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CMA Final · Risk Management in Banking and Insurance

Management of Non-Performing Assets (NPAs) for CMA Final

An NPA is a loan or advance on which the borrower has stopped paying as per RBI norms. The chapter covers how banks classify NPAs, provide for them, spot stress early, recover outside IBC, and use IBC, including Section 29A. Learn the rules, then apply them to short cases.

What this chapter covers

This chapter follows a loan from first stress to final resolution. You start with what makes an account an NPA and how banks classify it. Then you see the provisioning that hits profit and capital. After that, you look at early warning signals and special mention accounts, which are meant to catch stress before default. Last come the recovery routes: those outside the Insolvency and Bankruptcy Code, 2016 (IBC) and the corporate insolvency resolution process (CIRP) under IBC.

The chapter links closely to the rest of Paper 20B, Risk Management in Banking and Insurance. NPAs are the visible result of credit risk. So what you learn on credit appraisal, monitoring and risk measurement shows up here as cause and effect. The impact of NPAs on bank profit, capital and lending also connects to the paper's banking regulation themes.

Two parts of the chapter come from the statute. Section 10 of the IBC covers a corporate applicant starting CIRP. Section 29A decides who may submit a resolution plan. For these, read the exact wording. Questions often give a short fact pattern and ask whether a person is eligible or what happens next.

Paper 20B opens with Section A, which has 10 standalone MCQs and a case scenario with 5 MCQs, 2 marks each, with no negative marking. This chapter suits both. Classification norms, special mention stages and the conditions in Section 29A are crisp rules that convert into MCQs. They also suit case scenarios, where you must apply a rule to a borrower. In the written section, the same rules support application answers where you classify an account, assess its impact or advise on a recovery route. If you learn the conditions exactly, this is a high-return chapter.

Management of Non-Performing Assets (NPAs): topics in the order to study them

  1. 1NPA Concept and Asset Classification NormsEvery later topic depends on knowing what an NPA is and how accounts move between categories.
  2. 2Provisioning Norms and Impact of NPAs on BanksProvisioning follows classification, and it shows how NPAs reduce profit and capital.
  3. 3Early Warning Signals and Special Mention AccountsThis goes back to the stage before default and shows how banks try to prevent NPAs.
  4. 4Resolution and Recovery Mechanisms outside IBCLearn the non-IBC routes first so you can compare them with IBC.
  5. 5Corporate Insolvency Resolution Process under IBCThis is the main statutory route, including how CIRP starts under Section 10.
  6. 6Section 29A: Persons Ineligible as Resolution ApplicantIt comes last because it applies to the resolution plan stage of CIRP and needs its conditions learned exactly.

How to prepare Management of Non-Performing Assets (NPAs)

Treat this chapter as a mix of rules to memorise and rules to apply. Memorise the conditions, then practise them on short facts.

  1. Read the chapter in the study order above. Make a one-page flow of a loan going from standard to special mention to NPA to resolution.
  2. Learn the asset categories and their definitions in your own words. Check each against your ICMAI study material and the current RBI norms, because thresholds and percentages must be exact.
  3. Do a few provisioning and impact exercises. State clearly which category the account is in before you compute anything.
  4. For Section 29A, list clauses (a) to (j) on one page. Next to each, note its condition, time limit and exception.
  5. Read Section 10 of the IBC. Note who files, what must accompany the application, the 14-day decision period and the 7-day window to fix defects. Note that CIRP starts on the date of admission.
  6. Write three or four short fact patterns yourself, such as a promoter whose other company has an NPA, and decide eligibility with reasons.
  7. Finish with MCQ practice, then one written answer that recommends a recovery route with reasons.

Common mistakes in Management of Non-Performing Assets (NPAs)

  • Mixing up the NPA ground in Section 29A(c) with a simple NPA label

    Fix: Recall the full condition: the account is classified an NPA at the time of plan submission, at least one year has lapsed from classification to CIRP commencement, and the overdue amounts have not been paid. Payment of overdue amounts with interest and charges before submission restores eligibility.

  • Forgetting the exceptions and provisos in Section 29A

    Fix: Note the proviso beside each clause, such as the two-year period after release under clause (d), and the financial entity exceptions.

  • Ignoring the words 'jointly or in concert' and 'connected person'

    Fix: In every fact pattern, test the applicant, anyone acting with them and their connected persons, such as promoters and holding, subsidiary, associate or related parties.

  • Treating provisioning and classification as one topic

    Fix: Classify first, then apply the provisioning rule for that category. Show the two steps separately in written answers.

  • Writing the CIRP start date wrongly

    Fix: Under Section 10, CIRP starts from the date of admission of the application, not the date of filing.

  • Quoting thresholds and percentages from memory

    Fix: Check numbers against the study material for your term. Where a case gives the figures, use those and show your working.

Last-day revision: Management of Non-Performing Assets (NPAs)

  • An NPA is classified by the bank under RBI norms. Recall the exact categories and definitions from your study material.
  • Special mention stages come before NPA status and are meant for early action.
  • Provisioning reduces profit, so higher NPAs weaken profitability and capital.
  • CIRP under Section 10 begins from the date the Adjudicating Authority admits the application.
  • Under Section 10, the Adjudicating Authority decides within 14 days: admit if complete, reject if incomplete.
  • Before rejecting an incomplete application, the applicant gets notice to fix defects within 7 days.
  • A Section 10 application must include a special resolution of shareholders, or approval by at least three-fourths of partners.
  • Section 29A bars a person, or anyone acting jointly or in concert with them, from submitting a resolution plan.
  • Section 29A(a) to (j) covers undischarged insolvents, wilful defaulters, certain NPA holders, convicted persons, disqualified directors and more.
  • For the NPA ground in 29A(c), the account must be an NPA for at least one year before CIRP begins. The person can still be eligible by paying all overdue amounts with interest and charges before submitting the plan.
  • A person with a connected person who is ineligible under clauses (a) to (i) is also ineligible under clause (j).
  • Section 29A(h) applies to a guarantee given to a creditor that has been invoked and remains unpaid in full or part.

Management of Non-Performing Assets (NPAs) practice questions

Management of Non-Performing Assets (NPAs) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Management of Non-Performing Assets (NPAs): frequently asked questions

Is the Management of NPAs chapter important for CMA Final Paper 20B?

Yes. Its rules suit both the MCQs and the case scenario in Section A, and they support application-based written answers. Section 29A and Section 10 are especially easy to test through fact patterns.

Do I need to memorise all clauses of Section 29A?

You should know the headline condition of each clause (a) to (j), plus the main provisos and time limits. Exam questions usually ask you to apply a clause to a given fact, so understanding matters more than word-for-word recall.

Can a person with an NPA account still submit a resolution plan?

Under Section 29A(c), the NPA ground applies only when the account was an NPA at plan submission and at least one year passed from classification to CIRP commencement. Even then, the person is eligible if they pay all overdue amounts with interest and charges before submitting the plan. There are further exceptions, such as for certain financial entities.

What happens after a corporate applicant files under Section 10?

The Adjudicating Authority must decide within 14 days. It admits the application if complete, or rejects it if incomplete, after giving 7 days to fix defects. CIRP begins on the date of admission.