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

Kaveri Textiles' cash credit account with a bank has been 'out of order' since the sanctioned limit was exceeded and the outstanding balance remained continuously above the limit for more than 90 days. How should the bank treat the account under the IRAC norms?

The account should be classified as an NPA. A cash credit account that remains out of order, with the balance continuously above the limit or drawing power for more than 90 days, is non-performing. A borrower's promise or a 180-day wait does not alter this.

  1. AClassify it as an NPA, because an out-of-order account for more than 90 days is non-performingCorrect
  2. BKeep it as a standard asset until 180 days pass
  3. CClassify it as a standard asset if the borrower promises to repay
  4. DClassify it as a loss asset immediately

Explanation

For cash credit/overdraft, an account is 'out of order' if outstanding stays continuously above the sanctioned limit or drawing power, or if there are no credits for 90 days covering interest. Once out of order for more than 90 days, it is an NPA. A borrower's promise does not prevent classification, and loss asset status needs specific conditions.

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