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be considered as “significant”, requiring the asset to be classified as doubtful straightaway
and provided for adequately.
The realizable value of security as assessed by bank/approved valuers /RBI is less than 10%
of the outstanding in the borrower accounts, the existence of the security should be
ignored, and the asset should be classified as loss asset. In such cases the asset should either
be written off or fully provided for.
QNO NPA (Cash Credit- Cases Study) Old Course -- (M21E)
BA.07.50 Bhaskar CNO - BA.240 New Course -- (SM25/S24M/S24E)
National Bank has advanced cash credit facility of ₹ 25 Lakh to Sun Industries. Following is the extract of
account of Sun Industries reflecting in CBS of Bank from December 1, 2023 to March 31, 2024: -
Date Particulars Dr. Cr. Balance (Dr.)
01/12/2023 To Transfer 45,000 24,75,000
31/12/2023 By Clearing 1,00,000 23,75,000
31/12/2023 To Interest 25,000 24,00,000
31/01/2024 To Interest 24,700 24,24,700
29/02/2024 To Interest 24,800 24,49,500
31/03/2024 To Inspection charges 1,000 24,50,500
31/03/2024 To Interest 24,900 24,75,400
Drawing power during the above period was consistent at ₹ 25 Lakh. The account was classified as
“Standard asset” as on 31.12.2023 in books of Bank. The security charged with the bank remains intact
throughout this period.
Comment on “asset classification” of above account as on 31st March 2024 in books of Bank in accordance
with RBI norms.
OR
N Ltd. has been sanctioned a Cash Credit Facility by XYZ Bank Ltd. for INR 1 crore and drawing power as
per the Stock Statements furnished for the last quarter is INR 80 Lakh. Outstanding balance in the account
is INR 75 lakh. Interest charged to the account is INR 3.5 Lakh and total credit into the account for the
quarter is INR 2.5 Lakh. As an auditor how will you report this account in your report.
OR
K Ltd. is availing cash credit limit of ₹ 25 crores from LMN Bank Ltd. The drawing power of the company
range between ₹ 22 crores and ₹ 25 crores during the year 2023-24. The limit availed by the company
remained less than ₹ 20 crores during all the days of the financial year 2023-24. The company has not
deposited any amount in the cash credit account and there are no other credits to this account during the
last two quarters. How will this account be classified in the books of LMN Bank Ltd. as on 31-03-2024?
Explain.
Answer In accordance with RBI norms on asset classification, a non-performing asset is a loan or advance where
the account remains “out of order” in respect of an Overdraft/Cash Credit.
An account should be treated as ‘out of order’ if:
the outstanding balance remains continuously in excess of the sanctioned limit/drawing power
or
In cases where the outstanding balance in the principal operating account is less than the
sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the
date of Balance Sheet; or
credits are there but are not enough to cover the interest debited during the same period.
In the given case, although outstanding balance in account is less than sanctioned limit/drawing power
of ₹ 25 lacs, there are no credits continuously for 90 days as on the date of Balance sheet. Therefore,
it has become out of order and is required to be classified as NPA.
Under non-performing assets, it would be classified as “Sub-Standard Asset” as it has remained NPA
for a period of less than or equal to 12 months.
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