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

Kaveri Agro availed a cash credit limit of Rs 50 lakh from a bank. The account has remained 'out of order' because the outstanding balance has stayed continuously above the sanctioned limit and there were no credits to cover the interest debited during the last quarter. For asset classification, which is the correct position?

The account is an NPA. For cash credit or overdraft facilities, an account is out of order when the balance stays continuously above the sanctioned limit or drawing power, or there are no credits covering interest, for more than 90 days. Such an account is classified as non-performing.

  1. AAccount is standard as long as the principal is within 5 years of sanction
  2. BAccount is NPA because the outstanding balance remained continuously in excess of the sanctioned limit or drawing power for more than 90 daysCorrect
  3. CAccount is NPA only after 180 days of being out of order
  4. DAccount is NPA only if the borrower has defaulted on a term loan elsewhere

Explanation

For cash credit and overdraft accounts, 'out of order' means the outstanding balance remains continuously in excess of the sanctioned limit or drawing power, or there are no credits for 90 days to cover interest debited. Such an account is NPA. The 180-day option is wrong because the norm is 90 days.

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