Introduction to Loan Classification and Provisioning

As per the national bank directive all banks should review the overdraft loan accounts on a periodic basis and classify the accounts as below based on the Ageing and the utilization of OD limits. OD Ageing > Pass (up to 30 days) > Special mention (31 – 90 days) > Substandard (91 -180 days) > Doubtful (181 – 360 days) > Loss (above 360 days).

• 1% provision shall be held for all loans under pass status (over due from 0 – 29 Days). All loans under this category are pass loans.
• 3% provision shall be held for all loans under special mention status (loans overdue from 30 – 89 Days). All loans under this category are Special mention.
• 20% provision shall be held for all loans under sub-standard status (loans overdue from 90 – 179 days). All loans under this category are substandard.
• 50% provision shall be held for all loans under doubtful status (loans overdue from 180 – 360 days). All loans under this category are doubtful.
• 100% provision shall be held for all loans under loss status (loans overdue for more than 360 days). All loans under this category are loss.