NPA & SARFAESI — Set 1
Banking · NPA और SARFAESI · Questions 1–10 of 80
What is the full form of NPA in the context of banking?
Correct Answer: C. Non-Performing Asset
NPA stands for Non-Performing Asset. It refers to a loan or advance where the principal or interest payment remains overdue for a specific period. Generally, an asset is classified as NPA if the payment is overdue for more than 90 days.
After how many days of being overdue is a standard loan typically classified as an NPA?
Correct Answer: D. 90 days
A loan becomes an NPA when payments are overdue for a period of 90 days. This 90-day norm is the standard criteria set by the central bank. It helps banks identify loans that are no longer generating income.
What is the full form of the SARFAESI Act?
Correct Answer: C. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
The act is known as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act. It was enacted in 2002 to help banks recover bad loans. It allows banks to auction properties when borrowers fail to repay their loans.
In which year was the SARFAESI Act enacted in India?
Correct Answer: D. 2002
The SARFAESI Act was passed by the Indian Parliament in 2002. It was designed to provide a legal framework for banks to handle non-performing assets effectively. This act significantly reduced the need for court intervention in debt recovery.
Which category of NPA is assigned to an asset that has remained in the NPA category for a period up to 12 months?
Correct Answer: B. Sub-standard Asset
An asset is classified as a sub-standard asset if it remains an NPA for 12 months or less. In this category, the bank perceives a higher risk of loss. Proper provisioning is required for such assets as per regulatory guidelines.
What is the term used for a borrower who has the capacity to repay but intentionally does not pay back the loan?
Correct Answer: B. Willful Defaulter
A willful defaulter is one who diverts funds or fails to honor repayment obligations despite having the means. Banks are required to report such individuals to credit information companies. This classification helps in preventing further credit access for such borrowers.
Under the SARFAESI Act, how many days' notice must a bank provide to a borrower before taking possession of the collateral?
Correct Answer: D. 60 days
The correct answer is '60 days'. Banks must issue a 60-day demand notice to the borrower under the SARFAESI Act. If the borrower fails to settle the dues within this period, the bank can proceed with enforcement. This legal notice is the first step in the recovery process.
What is the primary role of an Asset Reconstruction Company (ARC)?
Correct Answer: B. To manage and recover bad loans from banks
ARCs are specialized financial institutions that buy non-performing assets from banks. Their main goal is to resolve these bad loans through reconstruction or recovery. This process helps banks clean up their balance sheets and focus on core banking.
Which category does an asset fall into when it has remained in the sub-standard category for 12 months?
Correct Answer: C. Doubtful Asset
An asset that remains sub-standard for more than 12 months is classified as a doubtful asset. At this stage, the probability of recovery is considered quite low. Banks must set aside a larger percentage of capital as a provision for doubtful assets.
An asset where the loss has been identified by the bank or internal/external auditors but the amount has not been written off is called a?
Correct Answer: B. Loss Asset
A loss asset is one where the bank considers the loan uncollectible. Although the asset is not written off, it has little to no salvage value. This is the final and most severe stage of an NPA classification.