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Unit 10: Non-performing Assets

 The bill remains overdue for a period of more than 90 days in the case of bills purchased Notes
and discounted,

 Interest and/or instalment of principal remains overdue for two harvest seasons but for a
period not exceeding two half years in the case of an advance granted for agricultural
purposes, and

 Any amount to be received remains overdue for a period of more than 90 days in respect
of other accounts.

10.1 Non-Performing Assets (NPA)

Non-Performing Asset means an asset or an account of borrower, which has been classified by
a bank or financial institution as substandard, doubtful or loss asset, in accordance to the directions
or guidelines on asset classification issued by the RBI.
In order to move towards international best practices and to ensure greater transparency, it has
been decided to adopt the '90 days overdue' norm for identification of NPAs, from the year
ending March 31, 2004.
Accordingly, with effect from March 31, 2004, a loan or an advance shall be a non-performing
asset (NPA) where;

1. Interest and/or instalment of principal remain overdue for a period of more than 90 days
in respect of a term loan,
2. The account remains 'out of order' for a period of more than 90 days, in respect to an
overdraft/Cash Credit (OD/CC),
3. The bill remains overdue for a period of more than 90 days in the case of bills purchased
and discounted,
4. Interest and/or instalment of principal remains overdue for two harvest seasons but for a
period not exceeding two half years in the case of an advance granted for agricultural
purpose, and
5. Any amount to be received remains overdue for a period of more than 90 days in respect
of other accounts.

Asset Classification (Guidelines by RBI)

As per RBI guidelines assets can be grouped into four categories:
1. Standard assets: These are loans that do not have any problem and are less risky.
2. Substandard assets: These are assets, which come under the category of NPA for a period
of less then 12 months.
3. Doubtful assets: These are NPA exceeding 12 months.
4. Loss assets: These NPA are those that are identified as unreliable by internal inspector of
bank or auditors or by the RBI. They may not get recovered.

10.2 Some Important Terms

1. 'Out of order': An account will be treated as 'out of order' if:
(i) The outstanding balance remains continuously in excess of the sanctioned limit/
drawing power.

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