Question 1

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 true asset quality. A bank with high Gross NPA but adequate provisions may have a lower Net NPA, indicating better risk management. Therefore, the answer is B.

Question 2

A bank classifies a loan account as NPA (Non-Performing Asset) when principal or interest remains unpaid for a specified period. Under current RBI guidelines, what is the maximum duration an account can remain in the 'Sub-standard' NPA category before being downgraded to 'Doubtful'?

Accepted Answer

Under RBI's NPA classification norms, a Sub-standard asset is one where the loan has remained NPA for a period not exceeding 12 months. Once an NPA account crosses the 12-month mark, it is downgraded to the 'Doubtful' category, which extends up to 36 months of NPA status. The Doubtful category itself is further subdivided into Doubtful-1 (12–24 months), Doubtful-2 (24–36 months), and Doubtful-3 (beyond 36 months). After 36 months, the account is classified as 'Loss'. This classification structure determines provisioning requirements: Sub-standard requires 15% provision, Doubtful requires 25–40% (depending on sub-category), and Loss requires 100% provision. Therefore, the answer is A.

Question 3

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 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) empowers banks and financial institutions to seize and sell mortgaged assets without court intervention for recovery of dues exceeding ₹1 lakh. This threshold was set to enable faster recovery of non-performing assets while protecting borrowers from arbitrary action for smaller amounts. The Act applies to secured loans where the bank holds a valid security interest. Therefore, the answer is B.

Question 4

Under Basel III norms applicable in India, what is the minimum Capital Adequacy Ratio (CRAR) that banks must maintain?

Accepted Answer

Basel III, implemented in India from April 2013 onwards, prescribes a minimum Capital Adequacy Ratio (CRAR) of 10.5% for Indian banks. This comprises a minimum Tier 1 capital ratio of 6% and a Tier 2 capital ratio of 4.5%. The CRAR is calculated as (Tier 1 Capital + Tier 2 Capital) / Risk-Weighted Assets. This is higher than the Basel II minimum of 9%, reflecting stricter capital standards post-2008 financial crisis. Therefore, the answer is C.

Question 5

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

Accepted Answer

The Insolvency and Bankruptcy Code, 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, making the total maximum period 270 days (180 + 90 days). This timeline is adjudicated by the National Company Law Tribunal (NCLT). The code aims to ensure faster resolution of insolvencies compared to traditional bankruptcy proceedings. Therefore, the answer is D.

Question 6

A loan account is classified as 'Doubtful' under RBI's NPA classification norms when the asset remains non-performing for a period of:

Accepted Answer

Under RBI's NPA classification framework, a non-performing asset is categorized into three categories based on the period of default: (1) Sub-standard: up to 12 months of default; (2) Doubtful: 12 months to 36 months of default; (3) Loss: beyond 36 months or where loss is identified but not yet written off. A Doubtful asset indicates higher credit risk and requires higher provisioning (25–40%) compared to Sub-standard (15%). Therefore, the answer is C.

Question 7

What is the provisioning requirement for a loan classified as 'Doubtful' NPA that has remained in default for 24 months?

Accepted Answer

Under RBI's NPA provisioning norms, a Doubtful asset (one in default for 12–36 months) requires a provisioning norm of 25–40% depending on the duration of default. For assets in the Doubtful category for more than 12 months (such as 24 months), the provisioning requirement is typically 40%. Sub-standard assets (≤12 months) require 15% provisioning, while Loss assets require 100% provisioning. Therefore, the answer is D.

Question 8

Which authority is responsible for adjudicating insolvency petitions and overseeing the Corporate Insolvency Resolution Process under the IBC, 2016?

Accepted Answer

The National Company Law Tribunal (NCLT) is the statutory authority designated under the IBC, 2016 to adjudicate insolvency and bankruptcy petitions for corporate debtors. The NCLT has jurisdiction to admit insolvency petitions, oversee the resolution process, and pass orders regarding the treatment of creditors and assets. For individual insolvency, the Debt Recovery Tribunal (DRT) handles certain cases, but for corporate insolvency, NCLT is the primary authority. Therefore, the answer is A.

Question 9

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

Accepted Answer

The IBC, 2016 prescribes a maximum resolution timeline of 180 days for the Corporate Insolvency Resolution Process, with a provision for a one-time extension of up to 90 days (making the absolute maximum 270 days) by the NCLT (National Company Law Tribunal) in certain circumstances. The standard timeline is 180 days. Therefore, the answer is B.

Question 10

A loan account is classified as 'Sub-standard' NPA if the default period falls within which timeframe?

Accepted Answer

Under RBI's NPA classification norms, a Sub-standard asset is one where the loan has remained in default for a period not exceeding 12 months from the date it was classified as NPA. After 12 months, if the asset remains non-performing, it moves to the 'Doubtful' category. Sub-standard assets require a provisioning norm of 15% of the outstanding amount. Therefore, the answer is C.

Question 11

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 advances. For amounts below ₹1 lakh, banks must resort to DRT (Debt Recovery Tribunal) or civil courts. Therefore, the answer is B.

Question 12

Under the SARFAESI Act, 2002, a bank can initiate asset seizure proceedings without obtaining a court order. What is the minimum threshold amount of dues for which this power is exercisable?

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 non-performing assets. The bank must follow the prescribed procedure: issue a notice to the borrower, wait for 60 days, and then proceed with asset seizure if the dues remain unpaid. This provision significantly reduced the time and cost of recovery compared to traditional DRT (Debt Recovery Tribunal) proceedings, which apply to dues exceeding ₹20 lakh.

Question 13

A bank has classified a loan account as 'Doubtful' under NPA norms. The outstanding amount is ₹50 lakhs, with ₹30 lakhs outstanding for 18 months and ₹20 lakhs for 8 months. Under RBI's provisioning norms for Doubtful assets, what is the minimum provisioning requirement for this account?

Accepted Answer

Setup: This question tests understanding of NPA classification criteria and differential provisioning norms for Doubtful category assets. Solution: Under RBI's NPA classification norms, an asset is classified as 'Doubtful' if it remains in the 'Sub-standard' category for 12 months or more. For Doubtful assets, RBI prescribes a provisioning norm of 25–40% depending on the period of classification and the nature of the asset. The standard approach is: for the portion outstanding 12–36 months (Doubtful Category I), provision 25%; for the portion outstanding beyond 36 months (Doubtful Category II), provision 40%. In this case, ₹30 lakhs has been outstanding for 18 months (falls under Doubtful Category I: 25% provision = ₹7.5 lakhs), and ₹20 lakhs for 8 months (still Sub-standard: 15% provision = ₹3 lakhs). Total minimum provision = ₹7.5 lakhs + ₹3 lakhs = ₹10.5 lakhs. Trap Explanation: The most common error is applying a uniform 25% or 40% to the entire amount without recognizing that the ₹20 lakh portion (outstanding only 8 months) remains Sub-standard and requires only 15% provisioning. Candidates often conflate 'Doubtful' classification with uniform 25–40% provisioning across the entire account. Shortcut: Doubtful = 12–36 months outstanding (25%) or 36+ months (40%). Sub-standard = ≤12 months (15%).

Question 14

A bank's Gross NPA ratio is 3.5% and its Net NPA ratio is 1.8%. Which of the following statements correctly explains the relationship between these two metrics?

Accepted Answer

Gross NPA is the total value of all non-performing advances (before deducting provisions and recoveries), expressed as a percentage of total advances. Net NPA is the Gross NPA minus provisions made against NPAs and recoveries, expressed as a percentage of total advances. The difference between Gross and Net NPA reflects the bank's provisioning coverage. In this case, the bank has made provisions and recoveries that reduce the net impact of NPAs from 3.5% to 1.8%, indicating a provisioning coverage of approximately 49% [(3.5 - 1.8) / 3.5 × 100]. Net NPA is always lower than Gross NPA because it accounts for provisions and recoveries. This metric is critical for assessing the bank's true asset quality and capital adequacy. Therefore, the answer is A.

Question 15

A bank initiates recovery proceedings under the SARFAESI Act 2002 against a borrower for a secured loan default of ₹85 lakhs. The borrower challenges the bank's action, claiming the bank did not follow due process. Under SARFAESI, which of the following statements is CORRECT regarding the bank's authority and the borrower's recourse?

Accepted Answer

Setup: This question tests understanding of SARFAESI Act 2002 provisions — specifically the threshold for asset seizure without court order and the borrower's limited recourse mechanism. Solution: The SARFAESI Act 2002 empowers banks to seize and sell secured assets without obtaining a court order, provided the outstanding dues exceed ₹1 lakh. The Act mandates that banks issue a 60-day notice to the borrower before initiating recovery action. If the borrower disputes the bank's action or claims procedural violation, the borrower's only recourse is to file an appeal before the Debt Recovery Tribunal (DRT) within 30 days of the bank's action — not to approach civil courts. The DRT has jurisdiction over SARFAESI disputes. Importantly, the borrower cannot obtain an injunction from civil courts to stop SARFAESI proceedings; the DRT is the exclusive forum. In this case, since the default amount (₹85 lakhs) exceeds ₹1 lakh, the bank is authorized to proceed under SARFAESI. The borrower's remedy is DRT appeal, not civil court intervention. Trap Explanation: A common misconception is that SARFAESI proceedings can be challenged in civil courts or that civil courts can grant injunctions to stop asset seizure. In reality, SARFAESI created an extra-judicial recovery mechanism specifically to bypass civil courts, and the DRT is the sole appellate authority for borrower grievances. Shortcut: SARFAESI threshold = ₹1 lakh. Borrower recourse = DRT appeal only (not civil court). Notice period = 60 days.

Question 16

Under the Insolvency and Bankruptcy Code (IBC), 2016, what is the maximum time period within which a Corporate Insolvency Resolution Process (CIRP) must be completed, including all extensions?

Accepted Answer

The Insolvency and Bankruptcy Code, 2016 prescribes a maximum resolution timeline of 330 days for the Corporate Insolvency Resolution Process (CIRP). The standard timeline is 180 days from the date of admission of the insolvency petition by the National Company Law Tribunal (NCLT). This period can be extended by a maximum of 90 days (making it 270 days), and in certain cases, a further extension of 60 days is permissible, bringing the absolute maximum to 330 days. The NCLT is the adjudicating authority responsible for admitting insolvency petitions and overseeing the resolution process. If no resolution plan is approved within this period, the company is liquidated.

Question 17

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

Accepted Answer

The Insolvency and Bankruptcy Code, 2016 prescribes a statutory resolution timeline of 180 days from the date of admission of the insolvency application by the National Company Law Tribunal (NCLT). This period can be extended by a maximum of 90 days (total 270 days) if the NCLT is satisfied that the resolution process is progressing and is likely to be completed. The primary objective is to ensure swift resolution of corporate insolvencies and maximize the value of assets. Therefore, the answer is B.

Question 18

A bank classifies an advance as 'Doubtful' under NPA norms. What is the maximum period for which an advance can remain in the 'Doubtful' category before it must be classified as 'Loss'?

Accepted Answer

Under RBI's NPA classification framework, advances are categorized into three buckets: 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 deemed uncollectible). An advance classified as Doubtful can remain in that category for a maximum of 24 months (from the 12-month mark to the 36-month mark). After 36 months of continuous default, it must be classified as Loss. Therefore, the answer is C.

Question 19

Under the SARFAESI Act, 2002, a bank can initiate asset seizure proceedings without obtaining a court order for non-performing advances. 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 and sell secured assets without court intervention when the outstanding dues exceed ₹1 lakh. This threshold was set to enable faster recovery of smaller NPAs and reduce the burden on the judiciary. For amounts below ₹1 lakh, banks must resort to the Debt Recovery Tribunal (DRT) or civil courts. Therefore, the answer is B.

Question 20

A bank's Gross NPA ratio is 3.5% and its Net NPA ratio is 1.2%. Which of the following best explains the difference between these two ratios?

Accepted Answer

Gross NPA and Net NPA are two distinct measures of asset quality. Gross NPA is calculated as the total value of all non-performing assets (Sub-standard, Doubtful, and Loss categories) as a percentage of total advances, without any deduction for provisions or recoveries. Net NPA is calculated after deducting provisions made against NPAs and recoveries received from NPAs. The difference between Gross NPA (3.5%) and Net NPA (1.2%) in this case represents the impact of provisions and recoveries. Specifically, the bank has made provisions and received recoveries totaling approximately 2.3 percentage points of advances, which reduces the net NPA burden. This difference is critical for assessing a bank's true asset quality and capital adequacy. A lower Net NPA relative to Gross NPA indicates that the bank has made adequate provisions and is actively recovering from defaulters. Both ratios are monitored by RBI as key indicators of bank health and are disclosed in banks' financial statements.

IBPS PO NPA, SARFAESI, IBC

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NPA, SARFAESI, IBC — Practice Questions

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