Question
Download Solution PDFAn asset that has remained in the substandard category for a period of 12 months is classified as a_______ asset by a bank.
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is Doubtful.
Key Points
- Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
- A non-performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
- A loan is in arrears when principal or interest payments are late or missed. A loan is in default when the lender considers the loan agreement to be broken and the debtor is unable to meet his obligations.
- Banks are required to classify NPAs further into Substandard, Doubtful, and Loss assets, depending on the length of time overdue and probability of repayment.
- Substandard assets:
- Assets which has remained NPA for a period less than or equal to 12 months.
- Loss assets:
- As per RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value”.
Last updated on Jul 14, 2025
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