3rd September



As per the recommendations made by the committee on the Financial System (Chairman: M. Narsingham), RBI introduced prudential norms for income recognition, asset classification and provisioning for the advances portfolio of the banks.

On the basis of Income Recognition and recovery, Assets may be classified as PERFORMING AND NON PERFORMING.

As the name signifies, Performing assets are those which generate income for the bank and vice versa.

Definition of NPA is very exhaustive and changes time to time as per RBI instructions.

1.      Any interest and/or instalment of the principal remain overdue for a period exceeding 90 days in term loan.

2.      Account remain out of order in case of OD/CC account i.e. outstanding balance is continuously in excess of sanctioned limit. Account where regular/adhoc limit have not been reviewed within 180 days. Stock statements not submitted for last three months. No credit for last 90 days or credit not enough to cover enough debits.

3.      In case of Government guaranteed account when The Government repudiates its  guarantee when invoked, the account will be treated as NPA.

The above definition does not pertain to Advances granted against NSC'/Term Deposits/KVP/IVP etc.

Reversal of income: The entire interest charged/ accrued and credited to income account in the past periods should be reversed if the same is not realized. This applies to Government account also.


Asset Classification





  • Presently Gross NPA's of Banking industry have risen tremendously which is leading to sharp decline in its profitability and erosion in capital.
  • These bad loans are accumulating in such a way and jeopardizing the interest of the banks and further posing risk for its survival.
  • Presently banking sector gross NPA stabds at 7.6% highest in 12 years which may notch to 8.5% in March 2017 as scenario projection by RBI.
  • The same figure was 4.6% in March 2015 and 4.1% in March 2014.
  • The rise in NPA falls prey to many reasons like wilful default, failure of unit, even time consuming legal recovery action like SARFAESI act 2006, DRT.


This sorry figure states that unless and until any concrete steps are taken, banking industry will go haywire and may lead to merger, acquisitions and privatisations of banks.

The introduction of FDI in Banks, tight recovery process, stringent rules relating to sanctioning of corporate advances, lesser interference of government, friendly policies of government etc. may help to some extent to bring back the industry into its earlier charm.



Alok Tripathi

Manager, Indian overseas Bank