M/s JKL & Associates, Chartered Accountants, are the statutory auditors of M/s IBS Bank Limited for the financial year 2024-25. During the…

Classification of Non-Performing Asset (NPA) & Treatment of Interest Income: (i) Short-Term Crop Loan: As per RBI norms, a loan granted for short-duration crops is to be classified as NPA only if the installment remains overdue for two crop seasons. In the given case, the installment is overdue for only one crop season, hence, the account is not classified as NPA. Therefore, the interest income of 5lakh can be recognised in the financial statements. (ii) Advance Guaranteed Equally by Government of India and Government of Tamil Nadu: If an advance is guaranteed by the Central Government, it need not be classified as NPA until the guarantee is invoked and repudiated. Thus, Central Government guaranteed Advances, where the guarantee is not invoked/ repudiated would be classified as Standard Assets but regarded as NPA for Income Recognition purpose. The situation would be different if the advance is guaranteed by the State Government, where advance is to be considered NPA if it remains overdue for more than 90 days for both Provisioning and Income recognition purposes. In the given case, since the guarantee is shared equally between the Central Government and the State Government (Tamil Nadu), and the installment is overdue for more than 6 months, the portion of loan guaranteed by the Central Government (50%) is not to be classified as NPA unless the guarantee is invoked and repudiated. The remaining 50%, guaranteed by the State Government, must be classified as NPA as the installment is overdue for more than 90 days. Thus, Amount to be classified as NPA will be - 3.5 lakh (i.e., 50% of 7lakh) and amount of interest income to be recognised will be 5lakh.