Chapter 14: Recovery of Retail Loans (JAIIB – Paper 4)
1. Which of the following is the primary mode of repayment in most retail loan accounts?
A. Lump sum at maturity
B. Annual balloon payment
C. Equated Monthly Installments (EMI)
D. Weekly repayment by cash
Retail loans are mostly structured on an EMI basis to spread repayment over the loan tenure, making it manageable for borrowers.
2. A retail borrower misses three consecutive EMIs. According to standard banking practice, this account is considered:
A. A defaulted loan account
B. Regularly performing
C. Fully secured
D. Partially recovered
Missing consecutive EMIs typically triggers default classification, as per RBI/NPA guidelines for retail loans.
3. Which of the following is the main purpose of rescheduling a retail loan?
A. Increase interest income
B. Reduce the loan amount
C. Convert secured loan to unsecured
D. Provide temporary relief to the borrower and avoid NPA
Rescheduling is done to assist borrowers facing temporary financial difficulty, thereby preventing the account from turning into an NPA.
4. Which of the following is a key activity in monitoring retail loan accounts?
A. Selling the loan to another bank
B. Checking repayment patterns and overdue EMIs
C. Increasing interest rates arbitrarily
D. Issuing additional credit limits without review
Monitoring involves keeping track of EMIs, repayment behaviour, and early warning signals to prevent defaults.
5. A borrower requests a one-time settlement of a retail loan after defaulting. Which principle guides the bank in approving such settlements?
A. Regulatory compliance and risk assessment
B. Borrower's credit history only
C. Both regulatory guidelines and bank’s recovery policy
D. Market interest rate fluctuations
One-time settlements are approved based on RBI/NPA guidelines and internal recovery policies to ensure fairness and regulatory compliance.
6. Which of the following is considered an early warning signal (EWS) for retail loan default?
A. Borrower’s age above 60
B. Loan fully repaid
C. Timely insurance premium payments
D. Repeated late payment of EMIs
Late or irregular EMI payments are considered key early warning signals for potential default in retail loans.
7. According to banking norms, an account that is not fully regular but has some overdue EMIs is classified as:
A. Standard account
B. Irregular account
C. Written-off account
D. Fully performing account
An irregular account is one where the borrower has missed some repayments but the account is not yet classified as NPA.
8. Which of the following is a key factor considered while classifying a retail loan account as irregular?
A. Borrower's age
B. Loan amount only
C. Type of collateral
D. Repayment history and overdue EMIs
Classification as irregular depends on repayment irregularities like overdue EMIs and the extent of defaults in the account.
9. Which of the following is NOT typically part of a bank’s retail loan recovery policy?
A. Offering discounts on loan principal to all customers
B. Monitoring overdue accounts
C. Initiating legal recovery when necessary
D. Restructuring or rescheduling loans in hardship cases
Recovery policies do not include giving blanket discounts; they focus on monitoring, rescheduling, and legal recovery measures.
10. Which principle ensures that recovery actions are consistent across all similar retail loan accounts?
A. Borrower discretion
B. Collateral flexibility
C. Bank’s recovery policy
D. RBI advisory only
The bank’s recovery policy provides uniform guidelines and procedures to ensure fair and consistent treatment of all borrowers.
11. Which of the following recovery methods is commonly used for retail loans in default before initiating legal action?
A. Sale of bank shares
B. Negotiated settlement or one-time settlement
C. Freezing other accounts arbitrarily
D. Issuing public notices only
Banks typically try negotiated settlements or one-time settlements with borrowers before resorting to legal action to recover dues.
12. While monitoring retail loan accounts, which of the following is considered a proactive recovery step?
A. Waiting until the account becomes NPA
B. Ignoring small delays in payment
C. Immediately selling the loan without follow-up
D. Contacting the borrower on early signs of repayment stress
Proactive recovery involves early engagement with borrowers showing signs of stress to prevent defaults and minimize NPAs.
13. What is the primary objective of the SARFAESI Act, 2002?
A. Regulate stock markets
B. Control inflation
C. Enable banks and financial institutions to recover defaulted loans without court intervention
D. Monitor fiscal deficits
The SARFAESI Act allows secured creditors to enforce security interests and recover dues without approaching courts, thereby speeding up recovery.
14. Which of the following entities is empowered to take action under SARFAESI Act?
A. Any government department
B. Banks and Financial Institutions only
C. RBI inspectors only
D. Borrowers themselves
Only banks and financial institutions (secured creditors) are authorized under SARFAESI Act to enforce security interests and initiate recovery proceedings.
15. What is the minimum overdue amount for a secured loan to qualify for SARFAESI proceedings?
A. ₹10 lakh
B. ₹5 lakh
C. ₹50 lakh
D. ₹1 lakh
As per SARFAESI Act, secured loans with a default amount of ₹1 lakh or more can be acted upon by banks for recovery.
16. Under SARFAESI, which of the following actions can a bank take without approaching a court?
A. Take possession of secured assets and sell them
B. Arrest the borrower
C. Impose fines on the borrower
D. Freeze borrower’s bank account arbitrarily
SARFAESI allows banks to take possession of secured assets, appoint a receiver, and sell or lease assets to recover dues without court intervention.
17. Which authority can hear appeals against actions taken by banks under SARFAESI Act?
A. High Court only
B. RBI Governor
C. Debt Recovery Tribunal (DRT)
D. Ministry of Finance
Appeals against SARFAESI actions are filed with the Debt Recovery Tribunal (DRT) as specified under the Act.
18. Which of the following types of loans can banks enforce under SARFAESI?
A. Only unsecured loans
B. Loans below ₹1 lakh overdue
C. Loans fully repaid
D. Secured loans with overdue of ₹1 lakh or more
SARFAESI applies only to secured loans with minimum overdue amount of ₹1 lakh, allowing banks to enforce security without court intervention.
19. A borrower wants to challenge the bank’s action under SARFAESI. Which of the following is true?
A. Borrower cannot challenge any action
B. Borrower can file appeal to DRT within 45 days
C. Borrower must go to Supreme Court directly
D. Borrower can ignore and action is automatically nullified
The borrower has the right to appeal against bank action under SARFAESI to the DRT within the prescribed period of 45 days.
20. SARFAESI Act empowers banks to appoint which of the following to manage or sell secured assets?
A. RBI Inspector
B. Borrower’s representative
C. Asset Reconstruction Company (ARC) or Receiver
D. Ministry of Finance officer
Banks can appoint a receiver or sell the asset to an ARC under SARFAESI to recover dues from defaulting borrowers.
21. What is the primary function of the Debt Recovery Tribunal (DRT)?
A. Monitor stock exchanges
B. Regulate interest rates
C. Adjudicate cases related to recovery of debts by banks and financial institutions
D. Approve retail loan applications
DRTs are specialized tribunals set up to expedite recovery of debts owed to banks and financial institutions and handle related appeals.
22. Which of the following loans can be brought before a DRT for recovery?
A. Unsecured loans below ₹1 lakh overdue
B. Secured loans with minimum overdue of ₹20 lakh
C. Fully repaid loans
D. Government loans only
DRTs handle recovery of secured and unsecured debts above specified minimum limits (₹20 lakh for banks and financial institutions).
23. Within what time frame must a borrower file an appeal against a DRT order?
A. 15 days
B. 30 days
C. 60 days
D. 45 days
A borrower has 45 days from the date of DRT order to file an appeal with the Debt Recovery Appellate Tribunal (DRAT).
24. Which of the following is true about the procedure of DRT?
A. DRTs can arrest defaulting borrowers
B. DRTs automatically write-off all NPAs
C. DRTs conduct hearings, pass recovery orders, and issue decrees enforceable like civil court orders
D. DRTs only give advisory opinions
DRTs adjudicate recovery cases, conduct hearings, and issue decrees that are enforceable like civil court orders.
25. Which appellate authority hears appeals against DRT orders?
A. Supreme Court directly
B. High Court
C. RBI Governor
D. Debt Recovery Appellate Tribunal (DRAT)
DRAT is the appellate authority for reviewing and deciding appeals against orders of the DRT.
26. Which of the following is a key advantage of approaching DRT over regular civil courts for loan recovery?
A. No documentation required
B. Faster disposal of recovery cases
C. No compliance with law needed
D. Automatic forgiveness of interest
DRTs are specialized tribunals designed to expedite debt recovery cases, ensuring faster resolution compared to regular civil courts.
27. Which types of banks are covered under DRT jurisdiction?
A. Only cooperative banks
B. Only foreign banks
C. Scheduled commercial banks, cooperative banks, and financial institutions
D. Only regional rural banks
DRTs cover all scheduled commercial banks, cooperative banks, and financial institutions authorized to recover debts.
28. If a borrower fails to comply with a DRT order, which of the following can the bank do?
A. Report to RBI only
B. Impose arbitrary penalty
C. Cancel the loan unilaterally
D. Initiate execution proceedings to recover dues as per decree
Non-compliance with DRT orders allows banks to execute the decree, including attachment and sale of assets, to recover outstanding dues.
29. What is the primary objective of conducting recovery through Lok Adalat?
A. To initiate legal action in courts
B. To provide an amicable and speedy settlement of loan dues
C. To classify loans as NPA
D. To write-off small loans automatically
Lok Adalats aim to settle disputes amicably and quickly, reducing litigation costs and time for both banks and borrowers.
30. Which type of cases is typically taken up in Lok Adalat for retail loan recovery?
A. Criminal cases
B. High-value corporate loans only
C. Small to medium retail loans in default where amicable settlement is possible
D. Government disputes only
Lok Adalats are used for smaller retail loans where both bank and borrower can reach a mutually acceptable settlement quickly.
31. What is the role of a Direct Recovery Agent (DRA) in retail loan recovery?
A. Approving new loans
B. Monitoring stock markets
C. Conducting legal proceedings
D. Contacting defaulting borrowers and recovering dues within regulatory guidelines
Direct Recovery Agents are appointed by banks to recover overdue amounts from retail borrowers following RBI and bank regulatory guidelines.
32. Which of the following is a key compliance requirement for engaging Direct Recovery Agents?
A. They can use coercion to recover dues
B. They must follow RBI and bank guidelines on borrower interaction and conduct
C. They can waive interest without approval
D. They can seize property arbitrarily
DRAs must strictly adhere to RBI and bank regulations to ensure ethical recovery practices and protect borrower rights.
33. Which of the following is considered an advantage of using Direct Recovery Agents?
A. No documentation is needed
B. Borrower cannot appeal
C. Cost-effective recovery and quicker follow-up of overdue accounts
D. Legal enforcement without limit
DRAs help banks recover small and medium retail loan dues efficiently, saving time and resources compared to legal proceedings.
34. Recovery through Lok Adalat or DRAs is generally preferred over SARFAESI or DRT because:
A. It generates higher interest
B. It is mandatory for all loans
C. It bypasses all regulations
D. It is faster, amicable, and less costly for smaller defaults
For small and medium retail loans, Lok Adalats and DRAs provide speedy and cost-effective recovery without lengthy legal procedures.
35. Which of the following actions is NOT allowed for Direct Recovery Agents?
A. Reminder calls and visits
B. Using physical force or coercion to recover dues
C. Negotiating payment plans within bank guidelines
D. Reporting overdue accounts to the bank for further action
DRAs must follow ethical and regulatory practices; using force or coercion is strictly prohibited under RBI guidelines.
