## NPA Income Recognition — Miscellaneous Points
### (i) Memorandum Account
For NPA accounts, interest income is recognised on a cash basis only — not on accrual.
However, the bank may record the interest accrued in a Memorandum Account purely for internal control purposes (to track what would have been earned).
> Critical rule: Interest recorded in the Memorandum Account must NOT be included when computing Gross Advances. It has no balance-sheet recognition.
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### (ii) Leased Assets Becoming NPA
When a leased asset is classified as NPA:
- Any financing income that was previously accrued (under accounting standards for leases) must be reversed or provided for.
- You cannot continue to hold past-accrued income once the asset turns NPA.
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### (iii) Partial Recovery in NPA
If a payment is received against an NPA account:
- Income is recognised on realisation basis only.
- Whether recovery is partial or full → Add to income only the amount actually received.
- However, do NOT upgrade the NPA account to Standard unless and until it is fully recovered.
> Receiving some money does not restore the credit quality of the account — classification remains NPA until the entire dues are cleared.
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### (iv) Out-take Finance (Loan Sold to Another Institution)
When a bank (e.g., HDFC Bank) sells a loan (that was NPA in its books) to another financial institution:
- The NPA status of the loan carries over — the acquiring institution cannot treat it as a standard asset simply because it acquired it.
- The classification in the old books was NPA, and the acquiring entity must continue treating it as NPA.