🏦 IBPS AFO Interview — NPA Classification & Recovery
IBPS AFO interview questions on NPA 90-day norm, SMA categories, provisioning rates (15%/25% sub-standard), agriculture crop season NPA rules, and PCR 70%.
Non-Performing Assets (NPA)
Overview of Non-Performing Advances (NPA)
An NPA is essentially a loan or advance where the borrower has stopped making interest or principal repayments for a significant period.
- Regulatory Origin: NPA guidelines were issued by the Reserve Bank of India (RBI) based on the recommendations of the Narasimham Committee.
- Formal Name: These are officially known as the 'Prudential Guidelines on Income Recognition, Asset Classification and Provisioning'.
- Effective Date: These guidelines came into effect on March 31, 1993.
Primary Reasons for NPA:
- Non-compliance with sanction conditions: This includes delays or non-repayment of the principal/interest amount and the failure to renew sanctioned working capital limits.
- Loss of Security: If the collateral/security against which the loan was given is no longer available or has lost its value significantly.
General Criteria for an Account Becoming NPA
An account is classified as an NPA if the payment is overdue for a specific period (usually more than 90 days).
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Non-Performing Assets (NPA)
Overview of Non-Performing Advances (NPA)
An NPA is essentially a loan or advance where the borrower has stopped making interest or principal repayments for a significant period.
- Regulatory Origin: NPA guidelines were issued by the Reserve Bank of India (RBI) based on the recommendations of the Narasimham Committee.
- Formal Name: These are officially known as the 'Prudential Guidelines on Income Recognition, Asset Classification and Provisioning'.
- Effective Date: These guidelines came into effect on March 31, 1993.
Primary Reasons for NPA:
- Non-compliance with sanction conditions: This includes delays or non-repayment of the principal/interest amount and the failure to renew sanctioned working capital limits.
- Loss of Security: If the collateral/security against which the loan was given is no longer available or has lost its value significantly.
General Criteria for an Account Becoming NPA
An account is classified as an NPA if the payment is overdue for a specific period (usually more than 90 days).
| Account Type | Criteria for NPA Classification |
|---|---|
| Term Loans | Principal or interest remains overdue formore than 90 days. |
| Cash Credit (CC) / Overdraft (OD) | The account remains**"Out of Order"** for more than 90 days OR the sanctioned limit is overdue for renewal for more than 180 days. |
| Bills Purchased/Discounted | The bill remains overdue for a period ofmore than 90 days. |
| Credit Card Accounts | If theMinimum Amount Due (MAD) is not paid within 90 days. |
| Other Accounts | Any amount to be received remains overdue formore than 90 days. |
Interest Payment
- If the interest due is not paid within 90 days from the close of the quarter in which it was charged, the account is treated as an NPA.
- This specific rule is a "buffer" period provided by the RBI. To understand it, we need to look at how banks operate on a Quarterly Cycle.
- In banking, the year is divided into four quarters:
- Q1: April – June
- Q2: July – September
- Q3: October – December
- Q4: January – March
- Normally, banks "charge" (apply) interest to a loan account at the end of every month or quarter. This rule explains exactly when that interest makes the account go "bad" (NPA).
- The Charging Date: Interest is usually debited from the account at the close of the quarter. Let's say interest is charged on June 30th (the end of Q1).
- The 90-Day Grace Period: The borrower doesn't necessarily become an NPA the day the interest is charged. They are given 90 days from the end of that quarter to pay it.
- The NPA Trigger: If the interest charged on June 30th is still not paid by September 28th (roughly 90 days later), the account is officially classified as an NPA.
Understanding "Out of Order" in CC/OD Accounts
A Cash Credit or Overdraft account is treated as "Out of Order" if it meets certain conditions regarding the outstanding balance and credits.
A. Immediate "Out of Order" Status
An account becomes "Out of Order" immediately if the Outstanding (O/s) balance exceeds either the Sanctioned Limit or the Drawing Power (DP).
- Example:
- Sanctioned Limit: 20 Lac
- Drawing Power (DP): 18 Lac
- If the O/s Balance is 18.90 Lac, the account is "Out of Order" immediately because it exceeds the DP (18 Lac), even though it is within the sanctioned limit.
- NPA Timeline: If this remains uncorrected, it becomes an NPA on the 91st day.
B. Conditional "Out of Order" Status
Even if the balance is within the limits, an account is "Out of Order" if:
- No Credits: There are no credits in the account for a continuous period of 90 days as of the date of the Balance Sheet.
- Insufficient Credits: Credits are available, but they are less than the interest debited during the same period.
- Old Stock Statements: The stock statement (used to calculate Drawing Power) is older than 3 months.
Calculation of Drawing Power (DP)
Drawing Power is the actual limit a borrower can utilize based on the value of the current assets (stock/debtors) after deducting a "margin" set by the bank.
Formula: Drawing Power (DP) = Value of Assets - Margin
Example Calculation:
- Stock Value: 28 Lac
- Bank Margin: 30% of 28 Lac = 8.40 Lac
- Sanctioned Limit: 20 Lac
- Calculated DP: 28 Lac - 8.40 Lac = 19.60 Lac
In this case, the borrower can only draw up to 19.60 Lac, even if their sanctioned limit is 20 Lac, because the DP is lower.
Farm Credit in Agriculture Loans
Agriculture loans follow a unique timeline for NPA classification because recovery is linked to harvest cycles rather than fixed 90-day periods.
- Classification Criteria: An account becomes irregular based on crop seasons rather than days:
- Short Duration Crops: NPA if irregular for 2 crop seasons.
- Long Duration Crops: NPA if irregular for 1 crop season.
- Vyas Committee Definitions:
- Short Duration: Crops with a season up to 12 months.
- Long Duration: Crops with a season exceeding 12 months.
- Decision Authority: The State Level Bankers' Committee (SLBC) determines which crops are classified as short or long duration for all banks within a state.
Loans Against Liquid Security
Certain loans are exempt from standard NPA "overdue" rules if they are backed by high-quality liquid assets.
- Eligible Securities: Bank deposits (FDs), NSC (National Savings Certificate), KVP (Kisan Vikas Patra), and Life Insurance Policies.
- The Relaxation:
- The account remains Standard as long as the value of the security is greater than the balance in the account.
- This is true even if the balance exceeds the sanctioned limit.
- Exclusions: This relaxation is not available for gold loans or loans against Government Securities.
- Example: If a loan against an FD of Rs. 1.50 lac has an outstanding balance of Rs. 1.15 lac, it remains a "Standard" account despite any payment delays because the security covers the debt.
Government Guaranteed Loans
The NPA status depends on whether the guarantee is from the State or Central government.
| Guarantee Type | NPA Rules & Treatment |
|---|---|
| State Govt. | No relaxation. All normal NPA rules apply just like a regular commercial loan. |
| Central Govt. | High relaxation. Interest is not debited unless recovered, the account is classified as Standard, and no provision is required. |
Crucial Exception: If the Central Government repudiates (refuses to honor) its guarantee, then normal NPA rules apply immediately.
Consortium Loans
In consortium lending (where multiple banks lend to one borrower), the asset classification is bank-specific.
-
Classification is based on the conduct of the account with individual banks, irrespective of how other banks in the consortium classify it.
Bank A/c Limit DP O/S A/c status Classification SBI CC
TL50.00
>50.0050.00
>40.0048.00
>39.50Regular Standard BOB CC
TL30.00
>30.0029.00
>25.0029.00
>27.50Irregular for
>2 monthsStandard – SMA IOB CC
TL20.00
>20.0020.00
>15.0021.00
>17.50Irregular for
>10 monthsSub-Standard
Impact of NPA Accounts
- When a borrower triggers an NPA in one account, it has a "domino effect" across their entire portfolio with that bank.
- Borrower-Wise Classification: If one account of a borrower becomes NPA, all their accounts at any branch of that bank are treated as NPA, even if those other accounts are regular.
- Exemptions to the "One A/c" Rule: This rule does not apply to:
- Consortium accounts.
- Loans against deposits, LIC policies, or NSC/KVP/IVP.
- Bills discounted under Letter of Credit (LC).
- Loans to PACS for on-lending to members.
- Accounting Impact: Banks must follow the Cash System for NPAs; interest can only be recognized as income after it is actually recovered. Any unrecovered interest already recorded must be reversed (derecognized) on the balance sheet date.
Recovery and Restructuring
There are two ways an NPA account can return to "Standard" status.
A. Recovery (Immediate Upgrade)
- If the entire due amount is recovered, the account is upgraded to the Standard category immediately.
- Example: If an NPA account has a total balance of Rs. 20 lac but the "due amount" (arrears) is Rs. 4 lac, and the borrower pays Rs. 4.06 lac on July 18, the account becomes Standard on the same day, i.e., July 18.
B. Restructuring (Delayed Upgrade)
- The account is upgraded to Standard only after regular repayment for one year based on the new (restructured) due dates.
- Example: If a loan is restructured on May 12, 2017, and repayments start on Dec 31, 2017, the account will only be upgraded to Standard on Dec 31, 2018, provided the borrower paid regularly throughout that year.
Asset Classification
Classification Hierarchy
Bank assets are classified into 4 categories, while NPAs specifically falls into 3 categories:
- Standard Assets (Performing)
- Sub-standard Assets (NPA)
- Doubtful Assets (NPA)
- Loss Assets (NPA)
Standard Assets & SMA
Assets carrying normal credit risk where all conditions of sanction are met. If accounts become irregular, they are tracked as Special Mention Accounts (SMA):
- SMA-0: Overdue for 1-30 days
- SMA-1: Overdue for 31-60 days
- SMA-2: Overdue for 61-90 days
Example: The due date for one account is 31.03.2021 on the day end:
| Date | Status | Logical Breakdown |
|---|---|---|
| 31.03.2021 | Overdue / SMA-0 | The moment the day-end process completes without payment, the account is 1 day overdue (Day 1 of default). |
| 30.04.2021 | SMA-1 | The account has remained overdue for more than 30 days (Day 31). |
| 30.05.2021 | SMA-2 | The account has remained overdue for more than 60 days (Day 61). |
| 29.06.2021 | NPA | The account has remained overdue for more than 90 days (Day 91). It is now classified as a Sub-standard Asset. |
Sub-standard Accounts
- Criteria: Account remains SMA-2 for > 30 days (Total irregularity > 90 days). It becomes Sub-standard on the 91st day.
- Provisioning Categories:
- Unsecured Sub-standard: Security value is ≤ 10% of the outstanding balance.
- Secured Sub-standard: Security value is > 10% of the outstanding balance.
Examples:
| Example | Loan Amount | Security Value (SV) | Classification | Reason |
|---|---|---|---|---|
| 1 | ₹10 Lac | ₹8 Lac (80%) | Secured Sub-standard | SV > 10% |
| 2 | ₹10 Lac | ₹0.8 Lac (8%) | Unsecured Sub-standard | SV ≤ 10% |
Doubtful Loan Accounts
If an account remains Sub-standard for > 12 months, it migrates to Doubtful (DF).
| Category | Description |
|---|---|
| DF-1 | Doubtful up to 1 year |
| DF-2 | Doubtful above 1 year but up to 3 years |
| DF-3 | Doubtful more than 3 years |
Timeline Example:
- Sub-standard Date: 12.10.15
- DF-1 Date: 12.10.16 (1 year later)
- DF-2 Date: 12.10.17 (2 years later)
- DF-3 Date: 12.10.19 (4 years later)
Loss Accounts due to Erosion of Security
In fully secured accounts, if security value erodes significantly, the account can be downgraded immediately without waiting periods.
- Downgrade to Doubtful (DF): If loss is 50% or more (Secured balance < 50%).
- Downgrade to Loss: If loss is 90% or more (Secured balance < 10%).
Example: Two loans (A & B) initially fully secured with Balance ₹10 Lac each. Security is damaged.
- Loan-A: SV drops to ₹3 Lac (30%). Loss is 70%.
- Result: Classified as Doubtful (DF) immediately.
- Loan-B: SV drops to ₹80,000 (8%). Loss is 92%.
- Result: Classified as Loss Asset immediately.
Stock Statement & Renewal Rules
- If monthly stock statements are stipulated for a CC/OD account, the account will become NPA if stock statement is not submitted continuously for more than 6 months.
- An account where regular/ad hoc credit limits have not been reviewed/renewed within 180 days from due date/date of ad hoc sanction will be treated as NPA.
Bill Financing NPA Classification
- Purchased bills: NPA if overdue for 90 days from bill purchased date.
- Discounted bills: NPA if overdue for 90 days from due date.
Stock Audit Rules
To ensure reliability of security valuation, Annual Stock Audit by external agencies is mandatory for NPA accounts with a balance of ₹5 Crore and above.
Provisioning
Provisioning is a conservative accounting practice where banks set aside a portion of their profits to cover potential future losses on loans.
- Process: It is created by debiting the Profit & Loss (P&L) account and maintaining a separate fund.
- Basis: The amount to be provisioned depends on the Asset Classification (Standard, Sub-standard, Doubtful, or Loss).
- Standard Accounts: For healthy (standard) accounts, the provision is calculated based on the Global Balance (the total outstanding amount).
Provisioning Rates: Standard Loans
For loans that are performing well (Standard), provisions are kept as a buffer. These are recorded under "Other Liabilities" (Schedule-5) in the Balance Sheet and qualify as Tier-2 Capital for Capital Adequacy Ratio (CAR) purposes.
| Loan Category | Provisioning Rate |
|---|---|
| Micro & Small Enterprises | 0.25% |
| Farm Credit (Direct Agriculture) | 0.25% |
| Home Loans (within RBI stipulated LTV) | 0.25% |
| Commercial Real Estate - Residential Housing | 0.75% |
| Commercial Real Estate (CRE) | 1.00% |
| Teaser Home Loans | 2.00% |
| Other Loans (General / Allied Agriculture like Food Processing) | 0.40% |
Note: Direct advances to Agriculture and MSME attract 0.25% provisioning. However, loans to allied agriculture activities (e.g., food processing units) attract 0.40% provisioning under "Others".
- A Teaser Home Loan is a type of loan product where a bank offers a significantly lower interest rate during the initial years (typically the first 1–3 years) to attract borrowers. After this introductory period, the interest rate "resets" or jumps to a higher, standard floating rate for the remainder of the loan tenure.
Definition of Unsecured Exposure
Unsecured exposure is defined as an exposure where the realisable value of the security, as assessed by the bank/approved valuers/RBI inspecting officers, is not more than 10%, ab-initio, of the outstanding exposure. Rights, licenses, authorisations etc. charged to banks as collateral for project finance (including infrastructure projects) are NOT reckoned as tangible security — such advances are treated as unsecured.
Provisioning Rates: Sub-standard Loans
An account is sub-standard if it has been an NPA for 12 months.
- Rule: There is no bifurcation of the balance into secured and unsecured portions here. You first determine if the account is "Secured" or "Unsecured" based on the value of the security relative to the debt.
- Guarantee Note: No relaxation is given for DICGC/ECGC/CGTMSE guarantees in this category.
| Category | Provisioning Rate |
|---|---|
| Secured Sub-standard | 15% |
| Unsecured Sub-standard | 25% |
| Unsecured Sub-standard (Infrastructure loans) | 20% |
Examples for Sub-standard Loans
| Scenario | Total Balance | Security Value | Category | Calculation | Provision Amount |
|---|---|---|---|---|---|
| Example 1 | Rs. 10 lac | Rs. 9 lac | Secured (90% covered) | Rs. 1.50 lac | |
| Example 2 | Rs. 10 lac | Rs. 0.9 lac | Unsecured (only 9% covered) | Rs. 2.50 lac |
Provisioning Rates: Doubtful Loans (DF)
For Doubtful assets, the balance is bifurcated into a Secured portion and an Unsecured portion.
-
Unsecured Portion: Always provided for at 100%.
-
Secured Portion: Provisioned based on the age of the NPA:
-
DF-1 (Up to 1 year): 25%
-
DF-2 (1 to 3 years): 40%
-
DF-3 (Above 3 years): 100%
-
Security Includes: Primary and collateral security, and guarantees from ECGC, DICGC, CGTMSE, or the Government.
-
Exclusion: The net worth of the borrower or guarantor is not considered security.
-
A general provision of 15% on total outstanding should be made without any allowance for ECGC guarantee cover and securities available.
-
'Unsecured exposures' identified as 'substandard' attract additional provision of 10%, i.e., a total of 25% on outstanding balance.
-
Infrastructure loan accounts classified as sub-standard attract provisioning of 20% instead of 25% (due to safeguards like escrow accounts).
Example for Doubtful Loans
Scenario: Total Balance = 10 lac; Realizable Security Value (RSV) = 8 lac.
| Asset Category | Secured Portion (lac) | Unsecured Portion (lac) | Total Provision |
|---|---|---|---|
| DF-1 | 8 | 2 | Rs. 4.00 lac |
| DF-2 | 8 | 2 | Rs. 5.20 lac |
| DF-3 | 8 | 2 | Rs. 10.00 lac |
Calculation with CGTMSE Guarantee
When a loan is covered by a CGTMSE guarantee, the guaranteed portion requires 0% provision. The calculation follows a specific hierarchy:
- Apply security value first.
- Calculate the "Uncovered Balance."
- Apply the CGTMSE guarantee % to that uncovered balance.
- The remaining "Net Unsecured" portion is provisioned at 100%.
Scenario: Balance = 10 lac; Security = 4 lac; CGTMSE Cover = 80%.
| Component | If DF-1 | If DF-2 | If DF-3 |
|---|---|---|---|
| Balance | 10.00 | 10.00 | 10.00 |
| Security (RSV) | 4.00 (@ 25% = 1.00) | 4.00 (@ 40% = 1.60) | 4.00 (@ 100% = 4.00) |
| Uncovered Balance | 6.00 | 6.00 | 6.00 |
| CGTMSE Cover (80%) | 4.80 (@ 0% = 0.00) | 4.80 (@ 0% = 0.00) | 4.80 (@ 0% = 0.00) |
| Net Unsecured | 1.20 (@ 100% = 1.20) | 1.20 (@ 100% = 1.20) | 1.20 (@ 100% = 1.20) |
| Total Provision | 2.20 lac | 2.80 lac | 5.20 lac |
Other Important Provisioning Norms
Floating Provisions
- Floating provisions can be treated as part of Tier II capital within the overall ceiling of 1.25% of total risk weighted assets.
Country Risk Provisioning
- Banks are required to make provision for country risk in respect of a country where its net funded exposure is 1% or more of its total assets.
Fraud Provisioning
- For accounts classified as fraud: 100% provision to be provided over a period not exceeding 4 quarters commencing with the quarter in which the fraud has been detected.
DCCO (Date of Commencement of Commercial Operations)
- Extension of DCCO in Infrastructure projects: up to 2 years from original DCCO — not treated as restructuring.
- Extension of DCCO in Non-Infrastructure projects (delay beyond control of promoters): up to 2 years from original DCCO — not treated as restructuring.
One Time Settlement (OTS)
- Recovery in NPA accounts under OTS scheme is first appropriated towards Principal.
Ratios and Formulas
Provision Coverage Ratio (PCR)
This measures the extent to which a bank has provided against its bad loans.
- Mandate: Banks were required to maintain a PCR of 70% effective from 30.09.2010. Formula:
Asset Quality Formulas
- Gross NPA: Total balance outstanding in NPA accounts.
- Net NPA: Gross NPA - (Provisions + DICGC/ECGC claims + Suspense)
- Net Advances: Gross Advances - (Provisions + DICGC/ECGC claims + Suspense)
Revival and Rehabilitation of MSME accounts
Eligibility and Identification
The framework applies to both fund-based and non-fund-based exposures up to Rs. 25 crore, including single bank, multiple banking, and consortium cases.
- Incipient Sickness: Identified based on Special Mention Account (SMA) status reflected by early warning signals (EWS). SMA status will act as initial identification of Incipient Sickness.
- MSME Sick Unit: Defined as a unit where the previous year's net worth has eroded by 50% or more due to accumulated losses.
- Corrective Action Plan (CAP): Can take three forms:
- Rectification
- Restructuring
- Recovery
Committee Responsibilities by Loan Size
The level of authority for deciding the CAP depends on the amount of stress and the account balance:
| Account Status | Amount | Action/Authority |
|---|---|---|
| SMA-2 Accounts | Up to Rs. 10 lac | CAP decided by Branch level committee but for recovery action consent of ZO/RO committee is required. |
| Stressed Accounts | Above Rs. 10 lac | Branch must forward details to Standing Committee at RO/ZO within 5 working days for a suitable CAP. |
The Rehabilitation Process Timeline
The process is governed by strict timelines to ensure the speedy revival of the MSME unit.
- Initiation by Borrower: A borrower identified as sick can apply to banks for rehabilitation; the committee must convene a meeting within 5 working days.
- Reference by Bank: If a bank makes a reference for an SMA-2 account above Rs. 10 lac, the committee must notify the borrower within 5 banking days.
- Information Gathering: The committee obtains information regarding statutory creditors and their dues within 15 days.
- The Decision: Within 30 days of the first meeting, the committee decides on the option (Rectification, Restructuring, or Recovery) and notifies the borrower within 5 banking days.
- Techno-Economic Viability (TEV): If restructuring is chosen, the committee must finalize the TEV and restructuring terms within 20–30 working days.
Implementation and Finalization
Once the plan is finalized, the Corrective Action Plan (CAP) must be implemented within specific windows:
-
Rectification only: Within 30 days.
-
Restructuring: Within 90 days.
-
Decision Rule (Majority): Committee decisions are based on a majority. In consortium or multiple banking cases, a majority is defined as:
- 75% by value of the banks.
- 50% by number of the banks.
-
Right to Review: If the committee decides on recovery, the borrower has the right to make a review application within 10 working days.
| Event / Action | Deadline | Key Requirement / Authority |
|---|---|---|
| Meeting Initiation (by Borrower) | Within 5 working days | Borrower identifies unit as sick and applies to the bank. |
| Branch Referral to Standing Committee | Within 5 working days | For stressed accounts above Rs. 10 lac. |
| Notification to Borrower (by Bank) | Within 5 banking days | If the bank initiates reference for SMA-2 accounts above Rs. 10 lac. |
| Gathering Information | Within 15 days | Regarding statutory creditors and their dues. |
| Final Decision on CAP Option | Within 30 days | Decided from the date of the first meeting. |
| Notify Borrower of CAP Decision | Within 5 banking days | Post-decision on the chosen option (Rectification/Restructuring/Recovery). |
| Finalizing Restructuring Terms/TEV | Within 20 - 30 working days | Techno-Economic Viability (TEV) study required for restructuring. |
| Implementation: Rectification | Within 30 days | Once the CAP is finalized. |
| Implementation: Restructuring | Within 90 days | Once the CAP is finalized. |
| Borrower Review Application | Within 10 working days | Applicable if the committee decides on the Recovery option. |
Summary Cheat Sheet
| Concept | Key Detail |
|---|---|
| NPA Criteria (General) | Overdue for > 90 Days |
| Sub-Standard Period | NPA up to 12 Months |
| Doubtful Categories | DF-1 (≤1 yr), DF-2 (1-3 yrs), DF-3 (>3 yrs) |
| Loss Asset | Uncollectible / Security value < 10% |
| Security Erosion | >50% Loss → Doubtful | >90% Loss → Loss Asset |
| Provision: Standard | 0.40% (Gen) / 0.25% (SME/Agri) / 2.0% (Teaser) |
| Provision: Sub-Std | 15% (Secured) / 25% (Unsecured) |
| Provision: Doubtful | 25% (DF-1) / 40% (DF-2) / 100% (DF-3 / Unsecured) |
| Provision Coverage Ratio | Min 70% |
| Short Duration Crops | NPA if irregular for 2 Crop Seasons |
| Long Duration Crops | NPA if irregular for 1 Crop Season |
| Govt Guarantee | Central Govt: Standard | State Govt: NPA Rules Apply |
| Liquid Security | Standard if Security Value > Balance (FD, NSC, KVP, LIC) |
| Restructuring Upgrade | After 1 Year of satisfactory performance |
| Recovery Upgrade | Immediate upon clearing dues |
| Stock Statement | NPA if not submitted for > 6 months |
| Limit Non-Renewal | NPA if not renewed for 180 days |
| Floating Provisions | Part of Tier II, max 1.25% of RWA |
| Country Risk Provision | When exposure ≥ 1% of total assets |
| Fraud Provision | 100% over max 4 quarters |
| DCCO Extension | Up to 2 years (Infra & Non-Infra) = no restructuring |
| OTS Appropriation | First towards Principal |
| Bill NPA (Purchased) | 90 days from bill purchased date |
| Bill NPA (Discounted) | 90 days from due date |
| CRE-RH Provision | 0.75% (Standard) |
For RBI's IRAC norms and prudential guidelines see rbi.org.in. Practise NPA classification questions in IBPS AFO mock tests. Review previous year questions for NPA provisioning problems.
Related: Principles of Sound Lending and Monetary Policy.
Frequently Asked Questions
Q: What is the 90-day NPA norm and how does it apply to agriculture loans? For most loan types (term loans, bills, CC/OD), an account becomes NPA after payment is overdue for more than 90 days. However, agriculture loans follow a different timeline because recovery is linked to harvest cycles: short-duration crop loans become NPA if irregular for 2 crop seasons, and long-duration crop loans become NPA if irregular for 1 crop season. The SLBC determines which crops are short or long duration in each state.
Q: What are the SMA (Special Mention Account) categories and their timelines? SMA categories track early warning of loan stress before NPA classification: SMA-0 = overdue 1–30 days, SMA-1 = overdue 31–60 days, SMA-2 = overdue 61–90 days. An account becomes Sub-Standard (NPA) on the 91st day. This SMA framework allows banks to initiate corrective action plans (CAPs) before the loan formally becomes an NPA.
Q: What are the provisioning rates for sub-standard and doubtful assets? Sub-standard assets: 15% for secured, 25% for unsecured (security value ≤ 10% of outstanding). Doubtful assets are bifurcated — the unsecured portion always attracts 100% provision, while the secured portion is provisioned at 25% (DF-1, up to 1 year), 40% (DF-2, 1–3 years), and 100% (DF-3, above 3 years). Loss assets require 100% provisioning. Banks must maintain a minimum Provision Coverage Ratio (PCR) of 70%.
Q: What is the difference between recovery and restructuring for upgrading an NPA to Standard? Recovery (paying the entire due amount) results in immediate upgrade to Standard on the same day. Restructuring (renegotiating loan terms) requires a waiting period — the account is upgraded to Standard only after regular repayment for one year based on the new restructured due dates. This difference is critical for AFO officers managing stressed accounts.
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