🎯 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
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
Questions
- What is the RBI’s standard criterion for classifying a term loan as an NPA?
A. 30 days overdue
B. 60 days overdue
C. 90 days overdue
D. 180 days overdue - Which of the following is NOT a standard category of NPA classification?
A. Sub-standard asset
B. Doubtful asset
C. Loss asset
D. Suspicious asset - An overdraft (OD) / cash credit (CC) account is treated as NPA if it is “out of order” for more than:
A. 30 days
B. 60 days
C. 90 days
D. 180 days - Which Act provides banks power to take possession of secured assets and enforce security interest for recovery of NPAs?
A. SARFAESI Act, 2002
B. Banking Regulation Act, 1949
C. Negotiable Instruments Act, 1881
D. Companies Act, 2013 - CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest) was created under the provisions of:
A. Companies Act
B. SEBI Act
C. SARFAESI Act
D. RBI Act - Gross NPA (GNPA) differs from Net NPA (NNPA) because NNPA is:
A. GNPA divided by total assets
B. GNPA minus provisions and interest suspense
C. GNPA plus provisions
D. GNPA expressed as a percentage of total deposits - Which NPA category describes assets which have remained NPA for less than or equal to 12 months?
A. Sub-standard
B. Doubtful
C. Loss
D. Standard - If an asset remains NPA for more than 12 months and has significant uncertainty about recovery, it is classified as:
A. Sub-standard
B. Doubtful
C. Loss
D. Standard - Which of the following is a common immediate accounting action when an account is classified as NPA?
A. Recognize income from interest accrued
B. Suspend recognition of further interest income (interest suspense)
C. Convert all loans to equity automatically
D. Increase tenor without provisioning - Which legal forum hears appeals against decisions of Debt Recovery Tribunals (DRTs)?
A. High Court
B. Debt Recovery Appellate Tribunal (DRAT)
C. National Company Law Tribunal (NCLT)
D. Supreme Court - Which instrument allows banks to sell bad loans to asset reconstruction companies (ARCs)?
A. SARFAESI seizure notice
B. Securitisation and reconstruction under SARFAESI/related regulations
C. Negotiable Instruments Act provisions
D. Banking Ombudsman order - The term “willful defaulter” applies to a borrower who:
A. Truly cannot pay due to business failure
B. Has paid all dues on time
C. Intentionally avoids repayment despite capacity to pay
D. Has been granted a loan waiver by government - Which statement about provisioning for NPAs is generally true?
A. Provisioning reduces profit and increases NNPA.
B. Higher provisioning reduces GNPA.
C. Provisioning is only required for standard assets.
D. Provisioning increases regulatory capital. - Which of the following is not a recovery/remedy available to banks for NPAs?
A. Loan restructuring/rescheduling
B. Sale to Asset Reconstruction Company (ARC)
C. Invocation of SARFAESI and taking possession of security
D. Depositor’s bank account takeover for unrelated customer - An example of an asset that must be treated as NPA earlier than 90 days in specific cases is:
A. Term loan to large corporates always at 180 days
B. Short-duration crop loans after failure of two successive crop seasons (as per sector rules)
C. Car loans after 30 days
D. Savings account overdraft after 15 days - Which body issues instructions and circulars defining NPA classification norms in India?
A. Ministry of Finance
B. Reserve Bank of India (RBI)
C. SEBI
D. Ministry of Corporate Affairs - The primary purpose of CERSAI is to:
A. Regulate stock markets
B. Maintain a registry of security interests created on properties to prevent multiple creations of charge on the same asset
C. Monitor foreign exchange transactions
D. Manage the Credit Information Companies (CICs) - Under SARFAESI procedure, before taking possession of secured assets, banks normally must:
A. Immediately auction the asset without notice
B. Serve a notice to the borrower and give time to repay or discharge dues
C. Obtain permission from consumer court
D. Convert the loan into a grant - Which of the following best describes a “loss asset”?
A. An asset where repayment is regular
B. An asset where bank expects full recovery within 90 days
C. An asset where loss has been identified and is considered uncollectible, often written off
D. Standard performing asset - Which of the following ratios is directly affected by NPAs and watched by regulators to assess bank health?
A. Credit-Deposit ratio only
B. Net Interest Margin only
C. GNPA ratio and NNPA ratio
D. Current ratio - Which legislation sets up Debt Recovery Tribunals (DRTs) to speed up recovery of debts?
A. Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI Act), 1993
B. SARFAESI Act, 2002
C. Insolvency and Bankruptcy Code, 2016
D. Negotiable Instruments Act - Which of these is a likely effect of rising NPAs on a bank?
A. Increased profitability
B. Higher provisions, lower profits and weakened capital ratios
C. Increased liquidity and lending capacity
D. Immediate increase in regulatory capital - Which of the following is true about restructured accounts (under RBI norms)?
A. Restructuring automatically removes NPA status
B. Restructuring may change classification and invoke specific prudential/monitoring norms — it does not automatically normalize the account without compliance
C. Restructuring converts loan to equity always
D. Restructuring is forbidden under SARFAESI - Which Indian agency maintains credit information and provides credit history used by banks while assessing borrowers (helps NPA management)?
A. CERSAI
B. Credit Information Companies (CICs) like CIBIL/Experian/Equifax/CRIF
C. Securities and Exchange Board of India
D. Reserve Bank of India only - Which of the following measures was introduced to improve recovery and handling of NPAs in India (select the most relevant)?
A. Introduction of SARFAESI Act and establishment of ARCs & CERSAI
B. Abolishing all provisioning requirements
C. Forbidding sale of NPAs to third parties
D. Making all bank loans interest-free