Rupee Bank Ltd. is suffering from huge number of NPAs. During the month of April 2025, the management of the bank decided to sell some of its NPAs. Bank is doing this exercise for the first time. The management has selec

In case of Sale of Non-Performing Assets (NPA) by Bank, the internal auditor should examine that: The policy laid down by the Board of Directors in this regard relating to procedures, valuation and delegation of powers including non-performing financial assets that may be sold, norms of such sale, valuation procedure and accounting policy. The transferor can transfer loans only after a minimum holding period (MHP), as prescribed below, which is counted from the date of registration of the underlying security interest with Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI): Three months in case of loans with tenor of up to 2 years; Six months in case of loans with tenor of more than 2 years. Provided that in case of loans where security does not exist or security cannot be registered with CERSAI, the MHP shall be calculated from the date of first repayment of the loan. the assets have been sold 'without recourse' only i.e., the entire credit risk associated with the non-performing asset should be transferred to the purchasing bank. subsequent to the sale of the NPA, the bank does not assume any legal, operational or any other type of risk relating to the sold NPAS. the NPA has been sold at cash basis only. Under no circumstances, NPA can be sold to another bank at a contingent price. The entire sale consideration has to be received on upfront basis. the bank has not purchased an NPA which it had originally sold. on the sale of the NPA, the same has been removed from the books of the account of selling bank on transfer; If the sale is at a price below the net book value (NBV) (i.e., book value less provisions held), the shortfall should be debited to the profit and loss account of that year. If the sale is for a value higher than the NBV, the excess provision shall not be reversed but will be utilised to meet the shortfall or loss on account of sale of other non-performing financial assets. In the given situation, management of Rupee Bank Ltd. is considering to sell following NPAS, during the month of April, 2025: Name NPA since F.Y. Amount (₹ in Lakh) ABC Ltd. 2020-21 28.34 AEF Pvt. Ltd. 2019-20 56.65 VXY Fabric Corporation 2022-23 38.60 KOT Iron Works 2023-24 41.70 JKL & Associates 2021-22 60 In view of above-mentioned conditions, if the criteria of minimum holding period has been satisfied, management of Rupee Bank Ltd. can sell the NPAS.