## NPA Classification: Security-Based Categories

When an account is already classified as NPA, the realisable value of security determines whether it falls into Doubtful or Loss category.

### Doubtful Asset

An NPA is classified as a Doubtful Asset when:

Realisable value of security < 50% of the value assessed by Bank/RBI at the last inspection.

### Loss Asset

An NPA is classified as a Loss Asset when:

Realisable value of security < 10% of the outstanding balance in the borrower's account.
Also applies where there is erosion in value of security or fraud committed by the borrower.

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## Agricultural Advances – NPA Norms

### Crop Duration Classification

Type	Criterion
Long Duration Crop	Crop season > 1 year
Short Duration Crop	Crop season ≤ 1 year (not treated as long duration)

> Note: Crop season for each crop is decided by the State Level Banker's Committee in each state.

### NPA Trigger (Agricultural Advances including Crop Term Loans)

Crop Type	NPA if installment (Principal + Interest) overdue for
Short Duration Crop	> 2 crop seasons
Long Duration Crop	1 crop season

### Advances Against Term Deposits, NSC, etc.

These advances are NOT to be treated as NPA if adequate margin is available — even if interest/principal is overdue.

Worked example

### Example 1

Short Duration Crop NPA Date Calculation:

Crop season = 5 months (short duration).

Disbursement date = January 2025.

Due date of payment = 30 June 2025.

Borrower does not pay on time.

For NPA: overdue for 2 crop seasons = 2 × 5 months = 10 months.

NPA date = 30/06/2025 + 10 months = 30/04/2026.

### Example 2

Advances Against FD – Adequate Margin Test:

Loan outstanding = ₹8,00,000 | Security (FD) = ₹10,00,000 | Interest rate = 10%

Year 1 outstanding = 8,00,000 + 10% = ₹8,80,000 → FD value ₹10,00,000 → Adequate margin ✓

Year 2 outstanding = 8,80,000 + 10% = ₹9,68,000 → FD value ₹10,00,000 → Adequate margin ✓

Year 3 outstanding = 9,68,000 + 10% = ₹10,64,800 → FD value ₹10,00,000 → Margin INADEQUATE ✗

At Year 3, adequate margin no longer exists, so the account can now be classified as NPA.

(Assumed: no repayment made in 3 years.)

⚠️ Common exam mistakes

Confusing Doubtful Asset threshold (50% of security value) with Loss Asset threshold (10%) — always anchor: Doubtful = <50%, Loss = <10%.
Applying standard 90-day NPA rule to agricultural advances. Agricultural advances use crop-season-based rules, not calendar days.
Forgetting that short duration crop NPA requires overdue for >2 crop seasons (not just 1), while long duration crop requires only 1 crop season.
Treating advances against FD/NSC as automatically NPA — they are excluded from NPA classification as long as adequate margin exists.
Using a fixed crop season duration nationally — crop seasons are determined state-by-state by the State Level Banker's Committee.

Reference: — RBI Master Circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning

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NPA Classification Based on Security Value & Agricultural Advances

Worked example