Introduction
NPA identification does not follow one common 90-day rule for every type of bank advance.
Different facilities can have different tests.
For example:
bills purchased or discounted generally use an overdue test of more than 90 days;
qualifying agricultural advances use crop seasons instead of the normal 90-day test;
credit cards have their own minimum-amount-due test;
derivative receivables and securitisation liquidity facilities have specific 90-day conditions; and
certain secured and Government-guaranteed advances receive special treatment.
The 2026 IIBF BFM syllabus includes Asset Classification and Provisioning Norms under Module D.
As of September 2026, the applicable RBI framework for commercial banks is the Reserve Bank of India (Commercial Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025, updated as on July 1, 2026.
Learning Objectives
After studying this topic, you should be able to:
identify NPA status for bills purchased and discounted;
apply crop-season norms to eligible agricultural advances;
distinguish qualifying agricultural loans from loans subject to the normal 90-day rule;
understand special NPA treatment for selected facilities;
apply borrower-wise classification and important exceptions; and
solve CAIIB case studies without blindly applying the 90-day test.
Start with the Type of Facility
A useful CAIIB approach is:
Identify Facility → Find Applicable Regulatory Test → Establish Due Date/Trigger → Measure Default Period → Apply Special Exception, if any → Determine NPA Status
The main tests can be summarised as follows:
Facility | Main NPA Test |
|---|---|
Bills purchased/discounted | Bill overdue for more than 90 days |
Short-duration crop loan | Principal/interest overdue for two crop seasons |
Long-duration crop loan | Principal/interest overdue for one crop season |
Securitisation liquidity facility | Outstanding for more than 90 days |
Derivative receivable | Positive MTM receivable unpaid for prescribed 90-day period |
Credit card | Minimum amount due not fully paid within 90 days from payment due date |
These tests are prescribed in the current RBI Directions.
Bills Purchased and Discounted
A bill purchased or discounted becomes NPA when the bill remains overdue for more than 90 days.
The starting point is the bill’s contractual due date.
An unpaid bill should therefore be analysed as:
Due Date → Overdue → More than 90 Days → NPA
Case 1: Bill Unpaid after Maturity
A bank discounts a trade bill payable on August 1.
The bill is not paid on its due date and remains unpaid beyond the regulatory overdue period.
The bank should classify the bill as NPA once it satisfies the more-than-90-days overdue condition.
The existence of underlying goods, invoices or collateral does not by itself prevent the classification.
Bills Discounted under a Letter of Credit
Bills discounted under a Letter of Credit require additional care.
Under RBI’s specific rule, an LC-backed bill favouring a borrower need not automatically become NPA merely because another facility of that borrower has become NPA.
This is an important exception to the general borrower-wise classification principle.
Case 2: Borrower’s CC Becomes NPA but LC Bill Is Performing
A borrower has:
a CC facility that has become NPA; and
a bill discounted under a valid LC which is not yet due.
The LC-backed bill does not necessarily become NPA only because the CC account has become NPA.
The special RBI treatment for LC-backed bills must be examined separately.
When the Exception Ends
Suppose:
documents under the LC are not accepted on presentation; or
the issuing bank does not make payment on the due date for any reason; and
the borrower does not immediately reimburse the discounting bank.
In such a case, the outstanding discounted bill must be classified as NPA with effect from the date on which the borrower’s other facilities had been classified as NPA.
Agricultural Advances: Why the Test Is Different
Agricultural cash flows depend heavily on:
sowing;
growing period;
harvesting;
sale of produce; and
crop cycles.
Therefore, qualifying agricultural advances do not always use the normal 90-day delinquency test.
RBI provides separate norms based on crop seasons.
Short-Duration Crops
A loan for a short-duration crop becomes NPA when the instalment of principal or interest remains overdue for two crop seasons.
A short-duration crop is a crop that is not classified as a long-duration crop.
Case 3: Short-Duration Crop Loan
A farmer receives a qualifying crop loan for a short-duration crop.
The instalment remains unpaid after becoming due.
The examiner states that only one crop season has passed.
The account should not be classified as NPA merely by applying the ordinary 90-day test.
For the qualifying farm-credit facility, the relevant threshold is two crop seasons overdue.
Long-Duration Crops
A loan for a long-duration crop becomes NPA when principal or interest remains overdue for one crop season.
Under the current RBI Directions, a long-duration crop is one whose crop season is longer than one year.
Case 4: Long-Duration Crop
A farmer has a qualifying agricultural advance for a crop having a crop season longer than one year.
The amount remains overdue through one complete applicable crop season.
The account may satisfy the NPA condition.
A learner should not wait for two crop seasons merely because the borrower is an agriculturist.
Who Determines the Crop Season?
The State Level Bankers’ Committee (SLBC) in each State determines the crop season for each crop.
For regulatory purposes, crop season means the period up to harvesting of the crop.
Therefore, CAIIB questions may give:
the crop;
whether it is short or long duration; or
the relevant crop-season information.
Use the information supplied rather than inventing your own crop duration.
Crop-Season Norm Does Not Apply to Every Agricultural Loan
This is one of the most important exam traps.
Crop-season-based NPA treatment applies only to specified credit facilities extended for qualifying agricultural activities.
The current RBI Directions include, among others, eligible loans to individual farmers and specified farmer groups for:
crop production;
agricultural machinery and developmental activities;
pre- and post-harvest activities relating to their own produce;
eligible pledge/hypothecation loans against agricultural produce;
Kisan Credit Card facilities; and
certain other specified farm-credit activities.
RBI also prescribes conditions and limits for specified exposures to corporate farmers, FPOs/FPCs, partnerships and co-operatives of farmers.
For agricultural loans outside the specified eligible categories, NPA identification follows the same basis as non-agricultural advances—normally the applicable 90-day delinquency norm.
Case 5: Agriculture-Related Borrower but Non-Qualifying Facility
A borrower is involved in an agriculture-related business.
The loan does not fall within the qualifying farm-credit categories covered by the crop-season rule.
It would be incorrect to apply the two-crop-season rule merely because the borrower is associated with agriculture.
The normal NPA test applicable to that facility should be used.
Agricultural Term Loans
Crop-season norms may also apply to qualifying agricultural term loans, depending on the duration of crops raised by the agriculturist.
This means the word “term loan” does not automatically force the ordinary 90-day rule.
Case 6: Tractor Loan to an Eligible Farmer
Suppose an eligible farmer has a qualifying medium-term agricultural loan for farm machinery.
If the facility falls within the specified agricultural category, its classification may follow the applicable crop-season treatment.
Therefore, in a case study, determine the purpose and eligibility of the agricultural advance before selecting the NPA rule.
Natural Calamity and Rescheduled Agricultural Loans
Where a natural calamity affects repayment capacity, RBI permits specified relief and restructuring measures under the applicable regulatory framework.
Where qualifying agricultural loans are converted or rescheduled under the permitted framework:
the converted/rescheduled term loan and eligible fresh short-term loan may be treated as current dues; and
subsequent asset classification follows the revised repayment terms.
Thereafter, the crop-season NPA rules continue to apply as prescribed.
Case 7: Crop Failure after Natural Calamity
A farmer is unable to repay because of a notified natural calamity.
The bank validly restructures the eligible facility according to RBI relief measures.
It would be incorrect to continue measuring default only against the old repayment schedule.
The revised terms become relevant for subsequent classification.
PACS and Farmers’ Service Societies
RBI provides a specific treatment for advances to Primary Agricultural Credit Societies (PACS) and Farmers’ Service Societies (FSS) under the on-lending arrangement.
In such cases, only the particular credit facility that remains in default for the applicable crop-season period is classified as NPA, rather than automatically treating every facility granted to the PACS/FSS as NPA.
This is another exception to the usual borrower-wise approach.
Advances against Term Deposits, NSCs, KVPs and Life Policies
A special exemption exists for advances against:
term deposits;
eligible-for-surrender NSCs;
Kisan Vikas Patras; and
life insurance policies,
provided adequate margin is available in the account. Such advances need not be treated as NPAs merely under the normal delinquency approach.
Case 8: Loan against Term Deposit
A borrower has an advance fully backed by a term deposit with adequate margin.
Even if repayment irregularity appears, the special RBI provision must be considered before classifying the advance as NPA.
Do Not Extend the Exemption to Every Security
RBI specifically states that advances against:
gold ornaments;
Government securities; and
other securities
are not covered by this exemption.
Government-Guaranteed Advances
Government guarantees require careful distinction between Central Government and State Government guarantees.
Central Government Guarantee
Credit facilities backed by a Central Government guarantee may remain outside NPA classification despite being overdue until the Central Government repudiates the guarantee when invoked.
However, this special treatment does not provide the same exemption for income recognition.
State Government Guarantee
State Government-guaranteed advances do not receive the same NPA exemption.
They attract normal asset-classification and provisioning treatment when the amount remains overdue for more than 90 days, where applicable.
Case 9: Two Government-Guaranteed Loans
Loan A is guaranteed by the Central Government.
Loan B is guaranteed by a State Government.
Both have remained overdue beyond the normal threshold.
It would be incorrect to treat both accounts identically merely because each has a Government guarantee.
The nature of the guarantor matters.
Securitisation Liquidity Facility
Where a bank provides a liquidity facility in a securitisation transaction under the applicable RBI framework, the facility becomes NPA if the amount remains outstanding for more than 90 days.
Case 10: Liquidity Support Not Repaid
A bank provides a qualifying securitisation liquidity facility.
The amount drawn under the facility remains outstanding beyond the regulatory period.
The facility should be tested independently under the specific securitisation NPA rule rather than treated as an ordinary instalment loan.
Derivative Receivables
A derivative transaction can also create a receivable for the bank.
Where the bank has an overdue receivable representing the positive mark-to-market value of a derivative contract, it becomes NPA if it remains unpaid for the prescribed 90-day period from the specified payment due date.
For certain contracts where current MTM is settled before maturity, RBI specifies that the current credit exposure, rather than potential future exposure, is classified as NPA after the applicable overdue period.
Case 11: Unpaid Derivative MTM
A corporate owes the bank a crystallised positive MTM payment under a derivative contract.
The receivable remains unpaid beyond the prescribed period.
The bank cannot ignore it merely because it is not a conventional loan.
It can become a non-performing asset under the derivative-specific rule.
For overdues arising from forward contracts and plain vanilla swaps and options, borrower-wise classification can also affect other funded facilities granted to the client.
Credit Card Accounts
A credit-card account becomes NPA when the minimum amount due, as mentioned in the statement, is not paid fully within 90 days from the payment due date stated in the card statement.
This test is different from asking whether the entire credit-card balance has been paid.
Case 12: Partial Minimum Amount Due
The card statement shows a minimum amount due of ₹10,000.
The customer repeatedly pays only ₹5,000 and the minimum amount due is not fully cleared within the prescribed period.
The account can satisfy the NPA condition even though some payments have been received.
Export Project Finance – Special Situation
RBI also provides specific treatment where:
an overseas importer has actually paid the amount into a bank abroad before the asset became NPA; but
remittance to India cannot take place because of events such as war, political disturbance or an embargo.
If documentary evidence establishes the payment abroad, asset classification may be deferred as prescribed, including the special one-year period from the date the importer deposited the amount abroad.
The key point is that the borrower has effectively paid, but transmission of funds is blocked by external circumstances.
General Borrower-Wise Rule Still Matters
Except where RBI prescribes a specific exception, asset classification generally operates borrower-wise rather than facility-wise.
This means all facilities granted by the bank to a borrower and investments in securities issued by that borrower may need corresponding NPA/NPI treatment when one facility becomes non-performing.
Important exceptions or special treatments include:
specified LC-backed bills;
certain PACS/FSS on-lending facilities; and
other cases expressly provided by RBI.
Therefore, in a case study:
Apply the general rule first → then check whether RBI provides a specific exception.
Practical Case-Study Method
When the exam gives several facilities together, use the following approach.
Step 1: Identify the Facility
Is it:
a bill;
crop loan;
agricultural term loan;
secured advance;
Government-guaranteed facility;
derivative;
credit card; or
another special exposure?
Step 2: Identify the Correct Trigger
Examples:
bill due date;
applicable crop season;
derivative payment date;
credit-card payment due date; or
guarantee invocation and repudiation.
Step 3: Apply the Correct Time Test
Do not replace crop seasons with 90 days.
Do not assume every special facility uses the ordinary loan test.
Step 4: Check Eligibility
For agriculture, confirm whether the loan actually qualifies for crop-season treatment.
For specified secured advances, confirm that the instrument is eligible and adequate margin exists.
Step 5: Check Specific Exceptions
Examples include:
LC-discounted bills;
Central Government guarantees;
PACS/FSS facilities; and
permitted natural-calamity restructuring.
Step 6: Apply Borrower-Wise Classification Where Required
Only after checking the special rules should the final classification be determined.
CAIIB Exam Focus
1. Bills Purchased and Discounted
Remember:
More than 90 days overdue → NPA
2. Short-Duration Crops
Remember:
Two crop seasons overdue
3. Long-Duration Crops
Remember:
One crop season overdue
4. Long Duration Means More Than One Year
The crop season, not the loan tenure, determines whether the crop is long duration.
5. Crop-Season Rules Are Not for Every Agriculture-Related Loan
Check whether the facility falls within the specified agricultural categories.
6. LC-Backed Bills Can Have Special Treatment
Do not blindly apply borrower-wise classification without checking the LC exception.
7. Specified Secured Advances Have a Limited Exemption
Term deposits, eligible NSCs, KVPs and life policies may receive special treatment with adequate margin.
Gold ornaments and Government securities do not automatically receive this exemption.
8. Central and State Government Guarantees Differ
A Central Government guarantee has a special asset-classification treatment linked to repudiation when invoked.
State Government-guaranteed advances generally follow applicable overdue norms.
9. Derivatives Can Become NPAs
An unpaid positive MTM receivable is not outside the IRAC framework.
10. Credit Card Test Uses Minimum Amount Due
Do not confuse the minimum amount due with the total card outstanding.
Common Exam Traps
Trap 1: “Every Loan to an Agriculturist Uses Crop-Season Norms”
Wrong. The facility must qualify under the specified agricultural-credit categories.
Trap 2: “Every Agricultural Loan Becomes NPA after Two Crop Seasons”
Wrong. A long-duration crop uses one crop season.
Trap 3: “Long-Duration Means Loan Tenure Exceeds One Year”
Wrong. RBI defines it by the crop season, not loan maturity.
Trap 4: “If Another Facility Is NPA, Every LC-Discounted Bill Must Immediately Become NPA”
Not necessarily. RBI provides specific treatment for certain LC-backed bills.
Trap 5: “Any Loan Fully Covered by Security Is Exempt”
Wrong. The special exemption applies only to specified instruments subject to applicable conditions.
Trap 6: “Central and State Government Guarantees Have Identical NPA Treatment”
Wrong. Their regulatory treatment differs.
Trap 7: “Derivatives Cannot Be NPAs Because They Are Not Loans”
Wrong. An overdue positive MTM receivable can become NPA under RBI rules.
Trap 8: “Any Payment Keeps a Credit Card Standard”
Wrong. The minimum amount due must be fully paid within the prescribed period.
Memory Technique
Remember the sequence:
B – 90 | S – 2 | L – 1
Bill → more than 90 days
Short-duration crop → 2 crop seasons
Long-duration crop → 1 crop season
For special facilities, remember:
S-D-C-G
S = Securitisation liquidity facility
D = Derivative receivable
C = Credit card
G = Government-guaranteed advance
Then check the specific RBI rule before deciding the NPA status.
Practical Banking Application
Consider a branch reviewing four irregular accounts.
Account A: A trade bill has remained unpaid beyond its prescribed overdue period.
Apply the bills-purchased-and-discounted NPA test.
Account B: A qualifying crop loan for a short-duration crop has remained overdue for only one crop season.
Do not automatically apply the 90-day rule. Test it against the two-crop-season requirement.
Account C: A loan is backed by a Central Government guarantee and has become overdue.
Before classifying it as NPA, examine whether the guarantee has been invoked and repudiated, while separately remembering the income-recognition treatment.
Account D: A credit-card customer has made small payments but has not fully cleared the minimum amount due within the prescribed 90-day period.
Apply the credit-card-specific NPA test.
The exam principle is therefore:
Different Facility → Different Trigger → Different NPA Test
Correct classification depends on recognising the facility first and only then applying the applicable RBI rule.