Chapter 28: Non-Performing Assets/ Stressed Assets (JAIIB – Paper 2)
1. What is the correct definition of a Non-Performing Asset (NPA) as per RBI?
A. An asset which has been written off by the bank
B. A loan overdue for more than 15 days
C. A loan or advance where interest or principal remains overdue for more than 90 days
D. Any loan exceeding ₹1 crore
As per RBI, an NPA is a loan or advance where interest or principal remains overdue for more than 90 days for most loans, or 180 days for agricultural loans.
2. Which of the following is the primary objective of income recognition norms for NPAs?
A. To ensure banks report higher profits
B. To ensure banks do not recognize income on loans that may not be realized
C. To increase lending capacity of banks
D. To reduce interest rates for borrowers
Income recognition norms prevent banks from recognizing interest income on loans which may not be collected, ensuring prudential accounting.
3. According to RBI, which of the following loans is considered a Sub-Standard Asset?
A. Asset overdue for more than 1 year
B. Asset overdue for more than 2 years
C. Asset overdue for more than 5 years
D. Asset overdue for less than or equal to 12 months with well-defined credit weaknesses
A Sub-Standard Asset is an NPA which has remained overdue for a period less than or equal to 12 months and shows well-defined credit weaknesses.
4. How should interest on an NPA be recognized in bank books?
A. Only on actual realization (cash basis)
B. On accrual basis even if overdue
C. Automatically after 30 days overdue
D. By adjusting against the principal automatically
RBI mandates that interest on NPAs should not be recognized on accrual basis; it should be recognized only when actually received (cash basis).
5. Which category of NPA remains overdue for more than 12 months but not exceeding 24 months?
A. Standard Asset
B. Doubtful Category 1
C. Doubtful Asset
D. Loss Asset
Doubtful Assets are those NPAs which have remained in Sub-Standard category for more than 12 months, showing a high risk of loss.
6. Which of the following best defines Gross Advances of a bank?
A. Total deposits accepted by the bank
B. Total loans and advances granted by the bank before provisions
C. Total assets of the bank
D. Total investments in government securities
Gross Advances represent the total amount of loans and advances granted by the bank before making any provisions for NPAs.
7. How is Gross NPA calculated?
A. Total deposits – provisions
B. Net Advances – provisions
C. Total overdue loans and advances without deducting provisions
D. Total investments in doubtful assets
Gross NPA is the total amount of NPAs without adjusting for provisions made for loan losses.
8. Net Advances are calculated as:
A. Gross Advances minus provisions held for NPAs
B. Gross Advances plus provisions
C. Gross NPA minus Gross Advances
D. Total assets minus deposits
Net Advances = Gross Advances – Provisions made for NPAs; it represents the actual realizable amount from advances.
9. Net NPA is calculated as:
A. Gross Advances minus Net Advances
B. Gross NPA plus provisions
C. Total assets minus Gross NPA
D. Gross NPA minus provisions held for NPAs
Net NPA = Gross NPA – Provisions held; it indicates the actual risk exposure of the bank from NPAs.
10. If a bank has Gross Advances of ₹100 crore, Gross NPA of ₹10 crore, and provisions of ₹3 crore, what is the Net NPA?
11. Which of the following is the correct classification for a standard asset?
A. Asset overdue for more than 12 months
B. Sub-Standard Asset with well-defined weaknesses
C. Performing asset with no overdue for 90 days
D. Loss Asset recognized by the bank
A standard asset is a performing asset with no overdue for 90 days and does not exhibit any credit weakness.
12. Which category of NPA requires provisioning of 15% on unsecured portion as per RBI norms?
A. Standard Asset
B. Sub-Standard Asset
C. Loss Asset
D. Doubtful Asset for more than 2 years
Sub-Standard Assets require a minimum provisioning of 15% on the unsecured portion as per RBI prudential norms.
13. How much provision is generally required for a Doubtful Asset of more than 1 year but less than 3 years for unsecured exposure?
A. 25%
B. 15%
C. 100%
D. 10%
RBI mandates 25% provisioning on the unsecured portion for Doubtful Assets overdue between 1 and 3 years.
14. Loss Assets are those assets which:
A. Are overdue for less than 90 days
B. Are standard performing assets
C. Are partially secured with no loss
D. Are considered uncollectible and require full provision
Loss Assets are those identified by the bank as uncollectible, and the entire amount is generally provided for in the books.
15. What is the minimum provisioning requirement for a Standard Asset as per RBI?
A. 15%
B. 0.25% of total standard advances
C. 2%
D. 1% of total NPAs
RBI requires banks to maintain a provision of 0.25% of total standard advances as part of prudential norms.
16. What does "writing off an NPA" mean?
A. Recovering the full overdue amount from the borrower
B. Converting the loan into a standard asset
C. Removing the NPA from the bank's books after provisioning, without affecting the legal right to recover
D. Selling the NPA to another bank at full value
Writing off an NPA means removing it from the bank’s books after making necessary provisions. The bank still retains the legal right to recover the amount.
17. Which of the following is a key reason for maintaining a granular database for NPAs?
A. To calculate the bank’s capital adequacy ratio
B. To enable effective monitoring, early warning signals, and recovery strategies
C. To reduce deposit interest rates
D. To classify standard assets as NPAs
A granular database allows banks to track NPAs in detail, helping in early detection, monitoring, and effective recovery strategies.
18. Which of the following is NOT a requirement for effective NPA management?
A. Regular monitoring of advances
B. Early warning signals for stressed accounts
C. Timely provisioning as per regulatory norms
D. Ignoring borrower repayment history
Ignoring borrower repayment history is detrimental. Effective NPA management requires monitoring, early warning, and timely provisioning.
19. What is one of the benefits of having an effective mechanism for NPA management?
A. Reduction in the incidence of NPAs and improved recovery
B. Increase in gross NPAs intentionally
C. Avoiding regulatory inspections
D. Automatically converting NPAs into Standard Assets
Effective NPA management reduces the incidence of NPAs and improves recoveries, strengthening the bank’s financial health.
20. Which of the following is a key component of an effective NPA management system?
A. Only approving high-value loans
B. Avoiding any provisioning
C. Integrated MIS, timely review, early warning signals, and granular data maintenance
D. Writing off all NPAs immediately
An effective NPA management system requires integrated MIS, timely account reviews, early warning signals, and detailed granular data.
21. Which framework provides banks with guidelines for resolution of stressed assets in India?
A. Basel III Framework
B. SARFAESI Act only
C. Income Recognition and Asset Classification norms only
D. Resolution Framework for Stressed Assets issued by RBI
The RBI’s Resolution Framework provides guidelines to banks for timely recognition, restructuring, and resolution of stressed assets.
22. Which of the following is a key feature of prudential norms for restructuring of loans?
A. Automatically converting all stressed loans into standard assets
B. Waiving off principal for all NPAs
C. Restructuring of terms, period, or interest rate without compromising asset quality norms
D. Avoiding any reporting to RBI
Prudential norms allow banks to restructure stressed loans by modifying terms or interest rates while complying with RBI’s asset classification and provisioning rules.
23. Under RBI norms, which loans are eligible for restructuring?
A. Only Standard Assets
B. Stressed standard or NPA accounts as defined by RBI resolution frameworks
C. All deposits exceeding ₹1 crore
D. Only secured assets
RBI allows restructuring for stressed standard assets or NPAs under specified frameworks, ensuring prudential norms are met.
24. Which of the following is NOT part of the RBI guidelines on stressed asset resolution?
A. Timely identification of stressed accounts
B. Implementation of resolution plans
C. Periodic monitoring and reporting
D. Ignoring asset quality and provisioning requirements
Ignoring asset quality or provisioning is contrary to RBI guidelines; banks must comply with monitoring, resolution, and prudential norms.
25. What is the purpose of having a resolution plan under the RBI Framework for Stressed Assets?
A. To automatically write off all NPAs
B. To increase interest rates on all loans
C. To restore the borrower’s financial health and ensure recovery
D. To convert standard assets into NPAs
The resolution plan aims to revive stressed borrowers, restructure loans if necessary, and facilitate recovery while maintaining prudential norms.
