Question 1

How should a bank recognize income on a Non-Performing Asset (NPA)?

50% on accrual and 50% on cash basis.On Cash basis (only when actually realized).Based on the collateral value.On Accrual basis (as it becomes due).

View Explanation

Income Recognition and Asset Classification (IRAC) norms state that income from NPAs is not recognized on an accrual basis but is booked as income only when it is actually received (Cash basis).

Question 2

An asset is classified as "Sub-standard" if it has remained NPA for a period less than or equal to:

5 years90 days12 months3 years

View Explanation

After becoming NPA (overdue > 90 days), an asset enters the "Sub-standard" category. It stays in this category for up to 12 months. If it remains NPA beyond 12 months, it moves to "Doubtful" category.

Question 3

What is the provisioning requirement for the "Secured portion" of a loan classified as "Doubtful (Up to 1 year)"?

15%25%40%100%

View Explanation

For Doubtful Assets (D1 - up to 1 year), the provision on the secured portion is 25%. For the unsecured portion, it is always 100%.

Question 4

Under the Prudential Framework for Resolution of Stressed Assets, an account is classified as "SMA-1" if the principal or interest payment is overdue for:

61-90 days31-60 days1-30 daysMore than 90 days

View Explanation

Special Mention Accounts (SMA) categorization helps in early recognition of stress. SMA-0 (1-30 days), SMA-1 (31-60 days) , and SMA-2 (61-90 days).

Question 5

For "Loss Assets", the provisioning requirement is:

50%Variable based on collateral10%100%

View Explanation

A Loss Asset is one where loss has been identified by the bank or auditors and the asset is considered uncollectible. The entire amount (100%) must be provided for, irrespective of any collateral (since its value is negligible).

Question 6

A loan account classified as NPA can be upgraded to "Standard" asset category only if:

The account is restructured.The borrower pays 10% of the overdue amount.The bank manager approves it.The entire arrears of interest and principal are paid by the borrower.

View Explanation

RBI norms specify that an NPA account can be upgraded to Standard only when the entire overdue interest and principal are paid, bringing the account fully current.

Question 7

A borrower is classified as a "Wilful Defaulter" if they have defaulted in meeting their repayment obligations to the lender AND:

The market conditions were unfavorable.The management has changed.They have siphoned off the funds or utilized them for purposes other than those for which the loan was sanctioned.They have suffered a genuine business loss.

View Explanation

Wilful default implies deliberate non-payment despite having the capacity to pay, diverting funds for other uses, or siphoning off funds without creating assets. Genuine business failure is not wilful default.

Question 8

A "Technical Write-off" of an NPA loan implies:

The loan is waived off by the government.The borrower is released from liability.The collateral is returned to the borrower.The loan is removed from the asset side of the Balance Sheet but retained in the branch books for recovery.

View Explanation

Technical Write-off is an accounting entry to clean the balance sheet and reduce tax liability. It does NOT mean waiver of the debt; the bank continues its recovery efforts against the borrower.

Question 9

SARFAESI Act proceedings cannot be initiated if the outstanding dues are less than:

?1 Lakh20% of the principal and interest.?50,00010% of the principal and interest.

View Explanation

SARFAESI action cannot be taken if the amount due is less than ?1 Lakh OR if the remaining debt is less than 20% of the original principal and interest (Section 31(j)). This prevents misuse for small balances.

Question 10

Banks are required to report credit information, including classification of an account as SMA (Special Mention Account), to the Central Repository of Information on Large Credits (CRILC) for exposures of:

?5 Crore and above.?1 Crore and above.?50 Crore and above.?10 Crore and above.

View Explanation

CRILC reporting is mandatory for all borrowers having aggregate fund-based and non-fund-based exposure of ?5 Crore and above. This helps in early stress detection.

Question 11

If a standard asset is restructured, its classification generally changes to:

Loss Asset.It remains Standard.Sub-standard immediately.Doubtful.

View Explanation

Upon restructuring (changing terms due to financial difficulty), a standard asset is immediately downgraded to Sub-standard . It can be upgraded to Standard only after satisfactory performance during the "specified period" (usually 1 year).

Question 12

If the interest billed on March 31 is not paid, the account becomes NPA on:

June 29 (90th day)March 31 itselfJune 30 (after 90 days)April 1

View Explanation

An account becomes NPA if interest/principal remains overdue for a period of more than 90 days. If unpaid on March 31, the 90-day period ends on June 29. It becomes NPA on June 30 (91st day).

JAIIB Quiz

Quiz Finished!