Consider the classification of non-performing assets in commercial banking. Under current prudential norms, how is a term loan classified when interest or principal installments remain overdue for a period exceeding ninety days?

💡 Solution & Explanation

A credit facility is classified as a sub-standard asset when the interest or principal payment remains overdue for a period exceeding ninety days from the due date. Assets in this category exhibit distinct credit weaknesses that jeopardize repayment and carry the risk of default unless corrective measures are undertaken. If an asset remains in the sub-standard category for a specified duration, it gets downgraded to a doubtful asset. Prudential income recognition and asset classification norms are mandated by the Reserve Bank of India to ensure banking sector stability.