Performing and Non Performing Assets: formula sheet

Key formulas

NPA trigger

Interest or principal overdue for more than 90 days ⇒ NPA

Applies to term loans. For cash credit or overdraft, 'out of order' for more than 90 days is the test. The count is 'more than 90 days', so day 91 is the first NPA day.

Sub-standard asset

NPA for a period of up to 12 months ⇒ Sub-standard

The clock starts when the account first becomes NPA, not from the loan date.

Doubtful asset

Remained sub-standard for 12 months ⇒ Doubtful

Doubtful assets are usually sub-divided by how long they stay in this category: up to one year, one to three years, and more than three years. Provisioning rises with age.

Loss asset

Identified as uncollectable by bank, internal or external auditors or RBI inspection ⇒ Loss

Little or no value remains. It is not necessarily written off, but full provision is expected.

Income on NPA

Income on NPA = recognised only when actually received (cash basis)

Accrued but unrealised interest of earlier periods is reversed or provided for when the account turns NPA.

Income on standard asset

Income on performing asset = recognised on accrual basis

Applies while the account remains standard.

Upgradation

NPA ⇒ Standard only when all arrears of interest and principal are paid by the borrower

Partial payment that still leaves the account overdue beyond 90 days does not upgrade it.

Performing asset

Interest and principal paid as agreed, or overdue for 90 days or less

The account is standard, and interest can be taken to income.

NPA test for a term loan

Interest or instalment of principal overdue for more than 90 days = NPA

Day 90 is still performing. The account turns NPA after 90 days, so the test is more than 90.

Out of order account (cash credit and overdraft)

Outstanding balance continuously above sanctioned limit or drawing power, or no credits for 90 days, or credits not covering interest debited in 90 days

An out of order account is an NPA.

Overdue

Any amount not paid on the due date fixed by the bank

Overdue alone is not an NPA. Duration matters.

Standard assets (general provision)

0.40% of outstanding (general rate)

Lower rate of 0.25% for direct agriculture and SME advances. Higher rates apply to commercial real estate (1.00%) and commercial real estate-residential housing (0.75%). Other categories, such as personal loans and capital market exposures, also carry higher rates. This list is not complete, so check the latest RBI directions for the exact categories and rates.

Sub-standard assets

15% of total outstanding

15% applies to the total outstanding. 25% applies to exposures that are ab-initio unsecured. 20% applies to unsecured exposure in infrastructure accounts where certain escrow-type safeguards exist. Check the RBI norms for the exact conditions.

Doubtful assets: unsecured portion

100% of the unsecured portion

Unsecured portion = outstanding − realisable value of security. It applies at every age of the doubtful asset.

Doubtful assets: secured portion

Up to 1 year: 25% | 1 to 3 years: 40% | More than 3 years: 100%

The age is counted from the date the asset became doubtful, not from the date of the loan.

Loss assets

100% of outstanding

The asset should be written off. If it is kept on the books, 100% provision is still needed.

Provision Coverage Ratio

PCR = Provisions held against NPAs ÷ Gross NPAs × 100

Do not include the general provision on standard assets in the numerator.

SARFAESI enforcement sequence

Classify as NPA → Demand notice (60 days to pay) → Take possession → Sale/lease/management takeover → Apply proceeds

A secured creditor must give the borrower 60 days' notice under Section 13(2). Borrower objections and the creditor's reply are part of the process. Do not skip the notice step.

Borrower's remedy against SARFAESI measures

Application to DRT (Section 17) → Appeal to DRAT (Section 18)

Appeal to DRAT needs a pre-deposit of a part of the debt claimed. Check the current percentage in the Act before quoting.

Classic condition for SARFAESI enforcement

Secured creditor + secured debt + account classified as NPA + notice issued

Without a security interest, SARFAESI cannot be used. The creditor must be a bank, financial institution or other covered secured creditor.

Route selection

Secured and enforceable security → SARFAESI; Need adjudication or unsecured → DRT; Want to exit → sell to ARC; Small or compromise → Lok Adalat; Corporate default with collective claims → IBC

Routes may be combined where the law permits, but a bank must not double-recover.

Quick revision

• An NPA is an advance where interest or principal remains overdue beyond the period fixed by RBI norms.
• Income on an NPA is not recognised on an accrual basis; the bank books it only when actually received.
• Classification depends on how long the account is overdue and on the borrower's condition.
• Categories run from standard to sub-standard, doubtful and loss assets.
• Provisioning rises as asset quality worsens, so loss assets need the highest provision.
• SMA categories flag early stress, based on the number of days an account is overdue.
• Early recognition lets lenders act before the account becomes an NPA.
• Resolution follows the RBI prudential framework, with timelines and conditions for an implementation plan.
• SARFAESI lets secured creditors enforce security without going to court, subject to conditions in the Act.
• DRTs hear recovery claims by banks and financial institutions above the threshold set in law.
• ARCs buy stressed assets from lenders and work to resolve or recover them.
• Always write the rule, apply it to the facts, then conclude.

Common mistakes

• Treating exactly 90 days overdue as NPA. Fix: The test is overdue for more than 90 days. Day 90 is still standard and day 91 is NPA.
• Counting the 12 months for doubtful from the date of loan sanction or disbursal. Fix: Count 12 months from the date the account became NPA. Sub-standard to doubtful is measured within the NPA period.
• Treating every overdue account as an NPA. Fix: Overdue is the starting point. The account becomes an NPA only after the overdue period crosses 90 days, or the account is out of order.
• Calling a loan an NPA on exactly day 90. Fix: The rule says more than 90 days. At 90 days the account is still performing.
• Applying 100% to the whole doubtful asset Fix: Always split the outstanding into secured and unsecured parts before applying any rate.
• Taking the secured portion as the full market value of security even when it exceeds the outstanding Fix: The secured portion cannot be more than the outstanding. Unsecured portion = outstanding − realisable value, and it is zero when security covers the loan fully.
• Saying SARFAESI works for all loans, secured or unsecured. Fix: Always write that SARFAESI enforces a security interest and needs a secured debt.
• Treating DRT and SARFAESI as the same thing. Fix: Say that SARFAESI is out-of-court enforcement by the creditor, while a DRT is a tribunal that adjudicates claims and also hears borrower challenges.

Exam tips

• Write the day count in your answer. Examiners award marks for showing the 90-day test and the date arithmetic.
• Use the structure provision, facts, conclusion. State the norm, apply the dates, then give a one-line classification.
• Remember both halves of the topic. Many answers cover classification but forget the income recognition effect.
• Quote the norm as 'more than 90 days', and mention that RBI revises circulars, so you rely on the current master direction in your material.
• For long answers, add a short note on upgradation and loss asset identification to round out the answer.
• Write the definition first, then the 90 days test, then the conclusion. Case questions reward all three.
• For cash credit and overdraft cases, list the out of order conditions and tick off each one against the facts.
• Always count days carefully, using the actual days in each month.