NPA & SARFAESI — Set 8

Correct Answer: B. 90 days

The 90-day period is the standard regulatory threshold for classifying a loan as non-performing. Once an account crosses this limit, it stops being an asset that generates income for the bank. This rule ensures that banks realistically report their financial health.

Correct Answer: C. Loss

A Loss Asset is identified when the recovery is considered impossible or extremely unlikely. While the asset remains on the books until written off, its value is regarded as zero. Banks must provide for 100% of the value of loss assets.

Correct Answer: A. ₹20 Lakh

The current minimum threshold for filing a case in the DRT is ₹20 lakh. This allows the tribunal to focus on large value recovery cases efficiently. Cases with smaller amounts are usually handled through regular civil courts or Lok Adalats.

Correct Answer: B. To allow banks to recover bad loans without court intervention

SARFAESI empowers banks to take possession and sell collateral of defaulting borrowers directly. This speeds up the recovery process significantly compared to traditional court cases. It is specifically designed to handle secured creditors' interests.

Correct Answer: C. Two seasons

Agricultural loans for short-duration crops become NPAs if the installment or interest is overdue for two crop seasons. This special rule accommodates the seasonal nature of agriculture. For long-duration crops, the period is usually one crop season.

Correct Answer: B. Setting aside money from profits to cover potential loan losses

Provisioning is a requirement where banks must set aside a portion of their earnings to cover potential losses from NPAs. The amount depends on whether the asset is sub-standard, doubtful, or loss. It acts as a safety buffer for the bank's capital.

Correct Answer: D. CERSAI

CERSAI maintains the registry of all security interests created on property in India. It prevents fraud where a borrower might take multiple loans on the same property from different banks. Lenders are required to register their charges with CERSAI.

Correct Answer: A. Special Mention Account (SMA)

SMA classification is used for accounts that have overdue payments but haven't yet reached the 90-day NPA mark. It acts as an early warning signal for banks to start recovery or restructuring efforts. There are three sub-categories: SMA-0, SMA-1, and SMA-2.

Correct Answer: B. Removing a bad loan from the balance sheet while continuing recovery

A write-off is an accounting action to remove a non-recoverable loan from the bank's active assets list. It does not mean the borrower is free from the debt; the bank continues its efforts to recover the money legally. It helps in presenting a true picture of the bank's financial position.

Correct Answer: C. Asset Reconstruction Companies (ARCs)

ARCs are created to take over non-performing assets from banks at a discounted price. They specialize in the resolution and recovery of these bad debts. This allows banks to focus on their primary business of lending and accepting deposits.