Economics • Banking & FinanceHard
What is the precise regulatory definition and treatment of 'Non-Performing Assets (NPAs)' regarding term loans in commercial banking?
A. An asset ceases to yield income for the bank when interest or principal installments remain overdue for a period exceeding ninety days✓ Correct Answer
B. Any loan account where the borrower fails to submit quarterly financial statements for two consecutive accounting periods
C. A credit facility where the borrower's credit score drops below six hundred points reported by credit information companies
D. Any loan extended to micro-enterprises that has not been renewed within twelve months from the date of sanction
💡 Solution & Explanation
According to Reserve Bank of India prudential norms, a term loan is classified as a non-performing asset when interest or principal installments remain overdue for more than ninety days. Distractors incorrectly focus on financial statement submissions, credit score drops, or loan renewal timelines. NPAs are further categorized into sub-standard, doubtful, and loss assets based on the duration for which they have remained non-performing. Banks are mandated to make specific provisioning coverage for these stressed assets out of their current earnings.
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