📚 JAIIB 2025 • PPB • Module B (Ch 7 of 20) • Unit 28

Non-Performing Assets / Stressed Assets

NPA: 90 days overdue. IRAC norms (Narasimham Committee). Classification: substandard (≤12 months), doubtful (>12 months), loss. Provisioning: standard 0.25%, substandard 15/25%, doubtful 25-100%. Income: cash basis for NPA. SMA-0/1/2. Resolution framework. Restructuring. Write-off.

⏱ 18 min read🎯 High Exam Weightage🧠 5 Memory Tricks⚡ 8 Flash Cards

Banky Tackles NPAs! ⚠️

NPAs are the biggest headache for banks — they erode profitability, eat into capital, and damage reputation. Understanding IRAC norms (income recognition, asset classification, provisioning) is essential for every banker!

“Sir, a term loan EMI is overdue for 95 days. Is it NPA now? What provision do I make?” ⚠️

🤔

Section 1 of 9

Why Read This Chapter?

NPAs destroy bank health — early identification + proper classification + adequate provisioning = survival

🧑‍💼

When does a loan become NPA?

👨‍🏫

A loan becomes NPA when it ceases to generate income. Specifically: (1) Term loan: interest/principal overdue for >90 days. (2) CC/OD: account out of order for 90 days (excess over limit OR no credits for 90 days OR credits insufficient to cover interest for 90 days). (3) Bills: overdue >90 days. (4) Agriculture: 2 crop seasons (short) or 1 crop season (long). Then classify: substandard (NPA ≤12 months), doubtful (NPA >12 months), loss (uncollectible). Income on NPAs = cash basis only (not accrual).

🎯

Exam Marks

4-5 questions — NPA = all of the above (90 days + out of order + bills), standard provision for agri/SME = 0.25% (not 0.10/0.40/1.00), substandard = ≤12 months (not 6/90 days/180 days), willful defaulter substandard provision = 25% (not 10/15/20). HIGHEST weightage in Module B!

💼

Career Growth

NPA management is the most critical banking skill — it determines bank profitability and your career

🌍

Real Life

Understanding NPA norms helps you know what happens when you or your business defaults on a loan

💪

Section 2 of 9

How Will It Benefit You?

Real career advantages

🧑‍💼

Give me a real scenario!

👨‍🏫

⚠️ Scenario: A CC account has been continuously in excess of drawing power for 95 days. Classification: NPA (out of order >90 days). Category: Substandard (NPA for <5 months, i.e., ≤12 months). Provision: 15% of outstanding (or 25% if willful defaulter). Income: reverse accrued interest and recognize only on cash basis going forward. Report to CRILC if ≥₹5 Cr. Manager: ‘Classify, provide, and monitor!’ 🌟

📖

Section 3 of 9

What Is This Chapter About?

30-second summary

🧑‍💼

Quick version, sir!

👨‍🏫

This chapter covers: NPA Definition: Asset ceases to generate income. Term loan: >90 days overdue. CC/OD: out of order 90 days. Bills: >90 days overdue. Agriculture: 2 crop seasons (short)/1 season (long). Out of Order: Outstanding continuously >sanctioned limit/DP for 90 days, OR no credits for 90 days, OR credits insufficient to cover interest for 90 days. Income Recognition: Standard assets: accrual basis. NPAs: cash basis only. Reverse accrued interest on NPA classification. Asset Classification: Substandard (NPA ≤12 months), Doubtful (NPA >12 months in substandard), Loss (uncollectible). Provisioning: Standard: 0.40% (general), 0.25% (agri direct/SME) (exam PYQ!). Substandard: 15% (secured), 25% (unsecured/willful defaulter — exam PYQ!). Doubtful: secured portion 25-40-100% by age; unsecured 100%. Loss: 100%. SMA Categories: SMA-0 (1-30 days), SMA-1 (31-60 days), SMA-2 (61-90 days). Early warning. Resolution Framework: Early identification → review period (30 days from SMA) → resolution plan within specified period → additional provisioning for delay. Restructuring: Downgrade to NPA/substandard. Upgrade conditions vary by borrower size. Additional finance may be standard during monitoring. Write-off: Technical write-off at HO level (removed from books but recovery efforts continue). Gross NPA excludes HO write-offs.

📚

Section 4 of 9

Key Definitions — Banky Asks, Mentor Explains

Every term explained like you’re 10

Critical Term

NPA Definition

Loan ceases to generate income — 90 days overdue (term loan/bills), out of order 90 days (CC/OD), 2/1 crop seasons (agri)

90 days

Banky’s Understanding: NPA: Asset ceases to generate income. (1) Term loan: interest/principal overdue >90 days. (2) CC/OD: out of order for 90 days (excess over limit/DP continuously 90 days, OR no credits 90 days, OR credits < interest for 90 days). (3) Bills purchased/discounted: overdue >90 days. (4) Agriculture short duration: overdue for 2 crop seasons. (5) Agriculture long duration: overdue for 1 crop season. (6) Securitisation: liquidity facility outstanding >90 days. (7) Derivatives: positive MTM unpaid >90 days. When = ALL of the above (exam PYQ!).

🧒 Analogy: NPA is like a rental property where the tenant stops paying rent for 3 months (90 days). The property (loan) is no longer generating income for the landlord (bank). Time to take action!

Critical Term

Asset Classification

Substandard (NPA ≤12 months), Doubtful (>12 months in substandard), Loss (uncollectible) — 3 categories

3 categories

Banky’s Understanding: 3 NPA categories: (1) Substandard: NPA for ≤12 months (exam PYQ! — not 6 months/90 days/180 days). Credit weaknesses present. Distinct possibility of loss. (2) Doubtful: Remained in substandard for >12 months. Collection highly questionable. Further classified by age: D1 (up to 1yr), D2 (1-3yr), D3 (>3yr). (3) Loss: Identified as uncollectible by bank/auditor/RBI. Little salvage value. Should be written off. Classification based on record of recovery — security/net worth NOT considered for NPA classification.

🧒 Analogy: Like a patient’s condition: Substandard = sick but treatable (≤12 months). Doubtful = critically ill, recovery uncertain (>12 months). Loss = terminal — write off the case (uncollectible).

Critical Term

Provisioning Norms

Standard: 0.25-0.40%. Substandard: 15% (secured), 25% (unsecured/willful). Doubtful: 25-100%. Loss: 100%.

Key percentages

Banky’s Understanding: Provisioning: Standard assets: 0.40% (general), 0.25% (direct agri + SME) (exam PYQ!), 1% (commercial real estate), 0.75% (CRE-RH). Substandard: 15% (secured), 25% (unsecured). Willful defaulter: 25% even if secured (exam PYQ! — not 10/15/20). Doubtful — secured portion: D1 (≤1yr): 25%, D2 (1-3yr): 40%, D3 (>3yr): 100%. Unsecured portion of doubtful: 100%. Loss: 100%. Provisioning Coverage Ratio = total provisions / gross NPAs.

🧒 Analogy: Provisioning = setting aside money for expected losses. Like insurance premiums: healthy patient (standard) = small premium (0.25-0.40%). Sick patient (substandard) = medium premium (15-25%). Critical patient (doubtful) = high premium (25-100%). Terminal (loss) = full payout (100%).

Critical Term

Income Recognition

Standard = accrual basis. NPA = CASH basis only. Reverse accrued interest on classification as NPA.

Cash basis

Banky’s Understanding: Income recognition: Standard assets: accrual basis (recognize interest as it accrues). NPAs: cash basis only (recognize interest ONLY when actually received). On classification as NPA: reverse all accrued interest not yet received. Interest already debited but not collected = reverse. Appropriation of recovery in NPAs: first towards principal, then interest (unless otherwise stipulated). Restructured standard: accrual. Restructured NPA: cash basis.

🧒 Analogy: Accrual = counting your chickens before they hatch (record income when due). Cash basis = counting only after they hatch (record only when received). When a loan becomes NPA, stop counting unhatched eggs and reverse the ones you already counted!

Critical Term

SMA & Resolution Framework

SMA-0 (1-30 days), SMA-1 (31-60), SMA-2 (61-90) — early warning. Resolution plan within specified period or additional provisioning.

3 SMA levels

Banky’s Understanding: SMA (Special Mention Account): Early stress indicators. SMA-0: 1-30 days overdue. SMA-1: 31-60 days overdue. SMA-2: 61-90 days overdue. Reported to CRILC. Resolution Framework: Review period starts from SMA classification (or earlier). Banks must implement resolution plan within specified period from default. If delayed: additional provisioning (20% at 180 days, 35% at 365 days of default). Resolution options: restructuring, change in ownership, sale to ARC, IBC referral. Restructuring: Account downgraded to NPA/substandard. Upgrade possible after monitoring period with satisfactory performance.

🧒 Analogy: SMA is like a health monitoring system: SMA-0 = mild fever (early warning). SMA-1 = moderate fever (concern). SMA-2 = high fever (about to become NPA). Act quickly — the longer you wait, the higher the provisioning penalty!

🎓

Section 5 of 9

Chapter Explained in Simple Stories

So easy even Banky’s nephew understands

🧑‍💼

Sir, explain this like a story!

👨‍🏫

Three bite-sized stories coming up — impossible to forget! 🚀

⚠️ Block 1: NPA Definition & Classification

NPA: 90 days overdue (term loan/bills), out of order 90 days (CC/OD), 2/1 crop seasons (agri). When = ALL (exam PYQ!).

Classification: Substandard (≤12 months — exam PYQ!), Doubtful (>12 months), Loss (uncollectible).

Income: Standard = accrual. NPA = cash basis only. Reverse accrued interest.

SMA: 0 (1-30 days), 1 (31-60), 2 (61-90). Early warning → CRILC reporting.

Key Term

Substandard = ≤12 Months

A substandard asset is one which has remained NPA for a period less than or equal to 12 months. Not 6 months, not 90 days, not 180 days.

🧑‍💼 Banky: “NPA=90 days, substandard≤12M, doubtful>12M, loss=uncollectible, income=cash basis! ⚠️”

💰 Block 2: Provisioning & Resolution

Standard: 0.40% (general), 0.25% (agri direct/SME) (exam PYQ!).

Substandard: 15% secured, 25% unsecured. Willful defaulter: 25% (exam PYQ!).

Doubtful: Secured: D1=25%, D2=40%, D3=100%. Unsecured: 100%.

Loss: 100%. Write-off: Technical at HO (recovery continues).

Resolution: Plan within specified period. Delay = additional provisioning (20%→35%).

Key Term

Agri/SME = 0.25%

Provision for standard assets: direct advances to agriculture and SME = 0.25% (not 0.10%, 0.40%, or 1.00%). General category = 0.40%. CRE = 1.00%.

🧑‍💼 Banky: “Standard agri/SME=0.25%, substandard=15/25%, willful=25%, loss=100%, delay=extra provision! 💰”

🎯

Section 6 of 9

Exam Angle — Every Testable Point

All facts, numbers, definitions JAIIB tests

✅ Must-Know Facts — Highest Probability

NPA = ALL conditions (90 days overdue + out of order + bills >90 days) — exam PYQ!
Standard provision: agri direct/SME = 0.25% (not 0.10/0.40/1.00!) — exam PYQ!
Substandard = NPA for ≤12 months (not 6 months/90 days/180 days) — exam PYQ!
Willful defaulter substandard provision = 25% (not 10/15/20) — exam PYQ!
Doubtful = remained in substandard for >12 months | 3 sub-categories D1/D2/D3
Loss = uncollectible, little salvage value — provision 100%
Income: standard = accrual, NPA = cash basis only — reverse accrued interest
Out of order: excess >DP for 90 days OR no credits 90 days OR credits < interest 90 days
SMA-0 (1-30 days), SMA-1 (31-60), SMA-2 (61-90) — reported to CRILC
Agriculture NPA: 2 crop seasons (short duration), 1 crop season (long)
Restructured accounts downgraded to NPA/substandard | Upgrade after monitoring
Write-off at HO level = technical (recovery continues) | Gross NPA excludes HO write-offs
Security/net worth NOT considered for NPA classification — only record of recovery
Additional provisioning for delayed resolution: 20% at 180 days, 35% at 365 days

📝 Previous Year Questions

Q: When will a loan be NPA:

A: (d) All of the above (90 days + out of order + bills) ✅

Q: Standard provision agri/SME:

A: (d) 0.25% ✅

Q: Substandard = NPA for:

A: (a) ≤12 months ✅

Q: Willful defaulter substandard provision:

A: (c) 25% ✅

🧠

Section 7 of 9

Memory Tricks That STICK

Lock every fact permanently

🧑‍💼

Too many facts! Help! 🤯

👨‍🏫

These tricks will lock everything in forever! 🧲

🧠 Trick 1 — 90 Days = NPA

Universal rule

90 DAYS = NPA! Term loan: overdue >90 days CC/OD: out of order 90 days Bills: overdue >90 days (Agriculture: crop seasons)

The 90-day norm is the universal threshold for NPA classification (except agriculture which uses crop seasons).

🧠 Trick 2 — Substandard ≤ 12M

Classification

SUBSTANDARD = NPA ≤ 12 MONTHS DOUBTFUL = NPA > 12 MONTHS LOSS = UNCOLLECTIBLE (12 months is the dividing line!)

Substandard: NPA for up to 12 months. After 12 months in substandard, it becomes doubtful. Loss is when identified as uncollectible.

🧠 Trick 3 — Provisioning Map

Key percentages

Standard: 0.25% (agri/SME), 0.40% (general) Substandard: 15% (secured), 25% (unsecured/willful) Doubtful: 25→40→100% (by age) Loss: 100%!

Remember the provisioning ladder: standard (small), substandard (medium), doubtful (increasing with age), loss (full).

🧠 Trick 4 — SMA 0-1-2

Early warning

SMA-0 = 1 to 30 days overdue SMA-1 = 31 to 60 days SMA-2 = 61 to 90 days (After 90 = NPA!)

SMA categories provide early warning before the loan becomes NPA at 90 days. Each level triggers increased monitoring.

🧠 Trick 5 — Cash Basis for NPA

Income recognition

Standard = ACCRUAL (count when due) NPA = CASH only (count when received) On NPA classification: REVERSE all accrued interest!

When a loan becomes NPA, switch from accrual to cash basis for income recognition and reverse any interest already accrued but not received.

📊

Section 8 of 9

Visual Summary — Chapter Map

Entire chapter in one diagram

⚡

Section 9 of 9

Flash Revision — Last-Minute Cards

Read these 10 minutes before exam

🧑‍💼

EXAM IN 15 MINUTES! 😰

👨‍🏫

8 cards — read twice, you’ll get every question right! 💪

NPA

90 days overdue | Out of order | Bills >90 days

Ceases to generate income | Agriculture: crop seasons

Substandard

NPA for ≤12 months

Provision: 15% secured | 25% unsecured/willful

Doubtful

NPA >12 months in substandard

D1 (≤1yr): 25% | D2 (1-3yr): 40% | D3 (>3yr): 100%

Loss

Uncollectible | Provision 100%

Write-off — recovery efforts continue

Standard Provision

0.25% agri/SME | 0.40% general | 1% CRE

Not 0.10%! Exam trap!

Income

Standard: accrual | NPA: cash basis only

Reverse accrued interest on NPA classification

SMA

0 (1-30d) | 1 (31-60d) | 2 (61-90d)

Early warning | Report to CRILC

Resolution

Plan within specified period | Delay = extra provision

20% at 180 days | 35% at 365 days

⚡ Chapter 28 Complete — Non-Performing Assets / Stressed Assets

NPA: 90 days overdue (all types) | Out of order (CC/OD) | Agriculture: crop seasons
Classification: Substandard (≤12M), Doubtful (>12M), Loss (uncollectible)
Provisioning: Standard 0.25-0.40% | Substandard 15/25% | Doubtful 25-100% | Loss 100%
Income: NPA = cash basis only, reverse accrued | SMA: 0/1/2 early warning | Resolution framework

Banky says: “90 days=NPA, substandard≤12M, agri/SME=0.25%, willful=25%, cash basis, SMA 0/1/2!” 🎉⚠️

You now understand NPA management — the most critical topic in banking. Identify early, classify correctly, provide adequately, resolve quickly! 💪

Do You Like it ? Share it to Your Friends