Question 1

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, prescribes a minimum Capital Adequacy Ratio (CRAR) of 10.5% for Indian banks. This comprises a minimum Tier 1 capital ratio of 6% and Tier 2 capital of 4.5%. The CRAR is calculated as (Tier 1 Capital + Tier 2 Capital) / Risk-Weighted Assets × 100. Additionally, banks must maintain a Capital Conservation Buffer (CCB) of 2.5% above the minimum CRAR, bringing the effective requirement to 13% for most banks. Therefore, the answer is D.

Question 2

A bank classifies a loan account as 'Doubtful' under NPA norms. According to RBI's provisioning guidelines, what is the minimum provision percentage that must be made for the unsecured portion of a Doubtful asset classified in the 12–36 months category?

Accepted Answer

Under RBI's NPA classification and provisioning norms, a Non-Performing Asset (NPA) is classified into three categories: Sub-standard (≤12 months), Doubtful (>12 months and ≤36 months), and Loss. For Doubtful assets, the provisioning requirement depends on the security coverage and the duration within the Doubtful category. For the unsecured portion of a Doubtful asset (or where security value is nil), the minimum provision is 40%. For the secured portion, the provision is lower (typically 25% for the first 12 months in the Doubtful category, increasing to 40% thereafter). The 40% provision for unsecured Doubtful assets reflects the elevated risk that the asset may not be recovered despite being in the recovery process. Therefore, the answer is C.

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 outstanding dues required to trigger 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 recover secured debts by taking possession of mortgaged assets without court intervention. However, this power is restricted to cases where the outstanding dues exceed ₹1 lakh. For amounts below ₹1 lakh, banks must resort to conventional recovery mechanisms including DRT (Debt Recovery Tribunal) or civil courts. This threshold was set to balance creditor protection with debtor safeguards and to prevent frivolous asset seizures for minor defaults. Therefore, the answer is B.

Question 4

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

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 to extend this by an additional 90 days (making the absolute maximum 270 days). The National Company Law Tribunal (NCLT) is the adjudicating authority responsible for overseeing the insolvency process. This timeline is designed to ensure swift resolution and minimize value erosion. Therefore, the answer is B.

Question 5

A loan account is classified as 'Sub-standard' under NPA norms when the asset remains non-performing for a period not exceeding which duration?

Accepted Answer

Under RBI's NPA classification guidelines, a Sub-standard asset is one where the loan has remained non-performing for a period not exceeding 12 months from the date it was classified as NPA. After 12 months, if the asset continues to be non-performing, it moves to the 'Doubtful' category (12–36 months), and beyond 36 months it becomes a 'Loss' asset. The Sub-standard classification carries a provisioning requirement of 15% of the outstanding amount. Therefore, the answer is A.

Question 6

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

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. The formula is: Net NPA = Gross NPA − Provisions − Recoveries. This distinction is critical for assessing true asset quality and capital adequacy. Banks report both metrics to RBI, but Net NPA provides a clearer picture of actual losses. Therefore, the answer is C.

Question 7

Under the Insolvency and Bankruptcy Code (IBC), 2016, what is the maximum timeline for completion of the insolvency resolution process from the date of admission of the application?

Accepted Answer

The IBC, 2016 prescribes a maximum resolution timeline of 180 days from the date of admission of the insolvency application by the NCLT (National Company Law Tribunal), with a provision to extend this period by an additional 90 days in certain circumstances. This 180+90 day framework is designed to ensure faster resolution of insolvency cases compared to traditional bankruptcy proceedings. The NCLT is the adjudicating authority responsible for admitting and overseeing insolvency applications. Therefore, the answer is B.

Question 8

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

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. After 12 months but within 36 months, it is classified as 'Doubtful', and beyond 36 months it becomes a 'Loss' asset. This classification directly impacts provisioning requirements: Sub-standard requires 15% provision, Doubtful requires 25–40%, and Loss requires 100% provision. 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 recover secured debts by taking possession of mortgaged assets without court intervention, provided the outstanding amount exceeds ₹1 lakh. This threshold was set to enable faster recovery of smaller secured advances. For amounts below ₹1 lakh, banks must resort to DRT (Debt Recovery Tribunal) or civil courts. Therefore, the answer is B.

Question 10

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

Accepted Answer

Gross NPA is the total value of all 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 important because Gross NPA reflects the true extent of asset quality deterioration, while Net NPA reflects the bank's actual exposure after accounting for risk mitigation. Therefore, the answer is C.

Question 11

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, implemented in India from April 2013, prescribes a minimum Capital-to-Risk-Weighted-Assets Ratio (CRAR) of 10.5% for Indian banks. This comprises a minimum Tier 1 capital ratio of 6% (including Common Equity Tier 1 of 4.5%) and a Tier 2 capital component of 4.5%. The 10.5% CRAR requirement in India is higher than the international Basel III minimum of 10.5% (8% Basel II + 2.5% capital conservation buffer). This ensures stronger capital buffers for Indian banks. Therefore, the answer is B.

Question 12

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

Accepted Answer

The IBC, 2016 establishes a structured timeline for corporate insolvency resolution. The standard resolution period is 180 days from the admission of the insolvency application by the NCLT. However, the NCLT may extend this period by an additional 90 days if the resolution professional and creditors' committee jointly request it, subject to certain conditions. Thus, the maximum total timeline is 180 + 90 = 270 days. If resolution is not achieved within this period, the company is referred for liquidation. Therefore, the answer is D.

Question 13

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

Accepted Answer

Gross NPA is the total amount of NPAs (Sub-standard, Doubtful, and Loss assets) expressed as a percentage of total advances. Net NPA is calculated by deducting provisions made against NPAs from Gross NPA, expressed as a percentage of net advances (total advances minus provisions). The difference between Gross NPA and Net NPA reflects the provisioning buffer the bank has created. In this case, the bank has made substantial provisions (approximately 65–70% of Gross NPAs), reducing the Net NPA to 1.2%. This demonstrates that while the bank has a 3.5% gross asset quality issue, its provisioning adequacy has reduced the net impact to 1.2%. Net NPA is the more conservative measure of asset quality as it accounts for the bank's loss-absorption capacity through provisions. Therefore, the answer is A.

Question 14

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 Insolvency and Bankruptcy Code, 2016, prescribes a maximum resolution timeline of 180 days, with a provision for a single extension of up to 90 days (total 270 days) by the NCLT. This timeline is calculated from the date of admission of the insolvency petition by the NCLT. The objective is to ensure timely resolution and prevent indefinite delays in the insolvency process. The NCLT is the adjudicating authority responsible for overseeing corporate insolvency proceedings under IBC. Option D is correct.

Question 15

A bank classifies a loan as 'Doubtful' under NPA norms. According to RBI guidelines, what is the mandatory provisioning requirement for the Doubtful category?

Accepted Answer

Under RBI's NPA classification framework, a loan becomes 'Doubtful' when it remains non-performing for 12 to 36 months. The provisioning requirement for Doubtful assets is 25% to 40%, depending on the age of the asset within the Doubtful period and the realisable value of security. Specifically: 25% for assets in the first 12 months of Doubtful classification, and 40% for assets in the Doubtful category for more than 12 months. This is mandated under RBI's Master Circular on Income Recognition and Asset Classification. Option C is correct.

Question 16

Under the SARFAESI Act, 2002, a bank can initiate asset seizure proceedings without obtaining a court order for recovery of dues. 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 mortgaged assets without court intervention for recovery of dues exceeding ₹1 lakh. This threshold was established to enable faster recovery of secured loans. The bank must follow the prescribed procedure under Section 13 of SARFAESI, which includes issuing a notice to the borrower and allowing a 60-day cure period before initiating possession. Option B is correct.

Question 17

A bank intends to recover a defaulted loan of ₹25 lakhs through the SARFAESI Act 2002. Which of the following statements correctly describes the bank's authority and limitations under this Act?

Accepted Answer

The SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act 2002 empowers banks and financial institutions to seize and sell secured assets without obtaining a court order, provided the outstanding dues exceed ₹1 lakh. However, the Act applies only to secured loans (where security has been pledged). For a ₹25 lakh defaulted loan, if it is secured, the bank can invoke SARFAESI provisions and seize the asset directly. The Act also mandates a 60-day notice period to the borrower before initiating asset seizure. SARFAESI is a faster recovery mechanism compared to DRT (Debt Recovery Tribunal), which is used for unsecured loans or when SARFAESI is not applicable. Therefore, the answer is B.

Question 18

A bank has classified a loan account as 'Doubtful' under NPA norms. The outstanding amount is ₹50 lakhs. According to RBI's provisioning guidelines for Doubtful assets, what is the minimum provision the bank must make against this account?

Accepted Answer

Under RBI's NPA classification and provisioning norms, a Doubtful asset is one where the loan has remained non-performing for a period exceeding 12 months but not more than 36 months. For Doubtful assets, banks are required to make a provision of 25% to 40% of the outstanding amount, depending on the period of classification within the Doubtful category. For a ₹50 lakh Doubtful asset, the minimum provision would be 25% of ₹50 lakh = ₹12.5 lakhs. This is mandated under the Master Circular on Income Recognition and Asset Classification issued by RBI. Therefore, the answer is B.

Question 19

A bank sells a non-performing loan to an Asset Reconstruction Company (ARC) at a discount. The ARC issues Security Receipts to the bank in return. Which of the following best describes the nature and regulatory status of these Security Receipts?

Accepted Answer

Security Receipts (SRs) are instruments issued by ARCs to investors (including the originating bank) representing their right to receive cash flows from the underlying pool of non-performing assets acquired by the ARC. SRs are debt instruments backed by the cash flows generated from the recovery and sale of the NPA portfolio. ARCs are regulated by RBI under the SARFAESI Act, 2002, and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Rules, 2002. SRs can be redeemed as the ARC recovers funds from the NPA assets. They are not equity instruments but represent a creditor claim on the ARC's asset pool. Option B is correct.

Question 20

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. What does the Security Receipt represent in this transaction?

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 NPA portfolio transferred. The SR represents the bank's claim on the cash flows generated from the recovery of the underlying NPAs. The SR is a negotiable instrument and can be traded in the secondary market. The bank receives a pass-through of recoveries made by the ARC from the underlying assets, net of the ARC's fees and expenses. The SR does not represent ownership of the asset itself but rather a claim on the recovery proceeds. Therefore, the answer is B.

SBI PO NPA, SARFAESI, IBC

NPA, SARFAESI, IBC— Rules & Concept

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