NPA & SARFAESI — Set 5
Banking · NPA और SARFAESI · Questions 41–50 of 80
The 'Asset Quality Review' (AQR) was a major initiative conducted by which organization in 2015?
Correct Answer: C. Reserve Bank of India (RBI)
The RBI conducted the AQR in 2015 to ensure that banks were correctly identifying and classifying NPAs. It revealed a large number of hidden bad loans in the banking system. This exercise led to a cleaner and more transparent banking sector in the long run.
What is 'Strategic Debt Restructuring' (SDR)?
Correct Answer: A. Allowing banks to convert debt into equity shares of the company
SDR was a scheme that allowed banks to take over the management of a defaulting company by converting debt into equity. This gave lenders a chance to bring in new management and recover their dues. It was part of the RBI's efforts to tackle large corporate defaults.
The 'Evergreening' of loans refers to?
Correct Answer: C. Giving fresh loans to hide older bad loans
Evergreening is the practice of lending more money to a struggling borrower so they can pay back an earlier loan. This prevents the account from becoming an NPA on paper. It is considered an unhealthy practice that hides the true stress in the banking system.
Which index is used to measure the recovery of loans in the banking sector?
Correct Answer: D. Recovery Rate
The recovery rate is the percentage of the total defaulted amount that is successfully collected by the lender. It helps in assessing the effectiveness of different recovery laws like SARFAESI or IBC. A higher recovery rate is beneficial for the bank's profitability.
The SARFAESI Act gives power to seize 'Secured' assets. What is a 'Secured' asset?
Correct Answer: D. An asset backed by collateral
A secured asset is one where the borrower has pledged a specific item (like a house or car) as collateral. If the borrower defaults, the lender has a legal right over this item. Unsecured loans, like credit cards, do not have this protection under the SARFAESI Act.
The 'Prompt Corrective Action' (PCA) framework is used by RBI to monitor?
Correct Answer: A. Weak and stressed banks
PCA is a set of guidelines used by the RBI to intervene in banks that show poor financial health. It triggers when certain ratios like NPA or Capital Adequacy fall below specific levels. The goal is to correct the bank's path before it faces a total collapse.
What is the full form of 'CRR' in the context of bank financial health indicators?
Correct Answer: A. Cash Reserve Ratio
While CRR stands for Cash Reserve Ratio, it is also a key indicator used to manage bank liquidity and health. It is the percentage of total deposits that banks must keep with the RBI in cash. Changes in CRR directly impact a bank's lending capacity.
Under the 'Bad Bank' concept, what is the role of NARCL in India?
Correct Answer: D. To acquire large NPA accounts from banks
NARCL stands for National Asset Reconstruction Company Limited, often called the 'Bad Bank'. It is designed to take over large stressed assets from various banks to clear their books. This centralizes the recovery process for major corporate defaults.
The term 'Moratorium' during loan recovery means?
Correct Answer: D. Temporary suspension or delay in repayment of loan
A moratorium is a period during which the borrower is legally allowed to stop making repayments. It is often granted during economic crises or natural disasters to provide relief. Interest may still accrue during this period depending on the terms.
An asset that has been classified as doubtful for more than 3 years is referred to as?
Correct Answer: A. Doubtful-3 (D3)
Doubtful assets are sub-divided based on time; D3 is for assets doubtful for more than 3 years. This granular classification helps in determining the precise provisioning requirement. The longer an asset stays in this category, the higher the loss expectation.