Out of Order Cash Credit Signals: How to Track Them

What does tracking out-of-order signals on a cash credit account achieve?

Tracking out-of-order signals on a cash credit (CC) account shows, at each day-end, how close the account is to classification as a non-performing asset (NPA), so that action starts before a 90-day test is met.

The rule sits in the Reserve Bank of India (Commercial Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025, dated November 28, 2025 and updated as on October 1, 2026 (the IRACP Directions). Paragraph 42(2) requires a bank to classify a CC or overdraft (OD) account as NPA if the account remains out of order.

The outcome of this process is one working list: every CC account, the out-of-order condition it is closest to, the days left, and a named action with an owner.

The IRACP Directions apply to commercial banks. Paragraph 3 covers banking companies other than small finance banks, payments banks and local area banks, plus corresponding new banks and State Bank of India. Other lender types should check the direction that covers them.

What do you need before tracking out-of-order signals?

Tracking out-of-order signals needs account-level data that refreshes at every day-end. As general working practice, have these in place:

• Sanctioned limit, drawing power (DP, the amount the current assets support) and day-end outstanding balance for each CC and OD account.
• Dated credits and interest debits for each account, enough to cover a 90-day look-back.
• The date of the stock statement behind the DP, and the due date of the limit review.
• A view of all facilities for each borrower, not only the CC account.
• Escalation checkpoints and owners. These vary by institution.

Paragraph 28 of the IRACP Directions requires a commercial bank to have a robust management information system (MIS) for early detection of distress at both individual account and segment level. Out-of-order tracking is one way to use that MIS at account level.

What are the three out-of-order conditions for a cash credit account?

A CC or OD account is out of order under paragraph 5(7) of the IRACP Directions if any one of three conditions is met.

For condition 3, Explanation 1 to paragraph 5(7) includes the day of the day-end run in the 90-day period. Explanation 2 extends the definition to all credit products offered as an overdraft facility, including those not meant for business purposes and those where interest repayments are the only credits.

How do you track out-of-order signals on a cash credit account?

Tracking out-of-order signals takes eight steps, repeated at each day-end or at the review frequency your institution sets.

1. Run all three conditions on every CC and OD account. Test each account against paragraph 5(7) of the IRACP Directions. Good looks like: each account shows a status for conditions 1, 2 and 3 as at one stated day-end date.
2. Fix the comparison figure. The IRACP Directions say ‘sanctioned limit / drawing power’. As general working practice, compare the balance with the lower of the two and record which one applied. Good looks like: a balance under the limit but above the DP shows as an excess.
3. Check that the DP is current. Paragraph 15 of the IRACP Directions says DP shall rest on a current stock statement, that statements relied on for large borrowers should not be older than three months, and that an outstanding based on a DP from statements older than three months is deemed irregular. Good looks like: every DP carries its statement date, and older statements are flagged.
4. Count the days left. Read conditions 1 and 2 as running counts, because both are continuous tests. Read condition 3 as a fresh comparison at each day-end. Confirm how your system counts the first day. Good looks like: each account shows its earliest trigger and the days left to it.
5. Read the credits, not only the count. As general working practice, ask whether credits are business receipts or transfers that only keep the account moving. Paragraphs 47 to 49 of the IRACP Directions also say a solitary or few credits before the balance sheet date need careful handling: inherent weakness means the account is deemed NPA, and genuine cases need satisfactory evidence for auditors or inspecting officers. Good looks like: the file note says what the credits were.
6. Check the other triggers on the same borrower. Paragraph 42 of the IRACP Directions also covers irregular drawings permitted for a continuous 90 days (42(3)) and limits not reviewed or renewed within 180 days of the due date or ad hoc sanction date (42(5)). Paragraph 44 makes classification borrower-wise, so all facilities are treated as NPA. Good looks like: one borrower view with every facility and its nearest trigger.
7. Escalate with an action before the test is met. As general working practice, the action is a current stock statement, a completed limit review, an explanation for the excess, or a viability discussion. Paragraph 28 of the IRACP Directions links early warning signals to a transparent restructuring mechanism for viable accounts under distress. Good looks like: each flagged account has an owner, an action and a date ahead of its trigger.
8. Let the system classify. Paragraph 31 of the IRACP Directions makes the SMA (special mention account) or NPA date the calendar date of the day-end run. Paragraph 38 says a bank shall not resort to manual override, and any exceptional override needs at least two-level authorisation, audit trails and logs. Good looks like: the classification date matches the system date, with no undocumented change.

Worked example, made-up numbers

This worked example tests three made-up CC accounts at one day-end. Amounts are in ₹ lakh.

The three accounts read as follows.

The priority order is C, A, B. Account C looks the cleanest on balance and is the only one already out of order, which is why a balance-only screen would miss it.

Common errors when reading out-of-order signals

Out-of-order signals are most often misread in these ways, with the rules below coming from the IRACP Directions for commercial banks:

• Watching only the excess. Conditions 2 and 3 in paragraph 5(7) apply when the balance is below the sanctioned limit / DP.
• Treating any credit as a cure. A credit breaks the no-credit count in condition 2, but credits must still cover the interest debited under condition 3.
• Testing against the limit alone. A balance under the limit can still be above the DP.
• Calling a temporary lapse an NPA. Paragraph 45 says classification should rest on the record of recovery, and an account should not be classified NPA merely for temporary deficiencies such as a late stock statement or a temporary excess.
• Leaning on security. Paragraph 46 says security or the net worth of a borrower or guarantor should not be taken into account in treating an advance as NPA or otherwise, except to the extent paragraph 67 provides.
• Looking at one facility. Paragraph 44 makes classification borrower-wise. Paragraph 35 treats devolved letter of credit or invoked guarantee debits parked in a separate account as part of the principal operating account.
• Expecting a quick upgrade. Paragraphs 69 and 71 allow an upgrade to standard only when the entire arrears of interest and principal on all facilities are paid.