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Banking Theory and Practice

Notes 13.3.3 Doubtful Assets

With effect from March 31, 2005, an asset is required to be classified as doubtful, if it has remained
NPA for more than 12 months. For Tier I banks, the 12-month period of categorization of an
inferior asset in doubtful category is effective from April 1, 2009. As in the case of sub-standard
assets, rescheduling does not entitle the bank to promote the quality of an advance automatically.
A loan classified as doubtful has all the disadvantages underlying as that classified as
sub-standard, with the added feature that the disadvantages make collection or liquidation in
full, on the basis of currently known facts, conditions and values, highly doubtful and improbable.

13.3.4 Loss Assets

A loss asset is one where loss has been recognized by the bank or internal or external auditors
or by the Cooperation Department or by the Reserve Bank of India review but the amount has
not been written off, entirely or partly. In other terms, such an asset is considered uncollectible
and of such little value that its continuation as a profitable asset is not guaranteed although there
may be some relief or recovery value.

Example: We suppose a party is disbursed a loan on January 1, 2010. Its due date is June
1, 2010. But the party does not make a payment. So, it will be

A standard asset from January 1 2010 till June 1 2010.
Substandard from August 30, 2010 till August 29, 2011.
Doubtful from August 30, 2011 till August 29, 2012.

Self Assessment

Fill in the blanks:
6. An asset is considered as doubtful, if it has remained NPA for more than ..........................

7. An account will be classified as loss where the dues are considered ..................................

13.4 Provisions for NPAs

Following are the provisions given by Reserve Bank of India:
In accordance with the prudential norms, provisions should be made on the non-performing
assets on the basis of categorization of assets. Taking into account the time lag between an
account becoming doubtful of retrieval, its recognition as such, the realization of the security
and the erosion over time in the value of security charged to the bank, the banks should make
provision against standard assets, sub standard assets, doubtful assets and loss assets as below :

13.4.1 Standard Assets

(a) From the year ended March 31, 2000, the banks should make a general provision of a
minimum of 0.25 per cent on standard assets.
(b) However, Tier II banks (as defined in Circular dated May 6, 2009) will be subjected to
higher provisioning norms on standard assets as under:
The general provisioning necessity for all types of ‘standard advances’ shall be 0.40 per
cent. However, direct advances to agricultural and SME sectors which are standard assets,

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