Question 1

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

Accepted Answer

Under RBI's NPA classification norms, a loan is classified as Sub-standard if it remains non-performing for a period not exceeding 12 months (one year). After 12 months and up to 36 months, it is classified as Doubtful. Beyond 36 months, it is classified as Loss. Sub-standard NPAs require a provisioning norm of 15% of the outstanding amount. Therefore, the answer is A.

Question 2

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

Accepted Answer

The Insolvency and Bankruptcy Code, 2016 prescribes a maximum timeline of 180 days for the completion of the Corporate Insolvency Resolution Process (CIRP), with a provision for a one-time extension of up to 90 days, making the absolute maximum 270 days. This timeline is designed to ensure swift resolution of insolvency cases. The National Company Law Tribunal (NCLT) is the adjudicating authority for IBC matters. Therefore, the answer is B.

Question 3

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

Accepted Answer

Gross NPA represents the total amount of non-performing assets on a bank's balance sheet before deducting provisions and recoveries. Net NPA is calculated by deducting provisions made against NPAs and recoveries received from Gross NPA. In other words, Net NPA = Gross NPA − Provisions − Recoveries. This distinction is critical for assessing a bank's actual asset quality and capital adequacy. Therefore, the answer is C.

Question 4

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

Accepted Answer

Basel III norms, as implemented in India by RBI, require banks to maintain a minimum CRAR (Capital-to-Risk-Weighted Assets Ratio) of 10.5%. This comprises a minimum Tier 1 capital ratio of 6% and a Tier 2 capital ratio of 4.5%. The CRAR is a critical metric for assessing a bank's capital adequacy and ability to absorb losses. Banks are also required to maintain additional buffers (Capital Conservation Buffer and Countercyclical Buffer) above the minimum CRAR. Therefore, the answer is B.

Question 5

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

Accepted Answer

Under RBI's NPA classification norms, a loan account is classified as Sub-standard when it has remained NPA for a period not exceeding 12 months. Once the NPA status persists beyond 12 months but within 36 months, it is reclassified as 'Doubtful'. After 36 months, it becomes a 'Loss' asset. The Sub-standard category represents the earliest stage of asset deterioration and carries a provisioning requirement of 15% of the outstanding amount. Therefore, the answer is A.

Question 6

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

Accepted Answer

The Insolvency and Bankruptcy Code, 2016 prescribes a structured timeline for resolving insolvency. The Corporate Insolvency Resolution Process (CIRP) must be completed within 180 days from the date of admission of the insolvency application by the National Company Law Tribunal (NCLT). This period can be extended by an additional 90 days (maximum 270 days total) by the NCLT if required. The NCLT is the adjudicating authority responsible for admitting insolvency petitions and overseeing the resolution process. Therefore, the answer is C.

Question 7

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

Accepted Answer

Gross NPA represents the total value of all non-performing assets on a bank's balance sheet without any adjustments. Net NPA is calculated by deducting provisions and recoveries from Gross NPA. Specifically, Net NPA = Gross NPA − (Provisions made + Amount recovered from NPA accounts). This distinction is critical for assessing a bank's true asset quality. A bank with high Gross NPA but substantial provisions may have a lower Net NPA, indicating better risk management. The RBI mandates disclosure of both metrics in bank financial statements. Therefore, the answer is B.

Question 8

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

Accepted Answer

The National Company Law Tribunal (NCLT) is the sole adjudicating authority under the Insolvency and Bankruptcy Code, 2016. The NCLT is responsible for admitting insolvency petitions, overseeing the Corporate Insolvency Resolution Process (CIRP), and passing orders on matters related to corporate insolvency and liquidation. The NCLT was established under the Companies Act, 2013 and has jurisdiction over all corporate insolvency matters. The Debt Recovery Tribunal (DRT) handles recovery matters under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, but is not the IBC adjudicating authority. Therefore, the answer is A.

Question 9

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

Accepted Answer

The SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) empowers banks and financial institutions to seize secured assets without court intervention for dues exceeding ₹1 lakh. This threshold was set to enable faster recovery of secured loans. For amounts below ₹1 lakh, banks must approach the Debt Recovery Tribunal (DRT) or civil courts. Therefore, the answer is B.

Question 10

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?

Accepted Answer

The SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) empowers banks and financial institutions to recover dues by taking possession of secured assets without court intervention. However, this power is restricted to cases where the outstanding dues exceed ₹1 lakh. For amounts ≤ ₹1 lakh, banks must resort to the Debt Recovery Tribunal (DRT) or civil courts. This threshold was set to balance creditor protection with debtor safeguards and is a critical procedural checkpoint for banking professionals. Therefore, the answer is B.

Question 11

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?

Accepted Answer

RBI's NPA classification framework divides non-performing assets into three categories based on the period of default: (1) Sub-standard: default period ≤ 12 months; (2) Doubtful: default period > 12 months and ≤ 36 months; (3) Loss: default period > 36 months or where the asset is considered uncollectible. An account in arrears for 18 months falls within the 12–36 month window, placing it in the Doubtful category. This classification triggers higher provisioning requirements (25–40% of outstanding amount) compared to Sub-standard (15%). Therefore, the answer is C.

Question 12

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?

Accepted Answer

The Insolvency and Bankruptcy Code 2016 establishes a structured timeline for corporate insolvency resolution. The standard Insolvency Resolution Process (IRP) must be completed within 180 days from the date of admission of the insolvency petition by the NCLT (National Company Law Tribunal). However, the NCLT may grant an extension of up to 90 days if the resolution process is still ongoing and there is a reasonable prospect of resolution. Therefore, the maximum total period is 180 + 90 = 270 days. This timeline is designed to ensure swift resolution and prevent prolonged uncertainty for all stakeholders. The NCLT is the adjudicating authority responsible for overseeing the IRP under the IBC 2016.

Question 13

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?

Accepted Answer

The Insolvency and Bankruptcy Code, 2016 prescribes a maximum timeline of 180 days for completion of the Corporate Insolvency Resolution Process (CIRP) from the date of admission of the petition by the NCLT (National Company Law Tribunal). This period can be extended by an additional 90 days (making it 270 days total) with the consent of the Committee of Creditors (CoC). The NCLT is the adjudicating authority responsible for admitting insolvency petitions and overseeing the resolution process. Therefore, the answer is B.

Question 14

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?

Accepted Answer

Under RBI's NPA classification framework, a Doubtful asset is one that remains in the Sub-standard category for 12 months or more. For Doubtful assets, the provisioning requirement is 25% of the outstanding amount in the first year of classification as Doubtful. This increases to 40% in the second year and beyond. The 15% provision applies to Sub-standard assets, while 100% provision applies to Loss assets. Therefore, the answer is C.

Question 15

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?

Accepted Answer

The SARFAESI Act, 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) empowers banks and financial institutions to seize secured assets without court intervention when the outstanding dues exceed ₹1 lakh. This threshold was set to enable faster recovery of smaller retail and commercial loans. For amounts below ₹1 lakh, banks must resort to the Debt Recovery Tribunal (DRT) or civil courts. Therefore, the answer is B.

Question 16

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?

Accepted Answer

When a bank sells an NPA to an ARC, the ARC issues Security Receipts (SRs) to the bank as evidence of the bank's beneficial interest in the underlying assets. These SRs represent the bank's claim on the cash flows generated from the recovery of the NPA. Security Receipts are debt instruments issued by ARCs and are regulated by the RBI under the ARC Regulations. The redemption of SRs depends on the recovery performance of the underlying assets. ARCs themselves are regulated entities under the RBI's ARC Regulations, 2010. Therefore, the answer is B.

Question 17

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?

Accepted Answer

Gross NPA is the total value of all non-performing assets before deducting provisions and recoveries. Net NPA is calculated after deducting provisions made against NPAs and recoveries received. The difference between Gross NPA (3.5%) and Net NPA (1.2%) reflects the bank's provisioning coverage. A lower Net NPA compared to Gross NPA indicates that the bank has made adequate provisions against its NPAs. In this case, the bank has provisioned approximately 66% of its Gross NPA (calculated as (3.5% - 1.2%) / 3.5% ≈ 66%), which demonstrates reasonable asset quality management. This is a key metric for assessing bank health and regulatory compliance. Therefore, the answer is C.

Question 18

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?

Accepted Answer

The SARFAESI Act, 2002 empowers banks and financial institutions to seize and sell secured assets without court intervention when the outstanding dues exceed ₹1 lakh. This threshold was set to enable faster recovery of smaller non-performing assets. For amounts below ₹1 lakh, banks must resort to conventional recovery methods including DRT (Debt Recovery Tribunal) for amounts exceeding ₹20 lakh or civil courts for smaller amounts. The Act applies to secured loans only and requires the bank to follow prescribed procedures including issuance of notice and opportunity for the borrower to cure the default. Therefore, the answer is B.

Question 19

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'?

Accepted Answer

Under RBI's NPA classification framework, a loan account progresses through three stages: Sub-standard (up to 12 months of default), Doubtful (12 to 36 months of default), and Loss (beyond 36 months or when the asset is considered uncollectible). The 'Doubtful' category spans a maximum of 24 months (from month 13 to month 36 of default). Once an account remains non-performing for more than 36 months, it must be mandatorily classified as 'Loss'. This classification directly impacts provisioning requirements: Sub-standard requires 15% provision, Doubtful requires 25–40% provision (depending on duration), and Loss requires 100% provision. Therefore, the answer is C.

Question 20

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)?

Accepted Answer

The IBC, 2016 prescribes a maximum resolution timeline of 180 days for the Corporate Insolvency Resolution Process (CIRP), with a provision for a single extension of up to 90 days by the NCLT, making the absolute maximum 270 days (180 + 90 days). This timeline is measured from the date of admission of the insolvency petition by the NCLT. The NCLT is the adjudicating authority responsible for admitting insolvency petitions, overseeing the process, and approving the resolution plan or declaring liquidation. The 180-day period can be extended only once and only if the resolution professional and creditors' committee jointly apply, and the extension must be justified by material progress toward resolution. Therefore, the answer is D.

Canara Bank PO NPA, SARFAESI, IBC

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