Core ConceptRead this first — the foundation of the topic
NPA CLASSIFICATION — 3 STAGES
Stage 1 — Sub-Standard Asset:
NPA for less than or equal to 12 months. Bank sets aside 15% provision on secured loans
Stage 2 — Doubtful Asset
NPA for MORE than 12 months
Split into 3 sub-stages
• Doubtful-1: 12 to 24 months NPA → 25% provision
• Doubtful-2: 24 to 36 months NPA → 40% provision
• Doubtful-3: More than 36 months NPA → 100% provision
Stage 3 — Loss Asset:
Loan is uncollectable. Full 100% provision required. May or may not be written off
QUICK FORMULA — NPA TIMELINE
NPA trigger = 90 days of non-payment (non-agri loans)
Sub-Standard = NPA up to 12 months
Doubtful = NPA beyond 12 months
Loss = Declared uncollectable
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PART 2 — SARFAESI ACT, 2002
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Full form: Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
In simple terms: If you do not repay your loan, the bank can TAKE your property and SELL it without filing a court case. This saves time and money for banks
KEY RULES OF SARFAESI
• Bank sends a 60-day notice to the defaulter before taking action.
• Applies only when loan amount is above Rs. 1 lakh (originally Rs. 1 lakh; later amended — important: for agriculture land, SARFAESI does NOT apply).
• Borrower can approach Debt Recovery Tribunal (DRT) to challenge the bank's action.
• Bank can take possession of collateral (security) and auction it.
• SARFAESI does NOT apply to unsecured loans (loans with no property as security)
ARC — Asset Reconstruction Company
Buys bad loans from banks at a discount and tries to recover money.
2
SC — Securitisation Company
Converts loans into securities.
ShortcutsUse these to save 30–60 seconds per question
KEY TERMS
• NCLT — National Company Law Tribunal: Handles corporate insolvency cases.
• NCLAT — National Company Law Appellate Tribunal: Appeal body above NCLT.
• IRP — Interim Resolution Professional: Takes control of the company during the process.
• CoC — Committee of Creditors: Group of lenders who decide the company's fate.
• Resolution Plan: A plan submitted by a buyer to revive the company
TIME LIMITS UNDER IBC — MOST EXAM-TESTED FACT
• Resolution must be completed in 180 days.
• Can be extended by 90 days more (total 270 days max).
• After 2019 amendment: Hard deadline of 330 days including court time.
• Minimum default amount to file under IBC = Rs. 1 crore (raised from Rs. 1 lakh in March 2020 during COVID)
SHORTCUT FORMULA — IBC TIMELINE
Base period = 180 days
Extension = + 90 days
Hard cap = 330 days (post-2019 amendment)
Who can file under IBC?
• Financial Creditor (like a bank) OR
• Operational Creditor (like a supplier) OR
• The Corporate Debtor itself.
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Worked ExampleSolve this step-by-step before moving on
1
Step 1
Count the days of non-payment.
From 1 Jan 2023 to 1 March 2023 = 90 days → Becomes NPA on 1 April 2023 (approx).
2
Step 2
How long has it been NPA?
From April 2023 to March 2024 = approximately 11-12 months.
3
Step 3
Apply classification rule.
• NPA up to 12 months = Sub-Standard.
• NPA beyond 12 months = Doubtful.
Answer: The loan is at the boundary of Sub-Standard moving to Doubtful-1. It is classified as Sub-Standard Asset (just under 12 months as NPA).
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WORKED EXAMPLE 2 — IBC TIMELINE
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Q: A company's insolvency process started on 1st June 2023. The basic resolution period ended without a plan. The creditors applied for an extension. By which date must the process be completed?
1
Step 1
Basic period = 180 days from 1 June 2023 = 28 November 2023.
2
Step 2
Extension allowed = +90 days = 27 February 2024.
3
Step 3
As per hard cap = 330 days from start = 27 April 2024.
Answer: Maximum deadline = 330 days from 1 June 2023 = approximately 27 April 2024.
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COMMON TRAP — #1 MISTAKE STUDENTS MAKE
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TRAP: Students confuse SARFAESI notice period (60 days) with IBC timeline (180 days) and DRT appeal window (45 days). In exams, all three numbers appear in the same question as options.
REMEMBER:
• 60 days = SARFAESI notice to borrower
• 45 days = DRT appeal window under SARFAESI
• 90 days = NPA trigger (non-payment period)
• 180 days = IBC base resolution period
• 270 days = IBC with one extension
• 330 days = IBC hard cap
Key Points to Remember
NPA is triggered when loan repayment is overdue for 90 days (for non-agricultural loans).
NPA Classification: Sub-Standard (up to 12 months) → Doubtful (12-36 months) → Loss Asset (uncollectable).
Which of the following best describes the difference between Gross NPA and Net NPA?
Practice 2medium
Under the SARFAESI Act, 2002, a bank can initiate asset seizure proceedings without obtaining a court order for loan defaults exceeding which amount?
Practice 3medium
A loan account is classified as 'Sub-standard' NPA if the default period falls within which timeframe?
Practice 4medium
Under the Insolvency and Bankruptcy Code (IBC), 2016, what is the maximum statutory timeline for completion of the Corporate Insolvency Resolution Process (CIRP)?
Practice 5medium
Which authority is responsible for adjudicating insolvency petitions and overseeing the Corporate Insolvency Resolution Process under the IBC, 2016?
Practice 6medium
What is the provisioning requirement for a loan classified as 'Doubtful' NPA that has remained in default for 24 months?
Practice 7medium
A loan account is classified as 'Doubtful' under RBI's NPA classification norms when the asset remains non-performing for a period of:
Practice 8medium
Under the Insolvency and Bankruptcy Code (IBC), 2016, what is the maximum timeline for completion of the Corporate Insolvency Resolution Process (CIRP) including any extension?
Practice 9medium
Under Basel III norms applicable in India, what is the minimum Capital Adequacy Ratio (CRAR) that banks must maintain?
Practice 10medium
Under the SARFAESI Act, 2002, a bank can initiate asset seizure proceedings without obtaining a court order for loan defaults. What is the minimum amount of dues that must be outstanding for the bank to invoke SARFAESI provisions?
Practice 11medium
A bank classifies a loan account as NPA (Non-Performing Asset) when principal or interest remains unpaid for a specified period. Under current RBI guidelines, what is the maximum duration an account can remain in the 'Sub-standard' NPA category before being downgraded to 'Doubtful'?
Practice 12hard
A bank's Gross NPA ratio is 3.5% and its Net NPA ratio is 1.8%. Which of the following statements correctly explains the relationship between these two metrics?
Practice 13hard
A bank sells a non-performing asset (NPA) to an Asset Reconstruction Company (ARC) at a discount. The ARC issues Security Receipts (SRs) to the bank. What does the redemption of these Security Receipts represent?
Practice 14hard
Under the SARFAESI Act, 2002, a bank can initiate asset seizure proceedings without obtaining a court order. What is the minimum threshold amount of dues for which this power is exercisable?
Practice 15hard
A bank classifies a loan account as 'Doubtful' under NPA norms. For how long must the account remain in the 'Sub-standard' category before it can be classified as 'Doubtful'?
Practice 16hard
Under the Insolvency and Bankruptcy Code (IBC), 2016, what is the maximum time period within which a Corporate Insolvency Resolution Process (CIRP) must be completed, including all extensions?
Practice 17hard
A bank's Gross NPA ratio is 3.5% and its Net NPA ratio is 1.2%. Which of the following best explains the difference between these two ratios?
Practice 18hard
Under the SARFAESI Act, 2002, a bank can initiate asset seizure proceedings without obtaining a court order for non-performing advances. What is the minimum threshold amount of dues that triggers this provision?
Practice 19hard
A bank classifies an advance as 'Doubtful' under NPA norms. What is the maximum period for which an advance can remain in the 'Doubtful' category before it must be classified as 'Loss'?
Practice 20hard
Under the Insolvency and Bankruptcy Code (IBC), 2016, what is the statutory timeline for completion of the Corporate Insolvency Resolution Process (CIRP) from the date of admission of the application by the NCLT?
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SARFAESI shortcut: 60 days notice → possession → auction; borrower appeals to DRT within 45 days.
Trap: SARFAESI does NOT apply to agricultural land and unsecured loans — always verify this in options.
Formula IBC: 180 + 90 = 270 days (max with extension); hard cap = 330 days including court delays (post-2019 amendment).
Remember: IBC minimum threshold = Rs. 1 crore (changed in March 2020 from Rs. 1 lakh); NCLT handles corporate cases.
Trap: Do not mix up 60 days (SARFAESI notice), 45 days (DRT appeal), 90 days (NPA trigger), and 180 days (IBC base period) — all are favourite MCQ distractors.