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NPA is defined as a loan or an advance in respect of which the
interest &/or installment of principal remains “overdue” for a
period of more than 90 days in respect of a term loan or
remains “out of order” for a period of more than 90 days in
respect of an Overdraft /Cash Credit.

Any amount due to the Bank under any credit facility, if not
paid by the due date fixed by the bank, becomes ‘overdue’.

An asset, including a leased asset, becomes non-performing
when it ceases to generate income for the bank.
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Non Performing Asset: •

A loan granted for short duration crops will be treated as NPA
if the installment of principal or interest thereon remains
overdue for two crop seasons. A crop season for each crop
means the period upto harvesting of the crops raised.

A loan granted for long duration crops will be treated as NPA if
the installment of principal or interest thereon remains
overdue for one crop season. ( Long duration crops = crop
season longer than 1 year & short duration crops means which
are not long duration crops )

A bill purchased & discounted will be NPA if it remains overdue
for a period of more than 90 days from the date it is due.

Any amount to be received remains overdue for a period of
more than 90 days in respect of other accounts.
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OUT OF ORDER: 

An account should be treated as ‘out of order’ if
the outstanding balance remains continuously in
excess of sanctioned limit /drawing power. Even if
the outstanding in the account is within limit/DP,
but there are no credits continuously for 90 days
or credits are not enough to cover interest
debited, the account should be treated as ‘out of
order’ .

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NPA Identification – A Regular
Exercise: 

NPA identification is an ongoing
process. An asset should be classified
as NPA within a month of its’ becoming
NPA & provisions for NPA should be
done on quarterly basis rather than at
year end only.

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Temporary
Deficiencies:

Record of recovery should be seen before any a/c is
treated as NPA. However, solitary entry at the year
end which brings the account in order on year end
but the a/c again becomes irregular subsequently,
such a/c should be treated as NPA. An a/c should not
be treated as NPA just because of some temporary
deficiencies which are rectified subsequently.

An a/c should be classified as NPA when there is
threat of loss or recoverability of advance is in doubt.

Recovery in the a/c should be from genuine sources
& not because of grant of additional credit facilities
to the borrower.
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Borrower wise & not
Facility wise

When a loan a/c of a borrower is treated as
NPA, all the other loan a/cs of the borrower,
even if they are otherwise regular, should
be treated as NPA as NPA classification
should be borrower wise & not facility wise.

When various advance a/cs of a borrower
are in different categories of NPA, then the
provisioning shall be as per the lowest
category applicable.
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Special Purpose
Agricultural Loans in areas
Advances:
- suffering from Natural Calamities,

Housing Loan to Staff

Credit facilities guaranteed by Central would become NPA
only if the guarantee is repudiated by the Govt. State Govt.
Guaranteed Advances are treated at par with other advances.

Project financing - For Infrastructure & Non infrastructure
sectors

Gold Loans – For Agricultural purposes & for non – Agricultural
purposes

Loans against FDs / IVPs / KVPs / Life Policies are not treated
as NPA if adequate margin is available.

Investments where Interest/Principal is overdue beyond 90
days
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Project Loans: 

For Infrastructure Projects –

1)

NPA before DCCO, if 90 days overdue if not restructured
NPA if fails to commence commercial operations within 2
years from original DCCO, even if regular, if not
restructured

2)

For non Infrastructure Sector: -

1)

NPA before DCCO, if 90 days overdue if not restructured
NPA if fails to commence commercial operations within 6
months original from DCCO, even if regular, if not
restructured

2)

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Restructuring of
 Advances:
Three Stages: a)

Before commencement of commercial
production /operation.

b)

After commencement of commercial
production /operation but before the asset has
been classified as Sub-standard.

c)

After commencement of commercial
production /operation but before the asset has
been classified as Sub-standard or Doubtful.
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Restructuring of
Advances: Standard Asset
restructuring

to

be

classified

as

Substandard

upon

NPA Account upon restructuring would slip into further lower
category

All restructured accounts treated as NPA upon restructuring are
eligible for upgradation to Standard if satisfactory performance is
observed during specified period. If satisfactory performance not
observed during specified period, Asset Classification to be with
reference to the Pre Restructuring Repayment Schedule

Any additional finance granted on restructuring to be treated as
Standard Asset upto a period of 1 year after 1 st installment
becomes due as per Restructuring Package. If satisfactory
performance not observed during the specified period, additional
finance would be placed in the same category as other accounts
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Gross NPA are the sum total of all loan assets
that are classified as NPAs as per RBI guidelines
as on Balance Sheet date. Gross NPA reflects
the quality of the loans made by banks. It
consists of all the non standard assets, i.e. substandard, doubtful & loss assets.

If Gross NPA of any Co-operative Bank is more
than 10%of Gross Advances in any year, it comes
under Supervisory Action Framework of RBI.

Net NPA = Gross NPA – Provision for BDDR
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Standard Assets :- Advance account which
does not disclose any problem & does not carry
more than normal business risk.

Substandard Assets – Which has remained
NPA for a period less than or equal to 12
months.

Doubtful Assets – Which has remained NPA for
a period more than 12 months.

Loss Assets – where loss has been identified
by the bank or internal or external auditors or
the RBI inspection, salvage value of security is
negligible & the entire asset is proposed to be
w/off after necessary approvals.
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Provisioning Norms: Asset
Classificati
on
Standard

Sub-standard

Particulars

Provisio
n
Require
d%

Direct Advances to Agriculture & SME
Sectors

0.25

Commercial Real Estate Advances

1.00

All other Loans & Advances not included
in above

0.40

Secured Exposure

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Unsecured Exposure for Escrow A/cs
available in case of Infrastructure lending,
infrastructure loan accounts

20

Other Unsecured Exposure

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Provisioning Norms: Asset
Classificati
on
Doubtful

Loss

Particulars

-

Provision
Required %
Secured

Unsecure
d

D1 (Upto 1 year)

25

100

D2 (One to Three
years)

40

100

D3 (More than 3
years)

100

100

Loss Asset

100
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Income from NPA Accounts is booked only when
actually received & is not accounted for on accrual
basis. Even in case Govt. guaranteed advances,
interest is to be recognized only when realized.

Interest on Advances against FDRs, KVPs, NSCs, IVPs
& LIC Policies is to be accounted when due if
sufficient margin is available in the account.

Fees & Commission earned on rescheduling is to be
recognized on accrual basis over the period covered
by reschedulement.
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When an account becomes NPA, interest, fees,
commission, etc, debited to account but is not actually
realized needs to be reversed or provided for.

When Bills Purchased & Discounted becomes NPA at the
close of any year, interest accrued on such bills in the
previous year should be reversed or provided for if not
realized already.

In case of Govt. Guaranteed Advances, interest debited
but not realized needs to be provided for.

In case of Equipment Leasing undertaken by the Bank,
interest component in the Lease account which has
become NPA needs to be reversed if unrealized.

Interest & Other Income on NPA Accounts realized out of
additional credit facilities cannot be taken to Income.
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BORROWER-SIDE







BANKER – SIDE


Lack of Planning
Diversion of Funds 
Disputes within

No contribution

No modernization

Improper monitoring
Industrial Relations
Natural Calamities

Defective Sanction
No post-sanction
supervision, etc
Delay in releases
Directed lending
Slow decision
making process

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To recover their bad Debt quickly & efficiently.

DEBT RECOVERY
 TRIBUNALS
(DRT):
33 Debt Recovery
Tribunal

& 5 Debt Recovery

Appellate Tribunal

It is the special court established by Central
Government for the purpose of recovering money
belonging to the banks or financial institutions.

The judges of this court are the retired judges of
High Courts.

In this court, only the recovery cases of Rs.10 Lacs
& above can be filed.
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SARFAESI Act: 

The Act provides three alternative methods for
recovery of non-performing assets, namely: - Securitization
- Asset Reconstruction 
- Enforcement of Security without the
intervention of the Court.

Bad loans with outstanding above Rs. 1.00 Lac.

NPA loan accounts where the amount is less than
20% of the Principal & Interest are not eligible to
be dealt with under this Act.
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This Act empowers the Bank:

To issue demand notice to the defaulting borrower
& guarantor, calling upon them to discharge their
dues in full within 60 days from the date of the
notice. 
 
To give notice to any person who has acquired any
of the secured assets from the borrower to
surrender the same to the Bank. 
 
To ask any debtor of the borrower to pay any sum
due or becoming due to the borrower. 
 
Any Security Interest created over Agricultural
Land cannot be proceeded with.

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CDR Mechanism: 

CDR mechanism will cover only multiple
banking accounts / syndication / consortium
accounts .

An outstanding exposure of banks &
institutions to the extent of Rs.20 Crore &
more.

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Verify the previous year’s audited NPA
Statement to confirm that all the Accounts
which were NPA last year have been covered in
Current Year Statement except those which are
closed or upgraded.

If closed, whether from genuine sources. If
upgraded, whether from proper recovery in the
account.

Tally the number of accounts.

Verify whether unrealized Interest has been
reversed in respect of accounts which have
slipped during the year.
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Verify that proper classification has been
done with reference to Date of NPA.

Whether valuation report for Immovable
Properties is on record & it is within 3 years.
See that, valuation is taken as per Valuation
Report at Distress Value.

In case of depreciable assets, depreciation
has been considered at the time of valuation.

Securities shown are properly under lien of
the Bank.
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All the accounts related to particular borrower
have been treated as NPA under lowest category
applicable & provision made accordingly.

In case of D1 & D2 accounts, unsecured portion is
provided for @ 100%.

Verify overdue/overdrawn/SMA accounts to ensure
that all NPA A/cs have been covered in the
Statement & provided for.

Ensure that a/cs are not upgraded after
restructuring except cases covered by special
regulatory treatment.

Ensure that OIR as per Balance Sheet tallies with
that as per NPA Statement.
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