WHAT IS A BAD LOAN?
An account is termed as a bad loan or NPA when a borrower fails to pay his bank monthly-equated installment. According to banking rules, a loan is classified as an NPA when the EMI, principal or interest component, is not paid within 90 days from the due date. When an asset ceases to generate any income, it's termed as a bad loan. There are classifications of loans — standard, sub-standard, doubtful and loss assets. In order to ensure that banks are not affected due to defaults, regulator RBI has mandated them to make provisions or set aside money when an account turns bad.
WHAT'S A STANDARD A/C?
If the borrower pays his dues regularly it is classified as a standard account. The RBI has asked banks to make provisions also for standard loans. Provision on all types of standard loan is 0.40% of the loan amount.
WHAT IS A SUBSTANDARD ASSET?
An asset is sub-standard when it remains as a bad loan for a period less than or equal to 12 months. In such loans, the net worth of the borrower or the market value of the security charged is not enough to ensure entire recovery of the dues. The provision to be set aside for sub-standard loan is 15% of the overdue amount.
WHAT IS A DOUBTFUL ASSET CATEGORY?
When an asset remains in the sub-standard category for 12 months it is classified as doubtful asset. Recovery of the full value of the overdue is highly questionable and mostly improbable.
WHAT IS A LOSS ASSET?
A loss asset is when a bank acknowledges that there is little or no value in retaining the account on its book and ideally, such loans should be written off. The RBI has mandated banks to provide 100% for the outstanding dues.
IS IT POSSIBLE TO UPGRADE AN A/C FROM AN NPA TO STANDARD CATEGORY?
When a borrower pays arrears of interest a interest rate is lowered.nd principal, the account can be upgraded from an NPA category to a standard loan category. Often banks restructure a loan account by giving borrowers more time to repay dues and at times
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