What is the meaning of classification of assets?

classification of assets is the process of identifying a loan that is not being repaid on schedule and designating it as one of three types of troubled loans: substandard, doubtful or loss. An asset classified substandard has at least one well-defined weakness such as being under capitalized, or not protected by the paying capacity of the borrower or the worth of the pledged collateral. A doubtful classification means an asset that has all of the weaknesses of a doubtful asset plus other characteristics that make collection or liquidation highly questionable and improbable, but still possible. As asset classified loss is considered uncollectible and of such little value that its continuance as an asset on the books of a thrift institution is not warranted. Designating an asset to one of these categories is called classifying an asset.