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Understanding Non-Performing Assets Management

This document discusses prudential norms related to non-performing assets (NPAs) including asset classification, income recognition, and provisioning. Key points include: - Prudential norms apply to asset classification, income recognition, provisioning, and all of the above. - Special mention accounts are classified as standard assets. Provisioning is required for substandard, doubtful, and all NPA assets. - For NPA accounts, interest income can only be recognized when actually received or realized, according to bank policy. - Each bank classifies consortium loan accounts according to its own recovery record. - True statements regarding income recognition include reversing interest charged but not collected on NPAs and not recognizing accrued

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58 views2 pages

Understanding Non-Performing Assets Management

This document discusses prudential norms related to non-performing assets (NPAs) including asset classification, income recognition, and provisioning. Key points include: - Prudential norms apply to asset classification, income recognition, provisioning, and all of the above. - Special mention accounts are classified as standard assets. Provisioning is required for substandard, doubtful, and all NPA assets. - For NPA accounts, interest income can only be recognized when actually received or realized, according to bank policy. - Each bank classifies consortium loan accounts according to its own recovery record. - True statements regarding income recognition include reversing interest charged but not collected on NPAs and not recognizing accrued

Uploaded by

amar dihingia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Non- Performing Assets and Provisioning

1. Prudential norms are applicable in respect of:


a) Asset Classification
b) Income Recognition
c) Provisioning
d) All of the above
2. For the purpose of asset classification a Special Mention Accounts is classified as:
a) Standard
b) Sub Standard
c) Irregular
d) Problematic
3. Provisioning is required to be made on ____ assets.
a) Standard
b) Doubtful
c) Substandard
d) All of these
4. In case of NPA accounts, interest or any other charge will be recognised as income as per
which of the following.
a) Accrual basis
b) When borrower gives commitment to regularize the account
c) When it is actually received or realised
d) (b) or (c) as per banks policy
5. An advance has been made by 3 banks under a consortium arrangement. The account
becomes NPA with one of the banks. What should be done by other bank?
Answer: In respect of consortium advances or financing under multiple banking
arrangements, each bank may classify the borrowal accounts according to its own
record of recovery.
6. Which of the following statements is/ are true with respect to income recognition:
a) Income from NPA assets is to be recognized only when it is actually received.
b) Interest on advances against term deposits, NSC, IVPs, KVPs, and Life policies
may be taken into income account on the due date provided adequate margin is
available in the accounts.
c) On an account (incl. bills purchased and discounted and Government
guaranteed accounts) turning NPA, banks should reverse the interest already
charged and not collected by debiting Profit and Loss account, and stop further
application of interest.
d) Banks may continue to record such accrued interest, but not realized, in a
Memorandum account in their books which should not be taken into account or
computing Gross Advances.
e) All of the above
7. Which of the following statements is/ are true with respect to NPA classification:
a) A working capital account would become NPA, if the irregularity continues
beyond90 days even though the unit would be working and its financial position is
satisfactory.
b) Regular and ad hoc limits are required to reviewed /regularized within 180 days from
the due date/date of sanction; else, it is to be classified as NPA.
c) A NPA Loan account, other than restructured and rescheduled, can be upgraded to
standard assets upon payment of arrears of interest and principal is paid.
d) Asset classification of accounts under consortium arrangement is to be based on the
record of recovery of the member banks.
e) Loan with moratorium for payment of interest, the amount of interest would become
overdue after the due date for payment of interest, if uncollected.
f) Advances against paper securities such as TDRs, NSCs eligible for surrender, IVPs, KVPs
and life policies need not be treated as NPAs, provided adequate margin is available in
the accounts.
g) Advances backed by guarantee of Central Government though overdue may be
treated as NPA only when the Government repudiates its guarantee when invoked.
However, State Government guaranteed advances and investments in State
Government guaranteed securities would attract asset classification and
provisioning norms if interest and/or principal or any other amount due to the bank
remains overdue for more than 90 days.
h) All the above
8. Legal Expense in NPA account will be debited to:
a) P&L Account
b) Savings Bank
c) GL Account
d) Suspense Account
9.

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