## Asset Classification and Provisioning Norms
### Four Categories of Loan Assets
| Category | Description |
|---|---|
| Standard | Performing account; no NPA; borrower is current on all dues |
| Substandard | NPA for ≤ 12 months |
| Doubtful | NPA for > 12 months |
| Loss | NPA where loss is identified by bank/auditor/RBI; little or no recovery expected |
### Deterioration Timeline
```
Standard → SMA-0 → SMA-1 → SMA-2 → Substandard → Doubtful D1 → D2 → D3 → Loss
(NPA ≤12 mo) (1yr) (1-3yr) (>3yr)
```
---
### Provisioning Requirements
#### Substandard Assets
- Flat 15% on the outstanding loan balance (no split into secured/unsecured).
---
#### Doubtful Assets — Secured vs. Unsecured Split First
Step 1 — Identify Secured and Unsecured Portions:
> Secured Portion = Lesser of (Outstanding Loan Amount, Realisable Value of Security)
> Unsecured Portion = Outstanding Loan Amount − Secured Portion
Step 2 — Apply Provision %:
| Sub-category | NPA Duration | Provision on Secured | Provision on Unsecured |
|---|---|---|---|
| D1 | Up to 1 year in Doubtful | 25% | 100% |
| D2 | 1–3 years in Doubtful | 40% | 100% |
| D3 | More than 3 years | 100% | 100% |
---
#### Loss Assets
- 100% provision on the entire outstanding balance.
---
### Why the Secured/Unsecured Split Matters
The bank can potentially recover the secured portion by selling the collateral. The unsecured portion has no backing and is treated as fully lost from Day 1 of Doubtful classification — hence 100% provision regardless of D1/D2/D3.