QA Series 2025 S No 44 - IRACP Norms Part 2

 

The Banking Tutor

Question Answer Series 2025

S No 44                                                                  23-08-2025

IRACP Norms – Part 2

 

30. What are the norms for classification of loans granted for short duration crops under Agricultural into NPA? 

A loan granted for short duration crops will be treated as NPA, if the instalment of principal or interest thereon remains overdue for two crop seasons. 

31. What are the norms for classification of loans granted for long duration crops under Agricultural into NPA? 

A loan granted for long duration crops will be treated as NPA, if the instalment of principal or interest thereon remains overdue for one crop season. 

32. What are Long duration crops and what are short duration crops? 

For the purpose of these guidelines, “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. 

33. Who decides Crop Season? 

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 (SLBC) in each State.

34. What are the norms for asset classification of agricultural advances converted or reschedules ? 

In cases of natural calamities impair the repaying capacity of agricultural borrowers  conversion or re-schedulement, the term loan as well as fresh short term loan may be treated as current dues and need not be classified as NPA. 

The asset classification of these loans would thereafter be governed by the revised terms & conditions and would be treated as NPA if interest and/or instalment of principal remains overdue for two crop seasons for short duration crops and for one crop season for long duration crops. 

35. What are the norms for asset classification of Central Government guaranteed advances ? 

The credit facilities backed by guarantee of the Central Government though overdue may be treated as NPA only when the Government repudiates its guarantee when invoked. 

This exemption from classification of Government guaranteed advances as NPA is not for the purpose of recognition of income. 

36. What are the norms for asset classification of State Government guaranteed advances ? 

State Government guaranteed advances and investments in State Government guaranteed securities would attract asset classification and provisioning norms if interest and/or principal or any other amount due to the bank remains overdue for more than 90 days. 

37. What are the norms for asset classification of  Credit Card Accounts? 

A credit card account will be treated as non-performing asset if the minimum amount due, as mentioned in the statement, is not paid fully within 90 days from the payment due date mentioned in the statement. 

38. Who is responsible for making adequate provisions in case of loan accounts ? 

The primary responsibility for making adequate provisions for any diminution in the value of  loan assets, investment or other assets is that of the bank managements and the statutory auditors. 

39. What are the norms for provisions in case of Loss assets ? 

Loss assets should be written off. If loss assets are permitted to remain in the books for any reason, 100 % of the outstanding should be provided for. 

40. What are the norms for provisions in case of Doubtful assets ? 

100 % 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% to 100 % of the secured portion depending upon the period for which the asset has remained doubtful: 

41. What are D1, D2 and D3 in the context of NPAs? 

D1: The asset was in the substandard category for 12 months, making it doubtful for up to one year. 

D2: An asset that has been in the D1 category for 12 months (1 to 3 years total in the substandard/doubtful categories). 

D3: An asset that has remained in the D2 category for more than 12 months (over 3 years in total in the substandard/doubtful categories). 

42. What are the norms for provisions in case of D1? 

100 % of unsecured portion and 25% of the secured portion. 

43. What are the norms for provisions in case of D2? 

100 % of unsecured portion and 40% of the secured portion. 

44. What are the norms for provisions in case of D3? 

100 % of the total liability. 

45. What are the norms related to Stock Audit in case of NPAs with balance of Rs 5 Crore and above? 

In cases of NPAs with balance of ₹5 crore and above stock audit at annual intervals by external agencies would be mandatory in order to enhance the reliability on stock valuation. 

46. What are the norms for provisions in case of Substandard assets ? 

A general provision of 15 % 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 %  i.e., a total of 25 % on the outstanding balance. 

47. What are the norms for provisions in case of Standard assets ? 

Banks should make general provision for standard assets at the following rates for the funded outstanding on global loan portfolio basis: 

a) Farm Credit to agricultural activities, individual housing loans and Small and Micro Enterprises (SMEs) sectors at 0.25 % 

b) advances to Commercial Real Estate (CRE) Sector at 1.00 % 

c) advances to CRE – Residential Housing Sector (CRE - RH) at 0.75 % 

d) housing loans extended at teaser rates - the standard asset provisioning on the outstanding amount of such loans has been increased from 0.40 % to 2.00 % in view of the higher risk associated with them. The provisioning on these assets would revert to 0.40 % after 1 year from the date on which the rates are reset at higher rates if the accounts remain ‘standard’. 

e) Advances restructured and classified as standard at 5%. 

f) All other loans and advances  at 0.40 per cent. 

g) Medium Enterprises will attract 0.40% standard asset provisioning. 

48. What is full form of RERFA and what it is ? 

RERFA stands for Reserve for Exchange Rate Fluctuations Account, which is a separate account for managing foreign exchange rate risks and is not directly related to Non-Performing Assets (NPAs). 

49. What is full form of PCR in the context of NPAs and what is it ? 

PCR stands for Provisioning Coverage Ratio. PCR is  the ratio of provisioning to gross nonperforming assets and indicates the extent of funds a bank has kept aside to cover loan losses. 

50. Where Bank has to furnish details of PCR in Balance Sheet? 

The PCR of the bank should be disclosed in the Notes to Accounts to the Balance Sheet. 

51. Whether Provisions made in respect of NPAs taxable? 

Amounts set aside for making provision for NPAs as above are not eligible for tax deductions. 

52. What is Technical Write-off (at Head Office Level) ? 

A technical write-off is  the process where a Bank removes a NPA from its balance sheet for accounting purposes without waiving their legal claim against the borrower or relinquishing their right to recover the debt. This practice "cleanses" the lender's books of bad debts that are unlikely to be recovered, but the borrower remains legally obligated to repay the full amount, and the lender can still pursue recovery efforts. In such cases Banks may write-off advances at Head Office level, even though the relative advances are still outstanding in the branch books.

53. What are the norms to identify incipient stress in loan accounts ? 

Banks recognise incipient stress in loan accounts, immediately on default by classifying such assets as special mention accounts (SMA) as per the following categories. 

Basis for classification – Principal or interest payment or any other amount.

 

SMA Subcategories	Amount overdue between
SMA – 0	Up to 30 days
SMA – 1	More than 30 days and up to 60 days
SMA - 2	More than 60 days and up to 90 days

54. What are the norms to identify incipient stress in Revolving credit facilities? 

In the case of revolving credit facilities like cash credit/overdraft, the SMA sub-categories will be as follows: 

Basis for classification – Outstanding balance remains continuously in excess of the sanctioned limit or drawing power, whichever is lower, for a period of 

 

SMA Subcategories	Period
SMA 1	More than 30 days and up to 60 days
SMA 2	More than 60 days and up to 90 days

The above-mentioned instructions on classification of borrower accounts into SMA categories are applicable for all loans (including retail loans), other than agricultural advances governed by crop season-based asset classification norms, irrespective of size of exposure of the bank.

55. What are the Reporting requirements of Credit Information? 

Banks have to report credit information, including classification of an account as SMA to Central Repository of Information on Large Credits (CRILC), on all borrowers having aggregate exposure of ₹5 crore and above with them. 

The CRILC-Main Report shall be submitted on a monthly basis. In addition, Banks have to report instances of default by all borrowers with aggregate exposure of ₹5 crore and above by close of business on every Friday, or the preceding working day if Friday happens to be a holiday. 

56. What is Restructuring ? 

Restructuring is an act in which a lender, for economic or legal reasons relating to the borrower's financial difficulty, grants concessions to the borrower. 

Restructuring may involve modification of terms of the advances / securities, which would generally include, among others,  alteration of payment period / payable amount / the amount of instalments / rate of interest; roll over of credit facilities; sanction of additional credit facility/ release of additional funds for an account in default to aid curing of default / enhancement of existing credit limits; compromise settlements where time for payment of settlement amount exceeds three months. 

57. What are the norms for classification of Restructured Accounts? 

In case of restructuring, the accounts classified as 'standard' shall be immediately downgraded as non-performing assets (NPAs), i.e., ‘sub-standard’ to begin with. The NPAs, upon restructuring, would continue to have the same asset classification as prior to restructuring. 

58. What the guidelines for Upgradation of MSME accounts with exposure is less than ₹25 crores ? 

An account may be considered for upgradation to ‘standard’ only if it demonstrates satisfactory performance during the specified period. 

59. What is the Specified Period in case of Upgradation of MSME Accounts?

 

‘Specified Period’ means a period of one year from the commencement of the first payment of interest or principal, whichever is later, on the credit facility with longest period of moratorium under the terms of restructuring package. 

60. What is the Satisfactory Performance’ in case of Upgradation of MSME Accounts? 

‘Satisfactory Performance’ means no payment (interest and/or principal) shall remain overdue for a period of more than 30 days. In case of cash credit / overdraft account, satisfactory performance means that the outstanding in the account shall not be more than the sanctioned limit or drawing power, whichever is lower, for a period of more than 30 days. 

61. What are Income recognition norms in respect of Restructured Accounts? 

Interest income in respect of restructured accounts classified as 'standard assets' may be recognized on accrual basis and that in respect of the restructured accounts classified as 'nonperforming assets' shall be recognised on cash basis. 

62. What is Technical NPA ? 

A "technical" non-performing asset (NPA) refers to a loan where the borrower has not missed any payment, but has failed to meet an obligation that triggers a non-performing status according to a regulatory body's guidelines.

63. What are Soft NPAs and Hard NPAs ? 

Accounts classified as NPA recently (normally during current financial year) are known as Soft NPA. If we target them, it is easy to recover compared to old NPAs, which are known as Hard NPAs. 

64. What is a Unrecognised NPA? 

Unrecognised NPA refer to standard accounts that are prima facie not expected to be tagged as NPA, even though the borrower may have been labelled so by other lenders. These are also known as ‘Imminent NPA’. 

65. What is a Deemed NPA ? 

"Deemed NPA" refers to situations where a loan or advance, despite not officially meeting the standard NPA criteria (like being overdue for a specific period), is treated as a Non-Performing Asset due to concerns about the borrower's ability to repay. 

Sekhar Pariti

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