Question 1

What is the key difference between Gross NPA and Net NPA?

Accepted Answer

Gross NPA represents the total value of all non-performing assets on a bank's balance sheet without any deduction for provisions or recoveries. Net NPA is calculated by deducting provisions made against NPAs and recoveries received from Gross NPA. Net NPA provides a clearer picture of the actual credit risk exposure after accounting for risk mitigation. Therefore, the answer is B.

Question 2

Which authority is responsible for adjudicating corporate insolvency cases under the Insolvency and Bankruptcy Code, 2016?

Accepted Answer

The National Company Law Tribunal (NCLT) is the designated adjudicating authority under the Insolvency and Bankruptcy Code, 2016 for all corporate insolvency and bankruptcy matters. The NCLT has benches across India and oversees the entire resolution process, including admission of applications, monitoring of the resolution process, and approval of resolution plans. Therefore, the answer is D.

Question 3

Under the Insolvency and Bankruptcy Code (IBC), 2016, what is the maximum timeline for resolution of a corporate insolvency case?

Accepted Answer

The Insolvency and Bankruptcy Code, 2016 prescribes a maximum resolution timeline of 180 days, with a provision for a one-time extension of up to 90 days (total 270 days maximum). The National Company Law Tribunal (NCLT) is the adjudicating authority responsible for overseeing insolvency proceedings. This timeline ensures swift resolution and minimizes value erosion. Therefore, the answer is C.

Question 4

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 and sell 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 5

Which of the following best describes a 'Sub-standard' asset under NPA classification norms?

Accepted Answer

Under RBI's NPA classification framework, a Sub-standard asset is one where the loan remains in arrears for a period not exceeding 12 months. After 12 months, it moves to the 'Doubtful' category. Sub-standard assets carry a provisioning requirement of 15% of the outstanding amount. This classification reflects moderate credit risk. Therefore, the answer is A.

Question 6

A loan account is classified as 'Sub-standard' NPA if the principal or interest remains unpaid for a period not exceeding:

Accepted Answer

Under RBI's NPA classification norms, a loan account is classified into three categories based on the period of default: (1) Sub-standard: default period ≤ 12 months; (2) Doubtful: default period between 12–36 months; (3) Loss: default period > 36 months or where loss is identified but not written off. Sub-standard assets carry a provisioning requirement of 15% of the outstanding amount. Therefore, answer is C.

Question 7

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

Accepted Answer

The Insolvency and Bankruptcy Code, 2016 prescribes a resolution timeline of 180 days from the date of admission of the insolvency petition, with a provision to extend by an additional 90 days (total 270 days maximum) in certain circumstances. The National Company Law Tribunal (NCLT) is the adjudicating authority responsible for overseeing the insolvency resolution process. This timeline was designed to ensure faster resolution compared to traditional bankruptcy proceedings. Therefore, answer is B.

Question 8

The minimum Capital Adequacy Ratio (CAR) or CRAR prescribed by RBI for Indian banks under Basel III framework is:

Accepted Answer

Under the Basel III framework, as implemented by RBI in India, banks are required to maintain a minimum Capital Adequacy Ratio (CRAR) of 10.5%. This comprises Tier 1 capital (minimum 6%) and Tier 2 capital. The CRAR is calculated as the ratio of a bank's capital to its risk-weighted assets (RWA). This requirement ensures banks maintain sufficient capital buffers to absorb losses and support their operations. Therefore, answer is D.

Question 9

Which of the following is the correct provision requirement for a loan classified as 'Doubtful' NPA under RBI guidelines?

Accepted Answer

Under RBI's NPA classification norms, a 'Doubtful' asset is one where the principal or interest remains unpaid for a period between 12–36 months. The provisioning requirement for Doubtful assets is 25–40% of the outstanding amount, depending on the period of default and the realisable value of the collateral. For assets in the 12–24 month bracket, the provision is typically 25%, and for those in the 24–36 month bracket, it increases to 40%. This is higher than the 15% provision for Sub-standard assets but lower than the 100% provision for Loss assets. Therefore, answer is C.

Question 10

Under the SARFAESI Act, 2002, a bank can initiate asset seizure proceedings without obtaining a court order for non-performing advances where the outstanding amount exceeds which threshold?

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 for dues exceeding ₹1 lakh. This threshold was set at the Act's inception and remains the statutory limit. For amounts ≤₹1 lakh, banks must approach the Debt Recovery Tribunal (DRT) or civil courts. This provision significantly accelerates recovery of secured advances and is a cornerstone of RBI's NPA management framework. Therefore, the answer is B.

Question 11

A bank classifies an advance as 'Doubtful' under NPA norms when the asset remains non-performing for a period exceeding which duration?

Accepted Answer

Under RBI's NPA classification framework (as per Master Circular on Income Recognition, Asset Classification and Provisioning), an advance is classified as 'Doubtful' when it has remained in the 'Sub-standard' category for a period exceeding 12 months. The NPA classification hierarchy is: (1) Sub-standard: ≤12 months of default; (2) Doubtful: >12 months but ≤36 months; (3) Loss: >36 months or where recovery is doubtful. Doubtful assets carry higher provisioning requirements (25–40% depending on security coverage) compared to Sub-standard (15%). Therefore, the answer is C.

Question 12

Under the Insolvency and Bankruptcy Code (IBC), 2016, the maximum period for completion of the Corporate Insolvency Resolution Process (CIRP) is how many days, 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 possible extension of up to 90 additional days (total 270 days maximum). This timeline is mandatory and is overseen by the National Company Law Tribunal (NCLT), which is the adjudicating authority for insolvency proceedings in India. The 180+90 day framework was designed to accelerate resolution of corporate insolvencies and reduce the time for creditor recovery compared to traditional liquidation or court-based recovery. Therefore, the answer is D.

Question 13

A bank's Gross NPA ratio is 4.2% and its Net NPA ratio is 1.8%. Which of the following best explains the difference between these two ratios?

Accepted Answer

Gross NPA includes all non-performing assets in their full outstanding amount, whereas Net NPA is calculated after deducting provisions and recoveries made against those NPAs. The difference between Gross NPA (4.2%) and Net NPA (1.8%) in this case reflects the cumulative effect of: (1) provisions made by the bank against NPAs (typically 15% for Sub-standard, 25–40% for Doubtful, and 100% for Loss assets), and (2) amounts recovered or written off. Net NPA provides a more conservative picture of asset quality by reflecting the bank's actual exposure after accounting for loss mitigation. This distinction is critical for assessing true credit risk and regulatory capital adequacy. Therefore, the answer is B.

Question 14

An Asset Reconstruction Company (ARC) purchases a non-performing loan from a bank at a discount and issues Security Receipts (SRs) to the bank. Which of the following correctly describes the nature and redemption of these Security Receipts?

Accepted Answer

When an ARC acquires NPAs from a bank, it issues Security Receipts (SRs) to the bank as evidence of the bank's beneficial interest in the assets acquired. SRs are financial instruments that entitle the bank to a share of the proceeds recovered by the ARC from the underlying NPA assets. The redemption of SRs occurs when the ARC recovers funds from the NPA (through settlement, auction, or restructuring) and distributes the proceeds to SR holders. SRs may be redeemed in full or in part depending on recovery outcomes. ARCs are regulated by RBI and operate under the SARFAESI Act framework. The discount at which the ARC purchases the NPA reflects the expected recovery rate and the time value of money. Therefore, the answer is A.

RBI Assistant NPA, SARFAESI, IBC

NPA, SARFAESI, IBC— Rules & Concept

Key Points to Remember

Exam-Specific Tips

NPA, SARFAESI, IBC — Practice Questions

60-Second Revision — NPA, SARFAESI, IBC