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Module: General Practice

Q41: Regarding the "Upgradation of Loan Accounts" classified as NPAs, consider the specific regulatory requirement clarified by the RBI: "An NPA account can be upgraded to Standard Asset category only if __." Which statement correctly fills the blank?

A
Partial overdue interest is paid covering at least 50% of the outstanding dues.
B
The principal overdue is cleared, even if interest remains pending.
C
The entire arrears of interest and principal are paid by the borrower.
D
The account shows satisfactory performance for 60 days after partial payment.
✅ Correct Answer: C
🎯 Quick Answer:
An NPA can only be upgraded to Standard if the entire arrears (interest + principal) are paid.
Concept Definition: This is known as the "Clean Record" or "Zero Tolerance" on arrears for upgradation.
Structural Breakdown: 1. The Rule: Partial payments do not allow for an upgrade.
If the borrower pays 90% of the overdue amount, the account remains NPA.
2. Implications: This prevents "evergreening" where borrowers pay just enough to slip under the 90-day radar.
3. Exception: For accounts undergoing restructuring, upgradation happens only after a "monitoring period" of satisfactory performance (usually 1 year), but for normal NPAs, immediate upgradation requires full clearance of overdues.
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