Answer: Non-performing asset is a loan account which is in default. In other words, a loan account, on which instalments of principle and/or interest is overdue and has not been paid.

Non-performing Asset means a loan account which has been classified as Non-performing asset by a bank or financial institution in accordance with the directions and guidelines issued by Reserve Bank of India. If a bank or financial institution is regulated by some other authority or body, then by the directions and guidelines issued by such authority. Section 2(1)(o) of Sarfaesi Act, 2002

In the case of Keshavlal Khemchand & Sons Pvt. Ltd. Versus Union of India reported in (2015)4 Supreme Court Cases Page 770, Supreme Court has held that under the various circulars of Reserve Bank of India and also other Regulators, NPA is an asset which ceases to generate income for the creditors (banks or financial institutions) i.e. a loan or advances made by the banks on which interest and/or instalment of principal amount is overdue for a specified period depending upon the nature of the loan or advance-whether the loan or advance is a term loan or agricultural loan, money advanced on bill discounting, etc.

Answer: Reserve Bank of India’s Master Circular No. RBI/2022-23/15 == DOR.STR.REC.4/21.04.048/2022-23 dated 01.04.2023 on Prudential norms on Income Recognition, Asset classification and Provisioning pertaining to Advances

Answer: According to the circular of Reserve Bank of India about Non-performing Assets (NPA), an asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. The said circular of Reserve Bank of India further provides that--- 

A non-performing asset (NPA) is a loan or an advance where;

1. interest and/ or instalment of principal remains overdue for a period of more than 90 days in respect of a term loan,
2. the account remains ‘out of order’ in respect of an Overdraft/Cash Credit (OD/CC),
3. the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,
4. the instalment of principal or interest thereon remains overdue for two crop seasons for short duration crops,
5. the instalment of principal or interest thereon remains overdue for one crop season for long duration crops,
6. the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction undertaken in terms of the Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021 as amended from time to time.
7. in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.

Answer: According to the circular of Reserve Bank of India about Non-Performing Assets, an Overdraft/Cash credit loan account is treated as ‘out of order’ if:

1. The outstanding balance in the CC/OD account remains continuously in excess of the sanctioned limit/drawing power for 90 days, or

• The outstanding balance in the CC/OD account is less than the sanctioned limit/drawing power but there are no credits continuously for 90 days, or the outstanding balance in the CC/OD account is less than the sanctioned limit/drawing power but credits are not enough to cover the interest debited during the previous 90 days period1

Answer: According to the circular of Reserve Bank of India about Non-performing Assets, there are three categories of Non-performing Assets:-

1. Substandard Assets
2. Doubtful Assets
3. Loss Assets

Answer: According to the circular of Reserve Bank of India about Non-performing Assets, with effect from March 31, 2005, a substandard asset would be one, which has remained NPA for a period less than or equal to 12 months.

Answer: According to the circular of Reserve Bank of India about Non-performing Assets, with effect from March 31, 2005, an asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.

Answer: According to the circular of Reserve Bank of India about Non-performing Assets, a loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection, but the amount has not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

Answer: According to the circular of Reserve Bank of India about Non-performing Assets, the classification of an asset as NPA should be based on the record of recovery. Bank should not classify an advance account as NPA merely due to the existence of some deficiencies which are temporary in nature such as non-availability of adequate drawing power based on the latest available stock statement, balance outstanding exceeding the limit temporarily, non-submission of stock statements and non-renewal of the limits on the due date, etc.

Answer: According to the circular of Reserve Bank of India about Non-performing Assets, the loan accounts classified as NPAs may be upgraded as ‘standard’ asset only if entire arrears of interest and principal are paid by the borrower. In case of borrowers having more than one credit facility from a bank, loan accounts shall be upgraded from NPA to standard asset category only upon repayment of entire arrears of interest and principal pertaining to all the credit facilities.

Answer: According to the circular of Reserve Bank of India about Non-performing Assets, all the facilities granted by a bank to a borrower and investment in all the securities issued by the borrower will have to be treated as NPA and not the particular facility/investment or part thereof which has become irregular.