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

A bank classified Mehta Engineering's term loan as NPA on 1 April 2023. The account has remained NPA since then, and on 31 March 2025 the bank's auditors check its category. As per the RBI norms, how should the asset be classified at that date, assuming no upgrade and not a loss asset?

The asset is a doubtful asset. A sub-standard asset is an NPA for up to 12 months, and after remaining in that category for 12 months it moves to doubtful. Here the account has been NPA for 24 months, so doubtful is correct.

  1. ASub-standard asset
  2. BDoubtful assetCorrect
  3. CStandard asset
  4. DSpecial mention account

Explanation

A sub-standard asset is one that has been NPA for a period not exceeding 12 months. An asset that remains in the sub-standard category for 12 months becomes doubtful. From 1 April 2023 to 31 March 2025 is 24 months, so it is doubtful. Calling it sub-standard ignores the 12-month limit.

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