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Compiled By: CA RAMANDEEP SINGH BHATIA: 98271-52729


 An asset, including a leased asset, becomes non­ performing when it ceases to generate income for the bank.

 A non ­performing asset (NPA) is a loan or an advance where;

  1. interest and/ or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan,

(Note : In case of interest payments, banks should, classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter).

  1. the account remains ‘out of order’ as indicated at paragraph 2.2 below, in respect of an Overdraft/Cash Credit (OD/CC),

(‘Out of Order’ status- An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power for 90 days. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'.)

  1. the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,
  2. the instalment of principal or interest thereon remains overdue for two crop seasons for short duration crops,
  3. the instalment of principal or interest thereon remains overdue for one crop season for long duration crops,

(long duration crops would be crops with crop season longer than one year and crops, which are not “long duration” crops, would be treated as “short duration” crops. The crop season for each crop, which means the period up to harvesting of the crops raised, would be as determined by the State Level Bankers’ Committee in each State. Depending upon the duration of crops raised by an agriculturist, the above NPA norms would also be made applicable to agricultural term loans availed of by him)

  1. the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction undertaken in terms of guidelines on securitisation dated February 1, 2006.
  2. in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.

Accounts with temporary deficiencies

The classification of an asset as NPA should be based on the record of recovery. Bank should not classify an advance account as NPA merely due to the existence of some deficiencies which are temporary in nature such as

  1. non­-availability of adequate drawing power based on the latest available stock statement,
  2. balance outstanding exceeding the limit temporarily,
  3. non­-submission of stock statements and
  4.  non­-renewal of the limits on the due date, etc.

In the matter of classification of accounts with such deficiencies banks may follow the following guidelines:

i) Banks should ensure that drawings in the working capital accounts are covered by the adequacy of current assets, since current assets are first appropriated in times of distress. Drawing power is required to be arrived at based on the stock statement which is current. However, considering the difficulties of large borrowers, stock statements relied upon by the banks for determining drawing power should not be older than three months. The outstanding in the account based on drawing power calculated from stock statements older than three months, would be deemed as irregular.

A working capital borrowal account will become NPA if such irregular drawings are permitted in the account for a continuous period of 90 days even though the unit may be working or the borrower's financial position is satisfactory.

ii) Regular and ad hoc credit limits need to be reviewed/ regularised not later than three months from the due date/date of ad hoc sanction. In case of constraints such as non-­availability of financial statements and other data from the borrowers, the branch should furnish evidence to show that renewal/ review of credit limits is already on and would be completed soon. In any case, delay beyond six months is not considered desirable as a general discipline. Hence, an account where the regular/ ad hoc credit limits have not been reviewed/ renewed within 180 days from the due date/ date of ad hoc sanction will be treated as NPA.

(‘Overdue’ -Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank)


 Income Recognition Policy

The policy of income recognition has to be objective and based on the record of recovery. Internationally income from non­-performing assets (NPA) is not recognised on accrual basis but is booked as income only when it is actually received. Therefore, the banks should not charge and take to income account interest on any NPA. This will apply to Government guaranteed accounts also.

However, interest on advances against Term Deposits, National Savings Certificates (NSCs), Indira Vikas Patras (IVPs), Kisan Vikas Patras (KVPs) and Life policies may be taken to income account on the due date, provided adequate margin is available in the accounts.

Fees and commissions earned by the banks as a result of re­negotiations or rescheduling of outstanding debts should be recognised on an accrual basis over the period of time covered by the re­negotiated or rescheduled extension of credit.

 Reversal of income

If any advance, including bills purchased and discounted, becomes NPA, the entire interest accrued and credited to income account in the past periods, should be reversed if the same is not realisedThis will apply to Government guaranteed accounts also.

In respect of NPAs, fees, commission and similar income that have accrued should cease to accrue in the current period and should be reversed with respect to past periods, if uncollected.

 Appropriation of recovery in NPA

Interest realised on NPAs may be taken to income account provided the credits in the accounts towards interest are not out of fresh/ additional credit facilities sanctioned to the borrower concerned

IIn the absence of a clear agreement between the bank and the borrower for the purpose of appropriation of recoveries in NPAs (i.e. towards principal or interest due), banks should adopt an accounting principle and exercise the right of appropriation of recoveries in a uniform and consistent manner.

 Interest Application

On an account turning NPA, banks should reverse the interest already charged and not collected by debiting Profit and Loss account, and stop further application of interest. However, banks may continue to record such accrued interest in a Memorandum account in their books. For the purpose of computing Gross Advances, interest recorded in the Memorandum account should not be taken into account.


 Categories of NPAs

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:


Sub­standard Assets


Doubtful Assets


Loss Assets


With effect from March 31, 2005, a sub­standard asset would be one, which has remained NPA for a period less than or equal to 12 months.


With effect from March 31, 2005, an asset would be classified as doubtful if it has remained in the sub­standard category for a period of 12 months.


A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly.


Guidelines for classification of assets

Accounts regularised near about the balance sheet date

The asset classification of borrowal accounts where a solitary or a few credits are recorded before the balance sheet date should be handled with care and without scope for subjectivity. Where the account indicates inherent weakness on the basis of the data available, the account should be deemed as a NPA. In other genuine cases, the banks must furnish satisfactory evidence to the Statutory Auditors/Inspecting Officers about the manner of regularisation of the account to eliminate doubts on their performing status.

Asset Classification to be borrower­-wise and not facility­-wise

i) It is difficult to envisage a situation when only one facility to a borrower/one investment in any of the securities issued by the borrower becomes a problem credit/investment and not others. Therefore, all the facilities granted by a bank to a borrower and investment in all the securities issued by the borrower will have to be treated as NPA/NPI and not the particular facility/investment or part thereof which has become irregular.

ii) If the debits arising out of devolvement of letters of credit or invoked guarantees are parked in a separate account, the balance outstanding in that account also should be treated as a part of the borrower’s principal operating account for the purpose of application of prudential norms on income recognition, asset classification and provisioning.

iii) The bills discounted under LC favouring a borrower may not be classified as a Non-performing assets (NPA), when any other facility granted to the borrower is classified as NPA. However, in case documents under LC are not accepted on presentation or the payment under the LC is not made on the due date by the LC issuing bank for any reason and the borrower does not immediately make good the amount disbursed as a result of discounting of concerned bills, the outstanding bills discounted will immediately be classified as NPA with effect from the date when the other facilities had been classified as NPA.

Advances under consortium arrangements

Asset classification of accounts under consortium should be based on the record of recovery of the individual member banks and other aspects having a bearing on the recoverability of the advances. Where the remittances by the borrower under consortium lending arrangements are pooled with one bank and/or where the bank receiving remittances is not parting with the share of other member banks, the account will be treated as not serviced in the books of the other member banks and therefore, be treated as NPA. The banks participating in the consortium should, therefore, arrange to get their share of recovery transferred from the lead bank or get an express consent from the lead bank for the transfer of their share of recovery, to ensure proper asset classification in their respective books.

Accounts where there is erosion in the value of security/frauds committed by borrowers

i. In cases of such serious credit impairment, the asset should be straightaway classified as doubtful or loss asset as appropriate:

  1. Erosion in the value of security can be reckoned as significant when the realisable value of the security is less than 50 per cent of the value assessed by the bank or accepted by RBI at the time of last inspection, as the case may be. Such NPAs may be straightaway classified under doubtful category.
  2. If the realisable value of the security, as assessed by the bank/ approved valuers/ RBI is less than 10 per cent of the outstanding in the borrowal accounts, the existence of security should be ignored and the asset should be straightaway classified as loss asset.



100 percent of the outstanding




100 percent of the extent to which the advance is not covered by the realisable value of the security to which the bank has a valid recourse and the realisable value is estimated on a realistic basis


In regard to the secured portion, provision may be made on the following basis, at the rates ranging from 25 percent to 100 percent of the secured portion depending upon the period for which the asset has remained doubtful

Period for which the advance has remained in ‘doubtful’ category

Provision requirement (%)

Up to one year


One to three years


More than three years


Note: Valuation of Security for provisioning purposes

With a view to bringing down divergence arising out of difference in assessment of the value of security, in cases of NPAs with balance of Rs. 5 crore and above stock audit at annual intervals by external agencies appointed as per the guidelines approved by the Board would be mandatory in order to enhance the reliability on stock valuation. Collaterals such as immovable properties charged in favour of the bank should be got valued once in three years by valuers appointed as per the guidelines approved by the Board of Directors.




A general provision of 15 percent on total outstanding should be made without making any allowance for ECGC guarantee cover and securities available


The ‘unsecured exposures’ which are identified as ‘substandard’ would attract additional provision of 10 per cent, i.e., a total of 25 per cent on the outstanding balance. However, in view of certain safeguards such as escrow accounts available in respect of infrastructure lending, infrastructure loan accounts which are classified as sub-standard will attract a provisioning of 20 per cent instead of the aforesaid prescription of 25




  1.        Farm Credit to agricultural activities and Small and Micro Enterprises (SMEs) 0.25 per cent;
  2. Advances to Commercial Real Estate (CRE) Sector at 1.00 per cent;
  3. Advances to Commercial Real Estate – Residential Housing Sector (CRE - RH) at 0.75 per cent1
  4. All other loans and advances not included in (a) (b) and (c) above at 0.40 per cent.

Additional Provisions for NPAs at higher than prescribed rates

The regulatory norms for provisioning represent the minimum requirement. A bank may voluntarily make specific provisions for advances at rates which are higher than the rates prescribed under existing regulations, to provide for estimated actual loss in collectible amount, provided such higher rates are approved by the Board of Directors and consistently adopted from year to year. Such additional provisions are not to be considered as floating provisions. The additional provisions for NPAs, like the minimum regulatory provision on NPAs, may be netted off from gross NPAs to arrive at the net NPAs

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SNAP SHOT- Foreign Contribution (Regulation) Act, 2010, FCRA

SNAP SHOT- Foreign Contribution (Regulation) Act, 2010, FCRA




Who can receive foreign contribution?

 Any individual, HUF, association or a company registered under Section 25 of Companies Act 1956 (Now Section 8 of Companies Act, 2013) can receive foreign contribution subject to following conditions:-

a) It must have a definite cultural, economic, educational, religious or social programme.

b) It must obtain the FCRA registration/prior permission from the Central Government

c) It must not be prohibited under Section 3 of FCRA, 2010.

Who cannot receive foreign contribution?

As defined in Section 3(1) of FCRA, 2010, the following are prohibited to receive foreign contribution:

(a) a candidate for election;

(b) correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper;

(c) Judge, government servant or employee of any Corporation or any other body controlled on owned by the Government;

(d) member of any legislature;

(e) political party or office bearer thereof;

(f) organization of a political nature as may be specified under sub-section (1) of Section 5 by the Central Government.

(g) association or company engaged in the production or broadcast of audio news or audio visual news or current affairs programmes through any electronic mode, or any other electronic form as defined in clause (r) of sub-section (i) of Section 2 of the Information Technology Act, 2000 or any other mode of mass communication;

(h) correspondent or columnist, cartoonist, editor, owner of the association or company referred to in point (g).

(i) individuals or associations who have been prohibited from receiving foreign contribution.

How does a person obtain permission to accept Foreign Contribution?

There are two modes of obtaining permission to accept foreign contribution according to FCRA, 2010:


 How to submit application for grant of registration/prior permission?

 Application for grant of registration / prior permission is to be submitted  at the website fcraonline.nic.in

If an application for registration or prior permission is submitted online by an association, does it need to submit that application in physical form also?

 No. All requisite documents are to be uploaded with the application.

How to fill online form for filing application for grant of registration / prior permission?

Ans. The online application form FC-3 for registration /prior permission has been designed in an easy to fill format. The applicant will find detached instructions on each web page of online form while filing the application.

 What are the documents to be uploaded with the application for grant of registration? (NIC – Mention file size limits also)

Ans. The applicant should be ready with the scanned copies of the following documents before filing the application online:

(A) Registration

  • (i) jpg file of signature of the chief functionary
  • (ii) self-certified copy of registration certificate/Trust deed etc., of the association
  • (iii) self-certified copy of relevant pages of Memorandum of Association/ Article of Association showing aim and objects of the association.
  • (iv) Activity Report indicating details of activities during the last three years;
  • (v) Copies of relevant audited statement of accounts for the past three years (Assets and Liabilities, Receipt and Payment, Income and Expenditure) clearly reflecting expenditure incurred on aims and objects of the association and on administrative expenditure;

(B) Prior Permission

  • (i) jpg file of signature of the chief functionary
  • (ii) self-certified copy of registration certificate/Trust deed etc., of the association
  • (iii) duly signed Commitment Letter from Donor.
  • (iv) If functioning as editor, owner, printer or publisher of a publication registered under the Press and Registration of Books Act, 1867, a certificate from the Registrar of Newspapers for India that the publication is not a newspaper in terms of section 1(1) of the said Act.
  • (v) Fee of Rs. 2000/- is to be paid online through payment gateway

 Whether the certificate of registration is to be renewed?

Ans As per Section 16 of FCRA, 2010 every person who has been granted a certificate of registration under Section 12 thereof shall have such certificate renewed within six months before the expiry of the period of the certificate.



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