset Classifications:
| Asset Type | Definition | Provisioning |
|---|---|---|
| Standard ✅ | Timely repayments | 0.25%–1% |
| Sub-Standard ⚠️ | NPA <12 months | 15%–25% |
| Doubtful ❗ | NPA >12 months | 25%–100% (based on security) |
| Loss 💸 | Unrecoverable | 100% |
💰 Provisioning Norms Simplified
Banks must set aside funds for potential losses:
| Asset Type | Provisioning % |
|---|---|
| Standard Assets | 0.25% – 1% |
| Sub-Standard | 15% – 25% |
| Doubtful (1-3 yrs) | 40% |
| Doubtful (3+ yrs) | 100% |
| Loss Assets | 100% |
🤝 Consortium Lending
- What? Multiple banks fund one borrower.
- NPA Rule: If one bank doesn’t recover, others must classify it as NPA.
🔍 Security Valuation Rules
- Stock: Revalue every 3 months.
- Property: Revalue every 3 years.
- Fraud Cases:
- Security <50% value → Doubtful asset.
- Security <10% → Loss asset.
🌾 Agricultural Loans (IRAC Norms)
| Loan Type | Repayment Period |
|---|---|
| Short-Term Crops | 12 months |
| Long-Term Crops | 18 months |
- Overdue loans follow NPA rules.
🛠️ Compromise Settlement
Banks accept partial payment if:
- Borrower offers lump-sum.
- Recovery cost > likely recovery.
- Insufficient security.
📊 Monitoring NPAs
| Loan Size | Review Authority |
|---|---|
| ₹50+ Cr | Board Committee |
| ₹1–50 Cr | Internal Committees |
| Below ₹1 Cr | Branch Level |
- Stock Audits: Mandatory for ₹5 Cr+ accounts.
⚡ Key Exceptions
- Advances Against Term Deposits: Not NPA if margin is safe.
- Recovery Order:
- Non-court cases → Recover costs → interest → principal.
- Court cases → Follow court orders.
❓ FAQs for Exams/Interviews
Q: What’s the difference between Sub-Standard and Doubtful assets?
A: Sub-Standard = NPA <12 months. Doubtful = NPA >12 months.
Q: How much provisioning is needed for a 2-year-old Doubtful asset?
A: 40% (if secured) or 100% (if unsecured).
Q: What triggers a Technical NPA?
A: Expired stock statements (>3 months) or unrenewed credit limits.
❓ MCQs
1. What is the period after which a term loan is classified as NPA if overdue?
a) 60 days
b) 90 days
c) 120 days
d) 180 days
Answer: b) 90 days
2. Which of the following is NOT a criterion for classifying overdraft accounts as NPA?
a) Outstanding balance exceeds the limit for 90 days.
b) No credits continuously for 90 days.
c) Turnover in the account covers interest charged.
d) Credits are insufficient to cover the interest debited during the period.
Answer: c) Turnover in the account covers interest charged.
3. Sub-standard assets are classified as NPAs for a period of less than:
a) 3 months
b) 6 months
c) 12 months
Answer: c) 12 months
4. What percentage of provisioning is required for unsecured sub-standard assets?
a) 10%
b) 15%
c) 25%
d) 100%
Answer: c) 25%
5. Loss assets are identified when:
a) Security value is less than 50% of the outstanding loan.
b) Security value is less than 10% of the outstanding loan.
c) The loan is overdue for more than 90 days.
d) No credits are made for 180 days.
Answer: b) Security value is less than 10% of the outstanding loan.
6. What is the provisioning requirement for doubtful assets secured for 1-3 years?
a) 25%
b) 40%
c) 50%
d) 100%
Answer: b) 40%
7. Advances against which of the following are exempt from being classified as NPAs?
a) Gold ornaments
b) Government securities
c) Term deposits
d) Immovable properties
Answer: c) Term deposits
8. For agricultural short-term crops, the loan becomes NPA if overdue for:
a) 6 months
b) 1 crop season
c) 2 crop seasons
d) 3 crop seasons
Answer: c) 2 crop seasons
9. Under consortium lending, if the lead bank fails to remit recoveries, the loan is classified as:
a) Standard asset
b) Sub-standard asset
c) NPA for the lead bank only
d) NPA for all member banks
Answer: d) NPA for all member banks
10. A stock valuation used for provisioning should not be older than:
a) 1 month
b) 3 months
c) 6 months
d) 12 months
Answer: b) 3 months
11. Which of the following sectors attracts a provisioning rate of 0.25% for standard assets?
a) SME
b) Commercial Real Estate
c) Housing loans under teaser rates
d) Agricultural loans
Answer: d) Agricultural loans
12. What is the first priority for appropriating recoveries in non-suit filed NPA accounts?
a) Principal amount
b) Costs and charges
c) Interest and penal interest
d) Legal expenses
Answer: b) Costs and charges
13. What is the maximum review period for working capital accounts with Rs. 10 Lakh to Rs. 1 Cr outstanding?
a) Quarterly
b) Bi-annually
c) Annually
d) Monthly
Answer: c) Annually
14. When should immovable properties held as security be revalued?
a) Annually
b) Every 2 years
c) Every 3 years
d) Every 5 years
Answer: c) Every 3 years
15. A compromise settlement is considered when:
a) Borrower pays the full outstanding.
b) Security value is above the loan amount.
c) Borrower offers a lump-sum payment, and legal recovery is costly.
d) The bank decides not to proceed with recovery.
Answer: c) Borrower offers a lump-sum payment, and legal recovery is costly.