A Non-Performing Asset (NPA) is an advance where interest or principal installments remain overdue for more than 90 days, codified under the RBI Prudential Norms on Income Recognition, Asset Classification and Provisioning (IRAC) originating from the 1991 Narasimham Committee. Banks track early credit distress through Special Mention Accounts: SMA-0 (1 to 30 days overdue), SMA-1 (31 to 60 days), and SMA-2 (61 to 90 days). Delinquent loans transition from Sub-standard (NPA status up to 12 months) to Doubtful (subdivided into D1, D2, and D3 tiers across three years) and Loss assets, requiring progressive balance sheet provisioning up to 100 percent. To accelerate recovery, Parliament passed the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. Section 13 empowers secured lenders to enforce collateral security without civil court intervention following an unfulfilled 60-day demand notice. Aggrieved debtors may seek judicial relief before Debt Recovery Tribunals (DRT) under Section 17, and subsequent appeals before Appellate Tribunals (DRAT) mandate a 50 percent pre-deposit. Complementing SARFAESI, the Insolvency and Bankruptcy Code (IBC), 2016 establishes time-bound corporate insolvency resolution processes before the National Company Law Tribunal (NCLT).
High-yield conceptual summaries for competitive exams and rapid revision.
A loan asset is classified as a Non-Performing Asset (NPA) when interest or principal remains overdue for more than 90 consecutive days.
For agricultural credit, NPAs are triggered when installment or interest remains overdue for two crop seasons for short-duration crops and one season for long-duration crops.
The RBI framework categorizes stressed assets prior to NPA status into Special Mention Accounts: SMA-0 (1–30 days), SMA-1 (31–60 days), and SMA-2 (61–90 days).
Sub-standard assets are loans that have remained in the NPA category for a period of up to 12 months, requiring a 15 percent provisioning on secured portions.
Doubtful assets are NPAs that have exceeded 12 months in the sub-standard category, subdivided into D1 (up to 1 year), D2 (1–3 years), and D3 (over 3 years).
Loss assets represent irrecoverable debts identified by internal bank inspectors, external auditors, or the RBI, requiring 100 percent balance sheet provisioning.
The SARFAESI Act, 2002 empowers secured creditors to take possession of pledged collateral without obtaining prior adjudication from a civil court.
Under Section 13(2) of the SARFAESI Act, a secured creditor issues a mandatory 60-day demand notice to the defaulting borrower before initiating recovery actions.
If a borrower fails to satisfy the demand notice, Section 13(4) authorizes the bank to take physical possession of assets, take over management, or appoint a manager.
Agricultural land is explicitly excluded from the enforcement purview of the SARFAESI Act under the statutory provisions of Section 31(i).
Aggrieved borrowers may appeal against creditor enforcement measures before the Debt Recovery Tribunal (DRT) within 45 days under Section 17 of SARFAESI.
Appeals against DRT orders proceed to the Debts Recovery Appellate Tribunal (DRAT) upon mandatory pre-deposit of 50 percent of the debt claimed by the creditor.
Asset Reconstruction Companies (ARCs) are registered under Section 3 of the SARFAESI Act to purchase distressed debt portfolios from financial institutions.
The Insolvency and Bankruptcy Code (IBC) of 2016 introduced a time-bound Corporate Insolvency Resolution Process (CIRP) adjudicated before the National Company Law Tribunal (NCLT).
The statutory timeline for CIRP resolution under Section 12 of the IBC is 180 days, subject to a one-time 90-day extension, capped at 330 days including legal proceedings.
mediumFinancial Terms, Money Markets & Capital Instruments
Under the RBI's Prudential Norms on Income Recognition and Asset Classification (IRAC), a loan account classified as an NPA for a period not exceeding 12 months is termed as which type of asset?
Verified Explanation
A Substandard Asset is one that has remained an NPA for a period less than or equal to 12 months. If it remains NPA beyond 12 months, it is classified as a Doubtful Asset.
2ID: GK-BANK-00116
hardFinancial Terms, Money Markets & Capital Instruments
Under the RBI's prudential norms for agricultural advances, a loan granted for short-duration crops is treated as a Non-Performing Asset (NPA) if unpaid for how long?
Verified Explanation
For agricultural loans, an advance granted for short-duration crops is classified as an NPA if the instalment of principal or interest remains unpaid for two crop seasons beyond the due date (one crop season for long-duration crops).
3ID: GK-BANK-00296
hardFinancial Terms, Money Markets & Capital Instruments
Under the Master Circular - Prudential Norms on Income Recognition, Asset Classification and Provisioning (IRAC), what is the definitive criterion for classifying a term loan as a Non-Performing Asset (NPA)?
Verified Explanation
Under RBI's IRAC norms, a term loan is classified as an NPA if interest and/or principal instalment remains overdue for a period of more than 90 days from the due date.
4ID: GK-BANK-00118
hardCommercial Banks, Payment Banks & SFBs
Under the RBI's Prompt Corrective Action (PCA) framework for Scheduled Commercial Banks, what is the Net NPA trigger level that invokes Risk Threshold 1?
Verified Explanation
Under the revised PCA framework, Risk Threshold 1 is triggered when a bank's Net NPA is greater than or equal to 6.0% but less than 9.0%, requiring restriction on dividend distribution and capital conservation measures.
5ID: GK-BANK-00031
mediumFinancial Terms, Money Markets & Capital Instruments
Under the Prompt Corrective Action (PCA) framework revised by the RBI, which three key performance parameters trigger regulatory restrictions on weak banks?
Verified Explanation
The revised PCA framework monitors banks across three specific risk parameters: Capital Adequacy (CRAR), Asset Quality (Net NPA ratio), and Leverage (Tier 1 Leverage Ratio).
6ID: GK-BANK-00208
mediumFinancial Terms, Money Markets & Capital Instruments
Under Section 13(2) of the SARFAESI Act, 2002, what statutory notice period must a secured creditor (bank) provide to a defaulting borrower before enforcing security interest on mortgaged assets?
Verified Explanation
Under Section 13(2) of the SARFAESI Act, 2002, once an account is classified as an NPA, the secured creditor must issue a 60-day demand notice requiring the borrower to discharge their liabilities in full.
7ID: GK-BANK-00292
hardFinancial Terms, Money Markets & Capital Instruments
Under Section 29A of the Insolvency and Bankruptcy Code (IBC), 2016, which category of individuals/entities is disqualified from submitting a resolution plan during Corporate Insolvency Resolution Process (CIRP)?
Verified Explanation
Section 29A of the IBC, 2016 bars undischarged insolvents, wilful defaulters, persons with NPA accounts for over one year failing to cure defaults, and disqualified directors from bidding for stressed corporate assets.
8ID: GK-BANK-00098
easyCommercial Banks, Payment Banks & SFBs
In standard commercial banking, a loan or advance is classified as a Non-Performing Asset (NPA) when interest or principal instalment remains overdue for more than how many days?
Verified Explanation
As per RBI prudential norms, an asset becomes non-performing when it ceases to generate income for the bank, specifically when interest or instalment of principal remains overdue for more than 90 days in respect of a term loan.
9ID: GK-BANK-00150
mediumFinancial Terms, Money Markets & Capital Instruments
Under the RBI's Prudential Norms, when a loan asset remains in the 'Sub-standard' category for a period exceeding 12 months, into which category is it downgraded?
Verified Explanation
Under RBI IRAC norms, an asset is classified as 'Doubtful' if it has remained in the substandard category for a period of 12 months.
10ID: GK-BANK-00225
hardFinancial Terms, Money Markets & Capital Instruments
In the Prompt Corrective Action (PCA) framework for Non-Banking Financial Companies (NBFCs) introduced by the RBI in December 2021, which three key financial indicators serve as the supervisory monitoring triggers?
Verified Explanation
The PCA framework for NBFCs tracks three financial metrics: Capital to Risk-Weighted Assets Ratio (CRAR), Tier 1 Capital Ratio, and Net Non-Performing Assets (NNPA) including delinquency indicators.