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CS Professional · Banking and Insurance - Laws and Practice · Analysis of Financial Statements of Banks

Shree Laxmi Cooperative Industries has a term loan from a commercial bank. The interest on this loan has remained overdue and unpaid for more than 90 days as at the balance sheet date. Under the RBI prudential norms, how should the bank classify this account?

The account is a non-performing asset. RBI prudential norms treat a term loan as an NPA when interest or an instalment of principal stays overdue for more than 90 days, so the bank must classify it as NPA and stop recognising income on it.

  1. AStandard asset
  2. BSpecial mention account only, with no NPA tag
  3. CNon-performing assetCorrect
  4. DRestructured asset by default

Explanation

Under the RBI income recognition and asset classification norms, a term loan is an NPA when interest or instalment of principal remains overdue for more than 90 days. Since interest is overdue beyond 90 days, the account is an NPA. SMA status applies only to stress periods up to 90 days.

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