Ajith Menon, is the Auditor of Trivandrum Branch of XYZ Bank. He verified the provisions made by the Branch as on 31st March, 2024 in respect of the following Non-performing Assets: Name of the Account NPA Category Balan

The Bank is required to ensure that provision for NPA is made as per its Classification in different categories which are given as under: Categories of Non-Performing Assets Provision required Substandard Assets: Would be one, which has remained NPA for a period less than or equal to 12 months (Secured + Unsecured) 15% Doubtful Assets: Would be one which has remained in the Substandard Category for a period of 12 months (Secured + Unsecured) Sub-Categories: Doubtful upto 1 Year (D1) 25%+100% Doubtful 1 to 3 Years (D2) 40%+100% Doubtful more than 3 Years (D3) 100%+100% Loss Assets 100% From the above provisions, the correctness of the provisions can be commented as follows: Raju Industries: It has been Classified as Doubtful (D1) Category. Therefore, it requires provision of 25% of Secured Amount. That is Provision of ₹ 2.50 Lakhs (25% of ₹ 10 Lakhs) should be made instead of ₹ 5 Lakhs. The provision made is incorrect. AJK Tyres: It has been Classified as Substandard Asset. It requires provision of 15% of outstanding amount (i.e., 15% of ₹ 50 lakhs) which comes to ₹ 7.50 Lakhs. Therefore, provision made by the branch is correct. The provision made is correct. ATV & Company: It has been Classified as Doubtful (D2) Category. It requires Provision of 40% of Secured Amount. That is provision of ₹ 12.00 lakhs (40% of ₹ 30 Lakhs) should be made instead of ₹ 30 Lakhs. The provision made is incorrect. DAS & Sons: It has been classified as Loss Asset which requires Provision of 100% of outstanding amount. Therefore, the provision made by the Branch is correct. The provision made is correct. Explanation regarding auditor's doubts: Classification as NPA should be based on the record of Recovery. Availability of Security or Net Worth of Borrower / Guarantor is not to be taken into account for purpose of treating an advance as NPA or otherwise. Hence, these accounts have been Classified as NPA on the record of recovery, although they are fully Secured or Guaranteed. The auditor's doubts regarding classification as NPA, despite being fully secured or guaranteed, are misplaced because the classification is primarily based on the overdue status of installments, not on the availability of security or guarantee.