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

A bank classified the term loan of Mehta Engineering as a substandard asset on 1 April 2024. Mehta Engineering made no repayments afterwards. Under the RBI norms, when does the asset become a doubtful asset?

The asset becomes doubtful after remaining substandard for 12 months. RBI norms treat an NPA as substandard for up to 12 months and as doubtful once it stays non-performing beyond that period, so Mehta Engineering's loan turns doubtful after 1 April 2025.

  1. AAfter it remains substandard for 6 months
  2. BAfter it remains substandard for 12 monthsCorrect
  3. CAfter it remains substandard for 24 months
  4. DImmediately, as no repayment was made

Explanation

A substandard asset is one that has been NPA for a period not exceeding 12 months. If it stays NPA beyond 12 months, it becomes doubtful. Hence it moves to doubtful after 1 April 2025. The 6 months and 24 month options are wrong periods.

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