NPA & SARFAESI — Set 4
Banking · NPA और SARFAESI · Questions 31–40 of 80
What does 'S' stand for in SARFAESI?
Correct Answer: B. Securitisation
The 'S' stands for Securitisation. The act deals with the securitisation and reconstruction of financial assets. It is a process of turning illiquid assets like loans into tradable securities.
Which act introduced the 'IBC' to handle insolvency and bankruptcy in a time-bound manner?
Correct Answer: B. Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code (IBC) was enacted in 2016. It provides a structured and time-bound process for resolving insolvency of individuals and companies. It has become a crucial tool alongside the SARFAESI Act for debt resolution.
An account is classified as 'Out of Order' specifically for which type of facility?
Correct Answer: C. Cash Credit and Overdraft
The term 'Out of Order' is used for Cash Credit or Overdraft accounts. It happens if the balance exceeds the sanctioned limit or if no credits are made for 90 days. This indicates that the working capital cycle of the borrower has stopped.
What is 'Gross NPA'?
Correct Answer: C. Total amount of all non-performing assets
Gross NPA is the sum of all loan assets that are classified as non-performing as per RBI guidelines. It represents the total value of bad loans on the bank's books. Provisions are subtracted from this to calculate the Net NPA.
How is 'Net NPA' calculated?
Correct Answer: B. Gross NPA - Provisions
Net NPA is calculated by deducting the provisions made by the bank from the Gross NPA. It gives a more accurate picture of the actual loss potential to the bank. A high Net NPA directly impacts the bank's capital and profitability.
Which of the following is a major cause for the rise in NPAs in the corporate sector?
Correct Answer: C. Economic slowdown and project delays
Economic slowdowns can lead to reduced revenues for companies, making it difficult to repay loans. Delays in large projects also increase the interest burden on the borrower. These external factors are a common cause of systemic NPAs.
The SARFAESI Act is applicable to which of the following institutions?
Correct Answer: A. Banks and specified Financial Institutions
The SARFAESI Act applies to all commercial banks and certain notified financial institutions like SIDBI. It has also been extended to certain urban co-operative banks. It provides a unified framework for all major lenders to recover secured debts.
What is the time limit for a bank to respond to a borrower's objection to a SARFAESI notice?
Correct Answer: D. 15 days
Under Section 13(3A) of the SARFAESI Act, banks must respond to any objection raised by the borrower within 15 days. The bank must state the reasons if the objection is not accepted. This ensures transparency and fairness in the recovery process.
In banking, what does the term 'Stressed Assets' include?
Correct Answer: B. NPAs and Restructured Loans
Stressed assets are a broad category that includes NPAs and loans that have been restructured. Restructured loans are those where terms were changed because the borrower was in trouble. This measure shows the total level of 'risky' loans in the system.
Which of the following describes an 'Escrow Account' used in debt reconstruction?
Correct Answer: B. A third-party account where funds are held during a transaction
An escrow account is used to ensure that funds meant for debt repayment or project completion are not misused. A neutral third party manages the account based on specific conditions. It acts as a safety mechanism during complex financial reconstructions.