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

Sundaram Textiles Ltd has a term loan with Bharat Bank. Interest of Rs 4 lakh fell due on 31 March 2025 and remains unpaid. As on 30 June 2025 the account is still overdue for interest and no payment has been made since. Under the RBI prudential norms on asset classification, how should the loan be treated as on 30 June 2025?

The loan is a non-performing asset because interest has been overdue for more than 90 days (91 days here). The 90-day overdue rule applies to term loans. It is initially classified as sub-standard, not doubtful, since doubtful status requires a year as sub-standard.

  1. AStandard asset, since the overdue is less than 180 days
  2. BNon-performing asset, since interest has remained overdue for more than 90 daysCorrect
  3. CSub-standard asset only after 12 months of overdue
  4. DDoubtful asset, since no payment was received for 90 days

Explanation

A term loan becomes an NPA when interest or instalment remains overdue for more than 90 days. From 31 March to 30 June 2025 is 91 days, so the account is NPA. The 180-day option reflects an outdated or wrong threshold. Doubtful status needs 12 months in the sub-standard category.

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