NPA & SARFAESI — Set 2
Banking · NPA और SARFAESI · Questions 11–20 of 80
What is the full form of CERSAI, which was established under the SARFAESI Act?
Correct Answer: A. Central Registry of Securitisation Asset Reconstruction and Security Interest
CERSAI stands for the Central Registry of Securitisation Asset Reconstruction and Security Interest. It is a central registry used to prevent multiple loans against the same property. It maintains a database of all equitable mortgages in India.
The SARFAESI Act is NOT applicable to which type of loans?
Correct Answer: A. Agricultural loans
The SARFAESI Act specifically excludes agricultural land from its purview. This means banks cannot use SARFAESI provisions to take possession of agricultural collateral. Farmers are protected by this provision to ensure food security and rural stability.
What is 'Provisioning' in banking terminology?
Correct Answer: D. Setting aside capital to cover potential losses from NPAs
Provisioning refers to the practice of setting aside a portion of profits to protect against future bad debts. The amount to be set aside depends on the classification of the NPA. It ensures that the bank remains solvent even if some loans are not repaid.
Which term describes an account where the interest or installment remains overdue for up to 30 days?
Correct Answer: C. SMA-0
SMA stands for Special Mention Account, and SMA-0 is the first stage of stress. It occurs when the payment is overdue for 1 to 30 days. This classification helps banks identify early warning signs before an account becomes an NPA.
In the Special Mention Account (SMA) classification, SMA-2 indicates an overdue period of?
Correct Answer: D. 61-90 days
SMA-2 represents accounts where the payment is overdue for 61 to 90 days. This is the final stage before the account is officially classified as an NPA. Regular monitoring of SMA categories is essential for preventive debt management.
The minimum threshold of debt required to initiate proceedings under the SARFAESI Act is generally?
Correct Answer: B. ₹1 Lakh
Proceedings under the SARFAESI Act can be initiated if the outstanding debt is ₹1 lakh or more. Additionally, the remaining debt must be at least 20% of the original principal and interest. This threshold ensures the act is used for significant recovery efforts.
What does 'S' stand for in SMA classification?
Correct Answer: B. Special
In SMA, the letter 'S' stands for Special. The full term is Special Mention Account. These accounts are not yet NPAs but show signs of potential weakness in repayment.
Which authority is responsible for hearing appeals against the actions of banks under the SARFAESI Act?
Correct Answer: C. Debt Recovery Tribunal (DRT)
The Debt Recovery Tribunal (DRT) is the authorized body to hear grievances against SARFAESI actions. Borrowers can file an appeal with the DRT if they feel the bank's action is unjustified. This provides a legal recourse for borrowers during the recovery process.
What is 'Haircut' in the context of loan recovery and NPAs?
Correct Answer: C. The percentage of debt that a lender agrees to waive off
A haircut is the difference between the actual amount owed and the amount the lender accepts as a settlement. It is often used during debt restructuring to help a stressed company survive. This reduction represents a loss for the banking institution.
What happens when an asset is 'written off' by a bank?
Correct Answer: D. It is moved from the balance sheet but recovery efforts continue
Writing off a loan means the bank removes it from its active asset list on the balance sheet. However, the legal liability of the borrower remains and recovery actions continue. It is primarily an accounting procedure to present a realistic financial health.