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IBPS Clerk NPA, SARFAESI, IBC

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This page covers IBPS Clerk NPA, SARFAESI, IBC with complete concept notes, 23 graded practice MCQs, key points and exam-specific tips. Free to study.

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Concept Notes

NPA, SARFAESI, IBC— Rules & Concept

1.Core Concept

Read this first — the foundation of the topic

NPA, SARFAESI, and IBC are three crucial debt recovery mechanisms that banks use to handle bad loans. Let's understand each one clearly. NPA (Non-Performing Asset) is a loan where the borrower has stopped paying interest or principal for 90 days or more. Think of it as a 'sick loan' that banks need to clean up. Banks classify NPAs into three categories: Substandard (overdue for 12 months), Doubtful (overdue for 18 months), and Loss (uncollectable).

SARFAESI Act 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) gives banks the power to recover loans without going to court. Banks can seize and sell the borrower's property directly if the loan amount is Rs 2 lakh or more. This law applies only to secured loans where banks have collateral. IBC 2016 (Insolvency and Bankruptcy Code) provides a time-bound process to resolve stressed assets. It follows a strict 330-day timeline (180 days for resolution + 90 days extension + 60 days for liquidation if needed).

2.Formula Block

Memorise — at least one formula appears in every paper
Provision Coverage Ratio = (Provisions held / Gross NPAs) × 100
Net NPA = Gross NPA - Provisions
NPA Ratio = (Net NPAs / Net Advances) × 100

3.Exam Patterns

What examiners ask — read before attempting PYQs

Questions focus on time limits, threshold amounts, and powers of each mechanism. Common questions ask about SARFAESI applicability, IBC timelines, and NPA classification periods.

4.Shortcuts

Use these to save 30–60 seconds per question

Remember '2-90-330' rule - SARFAESI needs Rs 2 lakh minimum, NPA is 90 days default, IBC takes 330 days maximum.

5.Worked Example

Solve this step-by-step before moving on
1
Step 1

Identify given values - Gross NPA = Rs 1000 crore, Provisions = Rs 600 crore

2
Step 2

Apply formula - PCR = (600/1000) × 100 = 60% Answer: The bank's Provision Coverage Ratio is 60%. Worked Example 2: XYZ Ltd owes Rs 50 lakh to ABC Bank (secured loan). The company hasn't paid for 120 days. Which recovery mechanism can the bank use?

1
Step 1

Check loan amount - Rs 50 lakh > Rs 2 lakh threshold

2
Step 2

Check security - Loan is secured

3
Step 3

Check default period - 120 days > 90 days (NPA status) Answer: Bank can use SARFAESI Act to seize and sell collateral without court intervention.

6.Exam Traps

Common mistakes students make — avoid these

#1: Students confuse the 90-day NPA rule with SARFAESI applicability. Remember: 90 days makes it NPA, but SARFAESI can be invoked even before 90 days if the account shows signs of stress. The key is that the loan should be classified as NPA or likely to become NPA. Another frequent error is mixing up timelines.

IBC has a 180-day resolution period (extendable by 90 days), while SARFAESI has a 60-day notice period before banks can take possession. Students often interchange these numbers in exams. The examination trend shows increasing focus on IBC provisions, especially the Corporate Insolvency Resolution Process (CIRP) and the role of Resolution Professionals. Recent questions also test knowledge about which debts qualify under each mechanism and the hierarchy of creditors.

Key Points to Remember

  • NPA classification happens when loan remains unpaid for 90 consecutive days or more
  • SARFAESI Act applies only to secured loans of Rs 2 lakh and above without court intervention
  • IBC 2016 provides 330-day maximum timeline for complete insolvency resolution process
  • Formula: Provision Coverage Ratio = (Provisions held / Gross NPAs) × 100
  • Substandard assets are NPAs for period up to 18 months from becoming NPA
  • SARFAESI gives banks power to take possession and sell secured assets directly
  • Formula: Net NPA = Gross NPA minus Provisions made by bank
  • IBC applies to companies with minimum default of Rs 1 crore (earlier Rs 1 lakh)
  • Doubtful assets remain NPAs for more than 18 months with weak security
  • Formula: NPA Ratio = (Net NPAs / Net Advances) × 100 for bank health check

Exam-Specific Tips

  • SARFAESI Act was enacted in 2002 and applies to secured loans of Rs 2 lakh minimum
  • IBC 2016 provides maximum 180+90+60 = 330 days for complete resolution process
  • NPA classification requires 90 days continuous default on interest or principal payment
  • Asset Reconstruction Companies (ARCs) were established under SARFAESI Act provisions
  • IBC threshold was raised from Rs 1 lakh to Rs 1 crore in 2020
  • SARFAESI requires 60-day notice before banks can take possession of secured assets
  • Loss assets under NPA have provision requirement of 100% of outstanding amount
  • National Company Law Tribunal (NCLT) oversees IBC proceedings for corporate insolvency
Practice MCQs

NPA, SARFAESI, IBC — Practice Questions

23graded MCQs · easy to hard · full solution & trap analysis · showing 20 of 23

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Practice 1medium

A loan account is classified as 'Sub-standard' NPA if the default period is up to which duration?

Practice 2medium

Under the Insolvency and Bankruptcy Code (IBC), 2016, what is the maximum timeline for completion of the Corporate Insolvency Resolution Process (CIRP)?

Practice 3medium

Which of the following best describes the difference between Gross NPA and Net NPA?

Practice 4medium

Under Basel III norms applicable in India, what is the minimum Capital-to-Risk-Weighted Assets Ratio (CRAR) that banks must maintain?

Practice 5medium

A loan account is classified as 'Sub-standard' NPA if the principal or interest remains unpaid for a period exceeding:

Practice 6medium

Under the Insolvency and Bankruptcy Code (IBC), 2016, the maximum time period for completing the insolvency resolution process is:

Practice 7medium

Gross NPA differs from Net NPA primarily because Net NPA is calculated after deducting:

Practice 8medium

Which of the following is the adjudicating authority under the Insolvency and Bankruptcy Code (IBC), 2016?

Practice 9medium

Under the SARFAESI Act, 2002, a bank can initiate asset seizure proceedings without obtaining a court order for loan defaults exceeding which amount?

Practice 10medium

Under the SARFAESI Act, 2002, a bank can initiate asset seizure proceedings without obtaining a court order. What is the minimum amount of dues that must be outstanding for the bank to invoke SARFAESI provisions?

Practice 11medium

A bank classifies a loan account as NPA (Non-Performing Asset) after 90 days of non-payment. Under RBI's NPA classification norms, if the account remains in arrears for 18 months from the date of default, it would be classified as which category?

Practice 12hard

Under the Insolvency and Bankruptcy Code (IBC) 2016, a creditor files an insolvency petition against a corporate debtor for non-payment of dues exceeding ₹1 lakh. What is the maximum time period within which the Insolvency Resolution Process (IRP) must be completed, including any extension granted by the NCLT?

Practice 13hard

Under the Insolvency and Bankruptcy Code (IBC), 2016, what is the maximum statutory timeline for completion of the Corporate Insolvency Resolution Process (CIRP) from the date of admission of the insolvency petition?

Practice 14hard

A bank classifies a loan as 'Doubtful' under NPA norms. According to RBI guidelines, what is the provisioning requirement (as a percentage of the outstanding amount) for a Doubtful asset in the first year of classification?

Practice 15hard

Under the SARFAESI Act, 2002, a bank can initiate asset seizure proceedings without obtaining a court order for loan defaults. What is the minimum threshold amount of dues that triggers this provision?

Practice 16hard

A bank sells a non-performing asset (NPA) to an Asset Reconstruction Company (ARC) at a discount. The ARC issues Security Receipts (SRs) to the bank in exchange. Which of the following correctly describes the nature and regulation of these Security Receipts?

Practice 17hard

A bank's Gross NPA ratio is 3.5% and its Net NPA ratio is 1.2%. Which of the following correctly interprets the relationship between these two metrics and what it implies about the bank's provisioning?

Practice 18hard

Under the SARFAESI Act, 2002, a bank can initiate asset seizure proceedings without obtaining a court order for loan defaults. What is the minimum amount of dues that must be outstanding for the bank to invoke SARFAESI provisions?

Practice 19hard

A bank classifies a loan account as 'Doubtful' under NPA norms. According to RBI's asset classification guidelines, what is the maximum period for which a loan can remain in the 'Doubtful' category before it must be classified as 'Loss'?

Practice 20hard

Under the Insolvency and Bankruptcy Code (IBC), 2016, what is the maximum statutory timeline for resolution of a corporate insolvency process, including any extension granted by the National Company Law Tribunal (NCLT)?

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60-Second Revision — NPA, SARFAESI, IBC

  • Remember: 90 days default = NPA, Rs 2 lakh minimum for SARFAESI, Rs 1 crore for IBC
  • Formula: PCR = Provisions/Gross NPA × 100, higher PCR indicates better provisions
  • Trap: SARFAESI works only for secured loans, IBC works for both secured and unsecured
  • Timeline: IBC maximum 330 days total, SARFAESI needs 60-day notice period
  • Classification: Substandard (up to 18 months), Doubtful (18+ months), Loss (uncollectable)
  • Key Point: SARFAESI bypasses courts, IBC goes through NCLT, both faster than traditional recovery
  • Remember: ARCs buy NPAs from banks under SARFAESI, Resolution Professionals handle IBC cases
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