NPA & SARFAESI — Set 6
Banking · NPA और SARFAESI · Questions 51–60 of 80
A 'Vulnerable' loan is one that?
Correct Answer: B. Shows signs of future stress but is currently standard
Vulnerable loans are performing currently but carry high risk due to the sector's performance or borrower's history. They are closely monitored as potential future NPAs. Early identification allows banks to take corrective measures.
What is the purpose of 'Credit Information Companies' like CIBIL?
Correct Answer: D. To maintain credit records and scores of borrowers
Credit Information Companies track the repayment history of all individuals and firms. Banks check these scores before granting new loans to assess the risk of default. A history of NPAs leads to a poor score, making future borrowing difficult.
The 'Enforcement of Security Interest' under SARFAESI allows the lender to?
Correct Answer: A. Sell the property to recover dues
This provision gives lenders the right to take possession and sell the collateral used to secure the loan. It is the core power granted by the SARFAESI Act. This action is taken only after the 60-day notice period expires.
What is the full form of SMA in banking stress identification?
Correct Answer: A. Special Mention Account
SMA stands for Special Mention Account. It is a category of accounts that shows early signs of stress despite being standard. Identifying SMAs helps in preventing them from slipping into the NPA category.
The classification of NPAs is part of which broader banking principle?
Correct Answer: D. Asset Quality Management
Asset Quality Management involves monitoring the health of a bank's loan book. It includes the identification, classification, and resolution of bad loans. Good asset quality is essential for the long-term sustainability of any financial institution.
An asset that does not carry more than normal risk and is performing well is called a?
Correct Answer: A. Standard Asset
Standard assets are regular accounts where principal and interest are paid on time. They are the healthiest part of a bank's portfolio. Even for these, banks must maintain a small general provision.
The term 'SDR' scheme introduced by RBI to handle corporate stress stands for?
Correct Answer: A. Strategic Debt Restructuring
Strategic Debt Restructuring (SDR) was a mechanism to help banks recover dues from large corporations. It allowed banks to take a controlling stake in the company. The scheme has since been replaced by newer resolution frameworks.
Under the SARFAESI Act, what is the role of a 'Court Commissioner'?
Correct Answer: D. To help the bank take physical possession of the asset
A Court Commissioner or Magistrate assists banks in obtaining physical possession of the property if the borrower resists. This official support prevents law and order issues during recovery. It is a vital step in enforcing the security interest.
Which of the following is a symptom of a 'Sick' industrial unit?
Correct Answer: C. Erosion of net worth and continuous losses
An industrial unit is considered 'sick' if it suffers continuous losses and its accumulated losses exceed its net worth. Sick units often have a high amount of NPAs. Reviving or closing such units is a major part of economic restructuring.
What is 'Clawback' in the context of banking and executive compensation during losses?
Correct Answer: D. Recovering previously paid bonuses from executives due to subsequent losses
Clawback provisions allow banks to take back bonuses paid to executives if their previous decisions lead to large losses or NPAs later. It encourages long-term responsible behavior among top management. This measure helps in aligning management incentives with the bank's health.