National Bank has advanced cash credit facility of 25 Lakh to Sun Industries. Following is the extract of account of Sun Industries reflecting in…

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 orIn 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; orcredits 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 25lacs, 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.