What is Standard Assets?

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Before understanding the meaning of the standard assets in NPA, you should know that the repayment status of a bank's assets determines how they are categorised. Asset quality is divided into Standard assets, Non-Performing Assets, Substandard assets, Doubtful assets, and Loss assets. When classifying assets for a bank into different categories, it is important to consider credit vulnerabilities and how heavily the bank depends on collateral security to collect debts.

Each year in the end, within two months of the year's end, banks are required to submit the stipulated proforma with the NPA data to the Regional Office of the Reserve Bank.

A standard asset is one that does not reveal any issues and does not pose higher than usual business risks. An NPA shouldn't exist for such an asset. After understanding the standard assets meaning, let us focus on the provisions.

• The banks should make a general provision of at least 0.25 percent on standard assets starting with the fiscal year that concluded on March 31, 2000.

• However, Tier II banks (unit banks, banks with many branches in a single district, and all other UCBs operating in more than one district) will be subject to stricter standards for provisioning on standard assets, as follows:

1. From the current level of 0.25 percent, the general provisioning need for "standard advances" will increase to 0.40 percent. Direct loans to the agricultural and SME sectors, which are considered standard assets, would still be subject to the same 0.25 percent of funded outstanding on a portfolio basis provisioning requirement as before.

2. The provisioning requirement for loans and advances to systemically important NBFCs would be 2.0% for personal loans, loans and advances qualifying as capital market exposures, and commercial real estate loans. Banks serving wage earners in Tier II may offer conventional assets for personal loans at a rate of 0.4 percent.

• The provisions for "standard assets" do not have to be deducted from gross advances; instead, they should be listed separately as "Contingent Provision against Standard Assets" under "Other Funds and Reserves" in the Balance Sheet's "Other Funds and Reserves" item.2 (viii) of Capital and Liabilities.

• With the Board of Directors' approval, additional provision needed for Standard Assets may be segregated from Bad and Doubtful Debt Reserve and parked under the heading "Contingent Provisions against Standard Assets" if banks are already maintaining excess provision for impaired credits above what is required/prescribed by Statutory Auditor/RBI Inspection. Any shortfall on this account, if any, may be made up in the regular course of business.

• The aforementioned dependent provision will be qualified for Tier II capital inclusion.

I would like to conclude here my discussion about the standard assets in NPA. I hope this helps:)

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