Banking and Insurance - Laws and Practice · Performing and Non Performing Assets

Provisioning Norms for Advances: Standard, Sub-Standard, Doubtful and Loss Assets

Updated 11 October 2026 · Fact-checked

Provisioning norms are the RBI rules on how much a bank must set aside from profit against loans. Standard assets carry a small general provision. Sub-standard assets need 15% of the outstanding. Doubtful assets need 100% on the unsecured portion plus 25%, 40% or 100% on the secured portion. Loss assets need 100%.

Understand Provisioning Norms for Advances

A bank lends public deposits. Some loans will not come back in full. If the bank waits until a loan is written off to record the loss, its profit and net worth look better than they really are. Provisioning fixes this. The bank charges an amount to its profit and loss account in advance, to cover the expected loss.

The amount depends on the asset classification of the loan. Classification comes first, provisioning second. A loan is a standard asset while it performs. It becomes a non-performing asset (NPA) when interest or principal remains overdue for more than 90 days. It is a sub-standard asset while it has been an NPA for up to 12 months. It becomes a doubtful asset once it has remained in the sub-standard category for 12 months. A loss asset is one the bank, its internal or external auditors or the RBI inspectors have identified as uncollectable.

The worse the asset, the higher the rate. For doubtful assets, the rate also depends on how much of the loan is covered by security. The secured portion is the part of the outstanding that is covered by the realisable value of the security. The unsecured portion is the rest. The unsecured portion of a doubtful asset needs full provision. The secured portion needs a rate that rises with the age of the doubtful asset.

Provisions are also made on standard assets. These are general provisions at a low rate, because even good loans carry some hidden risk.

The Provision Coverage Ratio (PCR) shows how well a bank has covered its bad loans. It is the provisions held against NPAs divided by gross NPAs. A higher PCR means a stronger cushion. The RBI has also moved towards an expected credit loss approach for banks. Check the latest ICSI study material and RBI directions to see which version is in your syllabus.

Key rules to remember

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.

How to solve Provisioning Norms for Advances questions

Use the same sequence for any provisioning question. Classify first, split into secured and unsecured parts, apply the rate, then total.

1Read the facts and note the outstanding balance of each account and the realisable value of its security.
2Classify each account as standard, sub-standard, doubtful or loss, using the facts given (period of NPA status, auditor or RBI identification).
3For a doubtful asset, find the age as a doubtful asset (up to 1 year, 1 to 3 years, or over 3 years).
4Split a doubtful asset into the secured portion (the lower of outstanding and realisable value of security) and the unsecured portion (the balance).
5Apply the rates: 100% on the unsecured portion and the age-based rate on the secured portion for doubtful assets. For sub-standard, apply 15% on the total outstanding, or the higher rate where the exposure is unsecured as the norms require.
6Add up the provisions account by account. Keep standard asset provisions separate from NPA provisions.
7If asked for PCR, divide only the NPA provisions by gross NPAs and express it as a percentage.
8Write a one-line conclusion stating the total provision to be charged and the effect on profit.

Quickest way: Rate ladder method

When to use it: Use it when the question gives several accounts and you have limited time.

Memorise the ladder: Standard 0.40% (0.25% for agriculture and SME), Sub-standard 15%, Doubtful secured 25% then 40% then 100%, doubtful unsecured 100%, Loss 100%.
Underline the outstanding, the security value and the age of the doubtful asset in the question.
For each doubtful account, compute secured part × rate, then add the unsecured part in full.
Write the results in a small two-column list (account, provision) and total it.
Check the sum against the outstanding: provision should never exceed the outstanding.

Common mistakes in Provisioning Norms for Advances

Applying 100% to the whole doubtful asset
Students remember that the unsecured portion needs 100% and forget the secured portion has its own rate.
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
Students use the security value directly in the formula.
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.
Counting the age of a doubtful asset from the date of disbursement
The word 'period' is read as the loan period.
Fix: Count the age from the date the account was classified as doubtful. The slab depends on how long it has remained doubtful.
Including standard asset provisions in the Provision Coverage Ratio
Students add up all provisions in the balance sheet.
Fix: PCR uses only provisions held against NPAs, divided by gross NPAs.
Using the same rate for all standard assets
Students remember only the 0.40% general rate.
Fix: Remember the exceptions: 0.25% for direct agriculture and SME, 0.75% and 1.00% for real estate categories. Use the rate that matches the facts, and say so in your answer.
Writing only numbers with no classification reasoning
Students think a descriptive paper is the same as a numerical one.
Fix: Give a one-line reason for each classification, then the rate, then the amount. The paper rewards provision, analysis and conclusion.

Worked examples

Example 1

A bank has an advance of ₹80,00,000 outstanding to a borrower. The account was classified as doubtful 2 years ago. The realisable value of the security is ₹50,00,000. Compute the provision required.

Show the solution

Classification: the account has been doubtful for 2 years, so it falls in the 1 to 3 years slab. The secured portion rate is 40%.
Secured portion = ₹50,00,000 (realisable value of security, which is less than the outstanding).
Unsecured portion = ₹80,00,000 − ₹50,00,000 = ₹30,00,000.
Provision on secured portion = 40% × ₹50,00,000 = ₹20,00,000.
Provision on unsecured portion = 100% × ₹30,00,000 = ₹30,00,000.
Total provision = ₹20,00,000 + ₹30,00,000 = ₹50,00,000.

Answer: The bank must provide ₹50,00,000 against this account.

Example 2

A bank's advances are: general standard assets ₹400 crore; direct agriculture standard assets ₹100 crore; sub-standard assets (not ab-initio unsecured) ₹20 crore; a doubtful asset (doubtful for under 1 year) with outstanding ₹10 crore and security realisable at ₹6 crore; loss assets ₹2 crore. Compute the total provision and the Provision Coverage Ratio. Use the rates 0.40% and 0.25% for the standard assets.

Show the solution

General standard assets: 0.40% × ₹400 crore = ₹1.60 crore.
Direct agriculture standard assets: 0.25% × ₹100 crore = ₹0.25 crore.
Sub-standard assets: 15% × ₹20 crore = ₹3.00 crore.
Doubtful asset: secured portion ₹6 crore × 25% = ₹1.50 crore. Unsecured portion = ₹10 crore − ₹6 crore = ₹4 crore × 100% = ₹4.00 crore. Total = ₹5.50 crore.
Loss assets: 100% × ₹2 crore = ₹2.00 crore.
Total provision = 1.60 + 0.25 + 3.00 + 5.50 + 2.00 = ₹12.35 crore.
NPA provisions = 3.00 + 5.50 + 2.00 = ₹10.50 crore. Gross NPAs = 20 + 10 + 2 = ₹32 crore.
PCR = 10.50 ÷ 32 × 100 = 32.81% (rounded).

Answer: Total provision is ₹12.35 crore. The Provision Coverage Ratio is about 32.81%.

Exam tips

Write the rate ladder at the top of your answer sheet in the reading time, then use it for every account.
Show the secured and unsecured split as separate lines. Marks are given for each step even if the final total is wrong.
If a question says 'discuss' or 'explain', add a short para on why provisioning matters: true profit, capital strength and depositor protection.
State your assumption when the facts do not give the rate category, for example 'assuming a general standard asset at 0.40%'.
Link the topic to asset classification. A question on provisioning often tests whether you can first classify the account correctly.

Practice questions from Performing and Non Performing Assets

Provisioning Norms for Advances in other exams

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

Provisioning Norms for Advances: frequently asked questions

What is the provision for a sub-standard asset?

A sub-standard asset needs a provision of 15% of the total outstanding. A higher rate of 25% applies to exposures that are ab-initio unsecured. A rate of 20% applies to unsecured exposure in infrastructure accounts where certain escrow-type safeguards exist, as set out in the RBI norms.

How do I calculate the provision for a doubtful asset?

Split the outstanding into secured and unsecured portions. Provide 100% on the unsecured portion. On the secured portion, provide 25% if the asset has been doubtful for up to one year, 40% for one to three years, and 100% beyond three years. Add the two figures.

What is the Provision Coverage Ratio?

It is the total provisions held against NPAs divided by gross NPAs, shown as a percentage. It tells you how much of the bad loans the bank has already covered by provisions. A higher ratio means a stronger cushion.

Is a loss asset always written off?

The norms say a loss asset should be written off. If the bank keeps it on its books for any reason, it must still provide 100% of the outstanding.