Skip to main content

What are prudential norms on asset classification and provisioning?

Reserve Bank of India (RBI) has prescribed prudential norms on asset classification and provisioning.

What are norms for early identification and reporting of stress?

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

SMA Sub-categoriesBasis for classification – Principal or interest payment or any other amount wholly or partly overdue between
SMA-0Up to 30 days
SMA-1More than 30 days and up to 60 days
SMA-2More than 60 days and up to 90 days

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

SMA Sub-categoriesBasis for classification – Outstanding balance remains continuously in excess of the sanctioned limit or drawing power, whichever is lower, for a period of
SMA-1More than 30 days and up to 60 days
SMA-2More than 60 days and up to 90 days

Scheduled commercial banks shall 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. CRILC-Main Report shall be submitted on a monthly basis. In addition, lenders shall submit a weekly report of 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.

What are Non-performing Assets (NPAs)?

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 / advance where –

  1. Interest and / or instalment of principal remains overdue for more than 90 days in respect of a term loan.
  2. The account remains ‘out of order’, in respect of an Overdraft / Cash Credit (OD / CC).
  3. The bill remains overdue for more than 90 days in the case of bills purchased and discounted.
  4. The instalment of principal or interest thereon remains overdue for 2 crop seasons for short duration crops.
  5. The instalment of principal or interest thereon remains overdue for 1 crop season for long duration crops (with crop season longer than 1 year).
  6. The amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction undertaken in terms of Securitisation of Standard Assets Directions, 2021.
  7. In respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for 90 days from the specified due date for payment.

What is ‘Out of Order’ status?

A CC / OD account shall be treated as ‘out of order’ if –

  1. The outstanding balance in the CC / OD account remains continuously in excess of the sanctioned limit / drawing power for 90 days.
  2. The outstanding balance in the CC / OD account is less than the sanctioned limit / drawing power but there are no credits continuously for 90 days.
  3. The outstanding balance in CC / OD account is less than the sanctioned limit / drawing power but credits are not enough to cover the interest debited during the previous 90 days period.

What is ‘Overdue’ status?

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. 

What are the categories of NPAs?

Banks are required to classify NPAs into the following three categories based on the period for which the asset has remained non-performing.

Category of NPA Criteria
Substandard Assets Asset has remained NPA for less than or equal to 12 months
Doubtful Assets Asset has remained in the substandard category for 12 months
Loss Assets Asset where loss has been identified by the bank or internal / external auditors or RBI inspection, but the amount has not been written off wholly

What are conditions for upgradation of loan accounts classified as NPAs?

  • The loan accounts classified as NPAs may be upgraded as ‘standard’ asset only if entire arrears of interest and principal are paid by the borrower. 
  • In case of borrowers having more than one credit facility from a bank, loan accounts shall be upgraded from NPA to standard asset category only upon repayment of entire arrears of interest and principal pertaining to all the credit facilities. 

Whether asset classification to be borrower-wise or facility-wise?

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.

What are asset classification norms for Credit Card Accounts?

  1. In credit card accounts, the amount spent is billed to the card users through a monthly statement with a definite due date for repayment. Banks give an option to the card users to pay full amount / fraction of it, i.e., minimum amount due, on the due date and roll-over the balance amount to the subsequent months’ billing cycle.
  2. A credit card account will be treated as NPA 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.
  3. Banks shall report a credit card account as ‘past due’ to credit information companies (CICs) or levy penal charges, viz. late payment charges, etc., if any, only when a credit card account remains ‘past due’ for more than 3 days. 
  4. The number of ‘days past due’ and late payment charges shall, however, be computed from the payment due date mentioned in the credit card statement.

What are the provisioning norms?

The banks should make provision on the NPAs on the basis of classification of assets into prescribed categories.

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.

Doubtful assets

 

 Period for which the advance has remained in ‘doubtful’ category Provisioning requirement (%)
Unsecured portion of loan NA 100
Secured portion of loan Up to 1 year 25
1 to 3 years 40
More than 3 years 100

Substandard assets

 

 Provisioning requirement (%)
General provision without making any allowance for ECGC guarantee cover and securities available 15% on total outstanding
‘Unsecured exposures’ which are identified as ‘substandard’ Additional provision of 10% i.e., total of 25% on outstanding balance
If safeguards such as escrow accounts available in respect of infrastructure lending, infrastructure loan accounts which are classified as sub-standard 20% instead of the aforesaid prescription of 25%

Unsecured exposure is defined as an exposure where the realisable value of the security, as assessed by the bank / approved valuers / RBI’s inspecting officers, is up to 10% of the outstanding exposure. 

Standard assets

 

 Provisioning requirement (%)
Farm Credit to agricultural activities, individual housing loans and Small and Micro Enterprises (SMEs) sectors 0.25
Advances to Commercial Real Estate (CRE) Sector 1
Advances to Commercial Real Estate – Residential Housing Sector (CRE - RH) 0.75
Housing loans extended at teaser rates i.e. at comparatively lower rates of interest in the first few years, after which rates are reset at higher rates. Increased from 0.40% to 2% in view of higher risk associated with such loans.
0.40% after 1 year from the date on which the rates are reset at higher rates if the accounts remain ‘standard’.
Restructured advances As applicable for restructured advances
Advances restructured and classified as standard in terms of the Master Direction – Relief Measures by Banks in Areas affected by Natural Calamities Directions 2018 5
All other loans and advances not included above 0.40

What are other norms on asset classification and provisioning?

  • In respect of fraud cases, banks should normally provide for the entire amount due to the bank or for which the bank is liable (including in case of deposit accounts), immediately upon a fraud being detected. Banks have the option to make the provisions over a period, not exceeding 4 quarters, commencing from the quarter in which the fraud has been detected.
  • In case of restructuring, the accounts classified as 'standard' shall be immediately downgraded as NPAs, i.e., ‘sub-standard’. NPAs would continue to have the same asset classification as prior to restructuring.


References

Reserve Bank of India. (2022, April 01). 'Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances'. Retrieved from https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=12281&Mode=0

Reserve Bank of India. (2025, April 01). 'Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12822&Mode=0


Follow at - Telegram   Instagram   LinkedIn   Twitter

Labels:

Comments

Post a Comment

Popular Posts

Export and Import of Goods and Services

Reserve Bank of India (RBI) has issued regulations on export and import of goods and services. What are the regulations for declaration of exports? An exporter of goods shall furnish to the specified authority, a declaration in the Export Declaration Form (EDF) specifying the amount representing the full export value of goods, at the time of export. EDF will be deemed to be submitted as part of shipping bill for goods exported through Electronic Data Interchange (EDI) port. An exporter of services shall furnish to the specified authority, a declaration in EDF specifying the amount representing the full export value of services, within 30 days from the end of month in which invoice for services has been raised. The exporter of services who has exported services to one or more recipients in a month, may submit a single EDF for all such exports. The exporter of services other than software, may submit an EDF on or before the date of receipt of payment. In the case of a non-EDI port for ex...
Post a Comment
Read more

Unique Transaction Identifier (UTI) for OTC Derivative Transactions

Reserve Bank of India (RBI) has issued directions on Unique Transaction Identifier (UTI) for over-the-counter (OTC) derivative transactions. What are the existing norms for reporting of OTC derivative transactions? At present, all transactions in OTC markets for rupee interest rate derivatives, forward contracts in Government securities, foreign currency derivatives, foreign currency interest rate derivatives, and credit derivatives are reported to the Trade Repository managed by Clearing Corporation of India Limited (CCIL-TR).  What are the directions on Unique Transaction Identifier (UTI) for OTC derivative transactions? Unique Transaction Identifier (UTI), a unique identifier assigned to an OTC derivative transaction, shall be generated / reported for all transactions in OTC derivatives market.  The directions shall be applicable to OTC derivative transactions entered into on or after January 01, 2027. UTI shall be generated in accordance with the UTI Technical Guidanc...
Post a Comment
Read more

FEMA - Borrowing and Lending [including External Commercial Borrowing (ECB) and Trade Credit (TC)]

Reserve Bank of India (RBI) has amended the regulations for borrowing and lending under the Foreign Exchange Management Act, 1999 (FEMA). What are the regulations for External Commercial Borrowing (ECB)? External Commercial Borrowing (ECB) means borrowing by an eligible borrower from a recognised lender. Eligible borrowers – Any person resident in India (other than an individual) that is incorporated, established or registered under a Central or State Act is an eligible borrower, provided such person is permitted for ECB in terms of applicable Acts. An eligible borrower that is under a restructuring scheme or corporate insolvency resolution process may raise ECB only if specifically permitted under the restructuring or resolution plan. An eligible borrower against whom any investigation, adjudication or appeal by a law enforcement agency for contravention of any rule, regulation or direction issued under FEMA is pending, may raise ECB notwithstanding the pending investigation or adjudi...
Post a Comment
Read more

Are banks deposits insured? (updated as on February 06, 2026)

People keep their savings (and earnings) in various bank accounts. But what happens if a bank fails (i.e. closes down)? Can the depositors get their money back? Are deposits with banks insured? What is deposit insurance? The deposits kept with the banks are insured by the banks with Deposit Insurance and Credit Guarantee Corporation (DICGC). In the event of failure of a bank, DICGC pays the depositors up to the insured amount of the deposits. Which banks are covered for deposit insurance? Public Sector Banks Private Sector Banks Foreign Banks – branches of foreign banks functioning in India Small Finance Banks Payment Banks Regional Rural Banks Local Area Banks State Co-operative banks District Central Co-op banks Urban Co-op  Primary cooperative societies are not insured by DICGC. A list of banks insured with DICGC is available at https://www.dicgc.org.in/FD_ListOfInsuredBanks.html Which deposits are covered for deposit insurance? DICGC insures all deposits such as savings, fixed,...
Post a Comment
Read more

Lending to Micro, Small & Medium Enterprises (MSMEs) Sector

Reserve Bank of India (RBI) has amended the directions on lending to Micro, Small & Medium Enterprises (MSMEs) sector. To whom shall the directions be applicable? The directions shall apply to Scheduled Commercial Banks (excluding Regional Rural Banks). Which enterprises are classified as Micro, Small or Medium? An enterprise shall be classified as a micro, small or medium enterprise based on the following criteria – Classification Maximum investment in plant and machinery or equipment And Maximum turnover Micro enterprise ₹2.5 crore ₹10 crore Small enterprise ₹25 crore ₹100 crore Medium enterprise ₹125 crore ₹500 crore What registrations are required to be made by MSMEs? MSMEs are required to register online on the Udyam Registration portal and obtain ‘Udyam Registration Certificate (URC)’. For priority sector lending purposes, banks shall be guided by the clas...
Post a Comment
Read more