Temporary Deficiencies
The classification of an asset as NPA should be based on the record of recovery. Bank should not classify an advance account as NPA merely due to the existence of some deficiencies which are temporary in nature such as non-availability of adequate drawing power based on the latest available stock statement, balance outstanding exceeding the limit temporarily, non submission of stock statements and non-renewal of the limits on the due date, etc. In the matter of classification of accounts with temporary deficiencies, banks have to follow the following guidelines:
(a) Banks should ensure that drawings in the working capital account are covered by the adequacy of the current assets, since current assets are first appropriated in times of distress. Drawing Power is required to be arrived at based on current stock statement. Proper computation of drawing power (as per Bank’s policy) is imperative as the advances are to be checked with reference thereto. The creditors (for Goods) should be reduced from the stock and debtors within the stipulated period while
calculating the drawing power. However, considering the difficulties of large borrowers, stock statements relied upon by the banks for determining drawing power should not be older than three months. In case of consortium accounts, the drawing power calculation and allocation is made by the Lead Bank and is binding on the Member Banks (circular no. No. C&I/Circular/2014-15/689 dated 29 September 2014 issued by the Indian Banks Association).
(b) The outstanding in the account based on drawing power calculated from stock statements older than three months is deemed as irregular.
(c) A working capital borrowing account will become NPA if such irregular drawings are permitted in the account for a continuous period of 90 days even though the unit may be working or the borrower’s financial position is satisfactory.
(d) Regular and ad hoc credit limits need to be reviewed/ regularised not later than three months from the due date/date of ad hoc sanction. In case of constraints such as non-availability of financial statements and other data from the borrowers, the branch should furnish evidence to show that renewal/ review of credit limits is already on and would be completed soon. In any case, delay beyond six months is not considered desirable as a general discipline. Hence, an account where the regular/ adhoc credit limits have not been reviewed/ renewed within 180 days from the due date/ date of adhoc sanction will be treated as NPA.