CATEGORIES OF NPAS

The issue of NPA has given due importance after the Narasimham Committee report highlighted its impact on the financial health on the commercial banks and subsequently various asset classification were introduced (Mishra, 2011).

Standard Assets: Standard assets are the ones in which the bank is receiving interest as well as the principal amount of the loan regularly from the customer. Such assets carry normal risk and are not NPA in the real sense. So, no provisions are required for standard assets. Here, it is also very important that in this case the arrears of interest and the principal amount of loan do not exceed 90 days at the end of the financial year. If asset fails to be in the category of standard asset

i. e. amount due for more than 90 days then it is NPA and NPAs are further need to classify in sub categories.

Banks are required to classify non-performing assets further into the following three categories based on the period for which the asset has re­mained non-performing and the realisability of the dues:

1. Sub-Standard Assets

2. Doubtful Assets

3. Loss Assets

Sub-Standard Assets: With effect from 31^st March, 2005, a sub-standard asset would be one, which has remained NPA for a period less than or equal to 12 months. The following features are exhibited by sub-standard assets: the current net worth of the borrowers/guarantor or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full; and the asset has well-defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.

Doubtful Assets: A loan classified as doubt­ful has all the weaknesses inherent in assets that were classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full - on the basis of currently known facts, conditions and values - highly ques­tionable and improbable. With effect from March 31 ^st, 2005, an asset would be classified as doubtful if it remained in the sub-standard category for more than 12 months.

Loss Assets: A loss asset is one which 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 (Gupta & Kumar, 2004). Also, these assets would have been identified as ‘loss assets’ by the bank or internal or external auditors or the RBI inspection but the amount would not have been written-off wholly.