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

Under RBI norms, a loan to Gopal Agro that had been classified as NPA is now fully regularised, with all arrears of interest and principal paid. How should the bank treat the account?

The bank can upgrade the account to standard. Under RBI norms, an NPA may be reclassified as standard once the borrower has paid all arrears of interest and principal, so the account no longer meets the NPA criteria.

  1. AIt can be upgraded to standard once all arrears are clearedCorrect
  2. BIt stays NPA permanently
  3. CIt must be written off
  4. DIt becomes a doubtful asset

Explanation

RBI norms allow an NPA account to be upgraded to standard when all arrears of interest and principal are paid by the borrower. It need not remain NPA permanently. Writing off or making it doubtful is inconsistent with full repayment of arrears.

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