🎯 What is an NPA?
- Full form → Non-Performing Asset.
- Definition → Loan where interest/principal not paid for >90 days.
- Golden Rule (RBI) → 90-day norm.
- Due on Day 1 → becomes NPA on Day 91.
📅 NPA Criteria (By Loan Type)
| Loan Type | NPA Trigger |
|---|---|
| Term Loans | 90+ days overdue |
| Overdrafts | No credits for 90 days OR over limits |
| Agri (Short-term 🌾) – Rice/Wheat | 1 crop season overdue |
| Agri (Long-term 🌾) – Sugarcane | 1 crop season overdue |
| Bills | 90+ days overdue |
🏷️ Types of NPAs
- Technical NPA → Old stock statements (>3 months) OR limits not renewed (>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% |
| Loss 💸 | Unrecoverable | 100% |
💰 Provisioning Norms (Safety Net)
Banks set aside profits (provision) to cover losses:
| NPA Category | Provisioning | Simple Meaning |
|---|---|---|
| Sub-Standard | 15% | Keep 15% aside. |
| Doubtful 1 (≤1 yr) | 25% | More doubtful. |
| Doubtful 2 (1–3 yrs) | 40% | Very doubtful. |
| Doubtful 3 (>3 yrs) | 100% | Almost loss. |
| Loss Asset | 100% | Total loss. |
🤝 Recovery Tools (Consortium Lending)
- SARFAESI Act, 2002 → Bank can seize & sell assets.
- DRT (Debt Recovery Tribunal) → Special recovery courts.
- IBC, 2016 → Insolvency resolution for companies.
- OTS (One-Time Settlement) → Bank accepts less to close loan.
🔍 Security Valuation Rules
- Stock → Revalue every 3 months.
- Property → Revalue every 3 years.
- Fraud cases:
- Security <50% → 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 may accept partial payment if:
- Borrower offers lump sum.
- Recovery cost > likely recovery.
- Security insufficient.
📊 Monitoring NPAs
| Loan Size | Review Authority |
|---|---|
| ₹50+ Cr | Board Committee |
| ₹1–50 Cr | Internal Committee |
| < ₹1 Cr | Branch Level |
- Stock Audit mandatory for ₹5 Cr+ accounts.
⚡ Key Exceptions
- Advances against term deposits → Not NPA if margin is safe.
- Recovery order:
- Non-court → Cost → Interest → Principal.
- Court cases → As per court order.
❓ 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.