CAIIB ABM Module C UNIT 24 MCQ – Restructuring/Rehabilitaiion and Recovery

CAIIB ABM Module C UNIT 24 MCQ – Restructuring/Rehabilitaiion and Recovery.

Question 1: What does ‘credit default’ primarily signify in financial terms?

A. A customer’s eagerness to negotiate better loan terms.
B. A customer’s inability or unwillingness to meet financial obligations.
C. A bank’s decision to alter loan conditions for select clients.
D. A situation where a loan is fully repaid ahead of schedule.

Show Explanation

Correct Answer: B. A customer’s inability or unwillingness to meet financial obligations. Credit default refers to the borrower’s failure to fulfil their financial commitments.

Question 2: In a direct lending scenario, which situation indicates a credit default?

A. The borrower requests a revised repayment schedule, which the bank accepts.
B. The borrower is unable to repay the principal or interest as per the agreed terms.
C. The borrower decides to make prepayments towards the loan.
D. The bank offers a lower interest rate to the borrower.

Show Explanation

Correct Answer: B. The borrower is unable to repay the principal or interest as per the agreed terms. Credit default in direct lending involves the borrower’s failure to meet the repayment obligations.

Question 3: How is a ‘stressed asset’ best defined in banking?

A. An asset that consistently generates high returns for the bank.
B. An asset that is guaranteed to be repaid without any issues.
C. An asset where default has occurred or is likely to occur.
D. An asset that the bank plans to sell off quickly.

Show Explanation

Correct Answer: C. An asset where default has occurred or is likely to occur. Stressed assets are those that are currently in default or have a high probability of default in the future.

Question 4: Which of the following is an example of a stressed asset?

A. A term loan that is being repaid on time.
B. A loan to a project that is progressing as planned.
C. A loan for an industrial project that has been abandoneD.
D. A loan that has been fully secured with collateral.

Show Explanation

Correct Answer: C. A loan for an industrial project that has been abandoned. An abandoned project’s loan is considered a stressed asset due to the high risk of default.

Question 5: According to RBI directives, how are bank assets in India primarily classified?

A. Liquid and Illiquid Assets
B. Current and Fixed Assets
C. Performing and Non-Performing Assets
D. Tangible and Intangible Assets

Show Explanation

Correct Answer: C. Performing and Non-Performing Assets. The RBI mandates that banks classify their assets as either performing or non-performing.

Question 6: What are the further classifications of Non-Performing Assets (NPAs)?

A. Standard, Preferred, and Deferred
B. Sub-standard, Doubtful, and Loss
C. Primary, Secondary, and Tertiary
D. Secured, Unsecured, and Guaranteed

Show Explanation

Correct Answer: B. Sub-standard, Doubtful, and Loss. NPAs are further categorized into sub-standard, doubtful, and loss assets.

Question 7: What is the primary factor that determines the classification of NPAs?

A. The borrower’s credit score
B. The availability of collateral
C. The period of default
D. The loan amount

Show Explanation

Correct Answer: C. The period of default. The classification of NPAs is largely based on the duration of the default.

Question 8: What does the Provisioning Coverage Ratio (PCR) indicate?

A. The ratio of a bank’s profit to its expenses.
B. The ratio of a bank’s liquid assets to its total assets.
C. The extent of funds a bank has set aside to cover potential loan losses.
D. The ratio of a bank’s capital to its liabilities.

Show Explanation

Correct Answer: C. The extent of funds a bank has set aside to cover potential loan losses. PCR reflects the adequacy of a bank’s reserves for potential losses from non-performing assets.

Question 9: What is the cut-off limit for classifying borrowers as non-cooperative borrowers?

A. Borrowers having aggregate fund-based and non-fund based facilities of ₹1 crore from the concerned bank/FI.
B. Borrowers having aggregate fund-based and non-fund based facilities of ₹5 crores from the concerned bank/FI.
C. Borrowers having aggregate fund-based and non-fund based facilities of ₹10 crores from the concerned bank/FI.
D. Borrowers having aggregate fund-based and non-fund based facilities of ₹25 crores from the concerned bank/FI.

Show Explanation

Correct Answer: B. Borrowers having aggregate fund-based and non-fund based facilities of ₹5 crores from the concerned bank/FI. The cut-off limit for classifying borrowers as non-cooperative is ₹5 crores.

Question 10: Which of the following actions may NOT be considered as a trait of a Non-Cooperative Borrower?

A. Defaulting in timely repayment of dues while having ability to pay.
B. Thwarting lenders’ efforts for recovery of their dues by not providing necessary information.
C. Denying access to assets financed/collateral securities.
D. Informing the lender about genuine difficulties in making timely repayments.

Show Explanation

Correct Answer: D. Informing the lender about genuine difficulties in making timely repayments. A non-cooperative borrower is one who obstructs the lender’s recovery efforts, not one who communicates difficulties.

Question 11: What is the primary difference between ‘diversion’ and ‘siphoning’ of funds?

A. Diversion involves using funds for purposes other than specified, while siphoning involves using funds unrelated to the borrower’s operations, detrimental to the entity’s financial health.
B. Diversion refers to the illegal transfer of funds to a foreign country, while siphoning refers to using funds for personal expenses.
C. Diversion is a legal financial practice, while siphoning is an illegal financial practice.
D. There is no difference; the terms are interchangeable.

Show Explanation

Correct Answer: A. Diversion involves using funds for purposes other than specified, while siphoning involves using funds unrelated to the borrower’s operations, detrimental to the entity’s financial health. Diversion is misapplication of funds, whereas siphoning is using funds in a way that harms the entity’s financial standing.

Question 12: Under what circumstances can a lending institution publish photographs of a borrower who has defaulted?

A. Under no circumstances, publishing photographs of defaulters is illegal.
B. Only when the borrower is a high-profile individual.
C. Only of those borrowers who have been declared as wilful defaulters, following the mechanism set out in the RBI instructions.
D. Whenever the lending institution deems it necessary to recover the dues.

Show Explanation

Correct Answer: C. Only of those borrowers who have been declared as wilful defaulters, following the mechanism set out in the RBI instructions. Lenders can publish photos only of those declared wilful defaulters, adhering to RBI guidelines.

Question 13: What is the first course of action a bank is expected to take when an account shows signs of stress?

A. Immediately initiate legal proceedings.
B. Persuade the borrower to rectify the situation and ensure future compliance.
C. Restructure the loan.
D. Write off the loan.

Show Explanation

Correct Answer: B. Persuade the borrower to rectify the situation and ensure future compliance. The most desirable action is to convince the borrower to correct the issue and maintain future compliance.

Question 14: When is ‘restructuring’ of credit facilities usually considered by banks?

A. When the default is wilful.
B. When there is no possibility of recovery.
C. When the default is not wilful, and the unit has viability with the promoter’s interest to continue.
D. When the borrower refuses to cooperate.

Show Explanation

Correct Answer: C. When the default is not wilful, and the unit has viability with the promoter’s interest to continue. Restructuring is considered if the default isn’t intentional, and the business has a chance of succeeding with the promoter’s commitment.

Question 15: Which of the following actions is NOT a concession that a bank might grant while restructuring a loan?

A. Reducing the loan amount.
B. Extending the repayment period.
C. Sanctioning fresh facilities to overcome immediate crises.
D. Reducing the interest rate.

Show Explanation

Correct Answer: A. Reducing the loan amount. Concessions in restructuring typically involve changes to the terms of the loan, not a reduction in the principal amount.

Question 16: Under what condition can banks initiate recovery proceedings?

A. When the borrower requests it.
B. When rectification is possible.
C. When restructuring is feasible.
D. When rectification is not possible and restructuring is not feasible.

Show Explanation

Correct Answer: D. When rectification is not possible and restructuring is not feasible. Recovery proceedings are initiated when other resolution methods are not viable.

Question 17: Which of the following is NOT a forum available to banks for initiating recovery proceedings?

A. Civil Courts
B. Debt Recovery Tribunals (DRTs)
C. Lok Adalats
D. Criminal Courts

Show Explanation

Correct Answer: D. Criminal Courts. Banks typically use Civil Courts, DRTs, and Lok Adalats for recovery, not Criminal Courts.

Question 18: What is the primary purpose of the SARFAESI Act, 2002?

A. To provide a framework for banks to offer lower interest rates.
B. To expedite the recovery of dues by banks and FIs, allowing enforcement of security interest without court intervention.
C. To regulate the interest rates charged by banks.
D. To provide guidelines for restructuring of loans.

Show Explanation

Correct Answer: B. To expedite the recovery of dues by banks and FIs, allowing enforcement of security interest without court intervention. The SARFAESI Act aims to speed up recovery by enabling banks to enforce security interests without judicial intervention.

Question 19: When is the option of ‘Compromise’ usually considered by banks in the context of loan recovery?

A. As the first option to recover dues.
B. When legal action is likely to be quicker.
C. If the legal action takes or is likely to take more time than anticipated or does not yield the desired results.
D. When the borrower has a strong financial position.

Show Explanation

Correct Answer: C. If the legal action takes or is likely to take more time than anticipated or does not yield the desired results. Compromise is considered when legal avenues are time-consuming or ineffective.

Question 20: What does ‘Write off’ of a loan signify for a bank?

A. The borrower is no longer liable to repay the loan.
B. The bank has recovered the full amount of the loan.
C. The bank adjusts its books to account for the loss, but the borrower’s liability remains.
D. The loan is transferred to another bank.

Show Explanation

Correct Answer: C. The bank adjusts its books to account for the loss, but the borrower’s liability remains. A write-off is an accounting adjustment and does not absolve the borrower of their debt.

Question 21: Which of the following is the most desirable initial action a bank should take when dealing with a stressed asset?

A. Initiating legal action
B. Persuading the borrower to remit the unpaid amount
C. Restructuring the credit facilities
D. Writing off the outstanding amount

Show Explanation

Correct Answer: B. Persuading the borrower to remit the unpaid amount.

Question 22: When can a bank consider exiting from an account that is showing signs of stress?

A. Only after the account has been classified as a Non-Performing Asset (NPA)
B. When the symptoms of stress are detected at a very early stage
C. When the borrower is unable to shift the account to another bank
D. Only in cases of consortium or multiple banking arrangements

Show Explanation

Correct Answer: B. When the symptoms of stress are detected at a very early stage.

Question 23: In a sole banking scenario, what is a likely difficulty a bank might face when dealing with a problematic account?

A. Other banks readily taking over the account
B. Easy exit from the account
C. Difficulty in exiting the account
D. Availability of multiple restructuring options

Show Explanation

Correct Answer: C. Difficulty in exiting the account.

Question 24: Which of the following is a usual tactic used by banks to make a borrower exit?

A. Increasing credit limits
B. Ignoring borrower’s pleas
C. Sanctioning fresh loans
D. Providing additional finance

Show Explanation

Correct Answer: B. Ignoring borrower’s pleas.

Question 25: Under what condition would a bank typically restructure credit facilities for a borrower?

A. When the default is wilful
B. When there is no viability in the unit
C. When the default is not wilful and there is viability
D. When the borrower refuses to cooperate

Show Explanation

Correct Answer: C. When the default is not wilful and there is viability. Restructuring usually occurs if the default isn’t wilful and the unit is viable.

Question 26: What is a restructured account?

A. An account where the bank grants concessions due to the borrower’s financial difficulty
B. An account with a reduced credit limit
C. An account where the borrower has shifted to another bank
D. An account that has been legally written off

Show Explanation

Correct Answer: A. An account where the bank grants concessions due to the borrower’s financial difficulty.

Question 27: Which of the following is an example of a concession that a bank might grant in a restructured account?

A. Increasing the interest rate
B. Reducing the repayment period
C. Sanctioning fresh facilities to overcome immediate crises
D. Enforcing all covenants strictly

Show Explanation

Correct Answer: C. Sanctioning fresh facilities to overcome immediate crises.

Question 28: When do banks typically initiate recovery proceedings?

A. When rectification is possible
B. When restructuring is feasible
C. When rectification is not possible and restructuring is not feasible
D. In all cases of default

Show Explanation

Correct Answer: C. When rectification is not possible and restructuring is not feasible. Recovery proceedings are initiated when other options fail.

Question 29: For recovery of bank dues, under what circumstances can a bank file a suit in Civil Courts?

A. For any recoverable amount
B. When the recoverable amount is ₹20 lakh or more
C. When the recoverable amount is less than ₹20 lakh
D. Only for wilful defaulters

Show Explanation

Correct Answer: C. When the recoverable amount is less than ₹20 lakh. Civil Courts are for amounts less than ₹20 lakh.

Question 30: In a Civil Court suit for recovery, which of the following actions is required?

A. Only the borrower needs to be included as a defendant
B. Interim reliefs to protect the bank’s interest can be included in the plaint
C. The plaint needs to be signed by the bank’s advocate
D. A list of documents is not required

Show Explanation

Correct Answer: B. Interim reliefs to protect the bank’s interest can be included in the plaint.

Question 31: What is the usual sequence of events in a Civil Court case for recovery after the arguments?

A. Final decree followed by preliminary decree
B. Preliminary decree followed by final decree
C. Pronouncement of decision, then execution petition
D. Execution petition followed by preliminary decree

Show Explanation

Correct Answer: B. Preliminary decree followed by final decree.

Question 32: What is the limitation period for enforcing a final decree in a Civil Court for recovery?

A. 6 months
B. 1 year
C. 6 years
D. 12 years

Show Explanation

Correct Answer: D. 12 years. The limitation period for a final decree is 12 years.

Question 33: What is the primary purpose of Debt Recovery Tribunals (DRTs)?

A. To handle all civil suits
B. To expedite recovery cases for banks and Financial Institutions (FIs)
C. To settle disputes through Lok Adalats
D. To enforce security interest without court intervention

Show Explanation

Correct Answer: B. To expedite recovery cases for banks and Financial Institutions (FIs). DRTs are specifically for this purpose.

Question 34: What is the minimum amount involved for filing recovery cases in DRTs?

A. ₹10 lakh
B. ₹20 lakh
C. ₹50 lakh
D. ₹1 crore

Show Explanation

Correct Answer: B. ₹20 lakh. DRTs handle cases involving amounts of ₹20 lakh and above.

Question 35: How does the procedure in DRT differ from that of a civil suit?

A. DRT follows a detailed mortgage suit procedure
B. DRT procedure is more detailed than a civil suit
C. DRT procedure is a summary suit
D. There is no difference in the procedure

Show Explanation

Correct Answer: C. DRT procedure is a summary suit.

Question 36: What is the legal basis for Lok Adalats in dispute settlement?

A. Reserve Bank of India guidelines
B. Civil Procedure Code
C. Legal Services Authority Act, 1987
D. SARFAESI Act, 2002

Show Explanation

Correct Answer: C. Legal Services Authority Act, 1987. This Act provides the statutory basis for Lok Adalats.

Question 37: What is the amount limit for cases that commercial banks and financial institutions can refer to Lok Adalats convened under the civil judiciary?

A. No limit
B. Up to ₹10 lakh
C. Up to ₹20 lakh
D. Above ₹20 lakh

Show Explanation

Correct Answer: C. Up to ₹20 lakh. The limit is ₹20 lakh for Lok Adalats under civil judiciary.

Question 38: Under what circumstance can banks refer cases to Lok Adalats irrespective of the amount involved?

A. When convened under the civil judiciary
B. When convened by various DRTs/DRATs
C. Only for MSME disputes
D. Only for cases involving wilful defaulters

Show Explanation

Correct Answer: B. When convened by various DRTs/DRATs. In this case, there is no amount limit.

Question 39: What is the primary provision of the SARFAESI Act, 2002?

A. To provide guidelines for restructuring of assets
B. To facilitate the sale of financial assets to other banks
C. To enable banks and FIs to recover dues without court intervention
D. To establish Lok Adalats

Show Explanation

Correct Answer: C. To enable banks and FIs to recover dues without court intervention. This is a key provision of the SARFAESI Act.

Question 40: Which types of institutions are covered by the SARFAESI Act?

A. Commercial banks only
B. Financial institutions only
C. Co-operative banks only
D. Commercial banks and Financial Institutions (FIs) and co-operative banks

Show Explanation

Correct Answer: D. Commercial banks and Financial Institutions (FIs) and co-operative banks. The Act covers all these institutions.

Question 41: What does the SARFAESI Act, 2002, enable lenders to do in case of default?

A. File a civil suit
B. Take possession and sell the security without court intervention
C. Restructure the loan account
D. Write off the loan immediately

Show Explanation

Correct Answer: B. Take possession and sell the security without court intervention. The Act allows this for secured creditors.

Question 42: What additional provision does the SARFAESI Act make regarding financial assets?

A. It restricts the sale of financial assets
B. It provides for the sale of financial assets to securitisation/reconstruction companies
C. It mandates restructuring of financial assets
D. It prohibits banks from selling financial assets

Show Explanation

Correct Answer: B. It provides for the sale of financial assets to securitisation/reconstruction companies. The Act includes this provision.

Question 43: What is the significance of the 2004 amendment to the SARFAESI Act?

A. It made the recovery process lengthier
B. It enabled borrowers to file applications before the Debt Recovery Tribunal
C. It increased the amount to be deposited for filing an appeal
D. It removed the provision for taking possession of collateral

Show Explanation

Correct Answer: B. It enabled borrowers to file applications before the Debt Recovery Tribunal. This was one of the amendments.

Question 44: How does the SARFAESI Act, 2002, assist in taking possession of collateral in case of resistance?

A. It requires intervention of civil courts
B. It requires intervention of Debt Recovery Tribunals
C. It allows assistance from the District Magistrate or Chief Judicial Magistrate
D. It does not provide any specific assistance

Show Explanation

Correct Answer: C. It allows assistance from the District Magistrate or Chief Judicial Magistrate. This is the procedure in the Act.

Question 45: What is the purpose of the Central Registry under the SARFAESI Act?

A. To maintain records of unsecured assets
B. To maintain records of transactions related to secured assets
C. To provide loans to borrowers
D. To regulate interest rates

Show Explanation

Correct Answer: B. To maintain records of transactions related to secured assets. This is the role of the central registry.

Question 46: What is the condition for secured creditors to take possession of collateral under the SARFAESI Act?

A. Collateral must be unsecured
B. Collateral must be registered with the CERSAI
C. No registration is required
D. Only with court order

Show Explanation

Correct Answer: B. Collateral must be registered with the CERSAI. Registration is necessary for taking possession.

Question 47: What advantage do secured creditors have after registering their security interest?

A. They have no priority in repayment
B. They have priority over others who have not registered
C. They have to wait for court orders
D. They cannot claim repayment

Show Explanation

Correct Answer: B. They have priority over others who have not registered. Registration ensures priority.

Question 48: What is the provision regarding stamp duty on transactions related to asset reconstruction companies?

A. Stamp duty is applicable
B. Stamp duty has been waived
C. Stamp duty is reduced
D. Stamp duty is doubled

Show Explanation

Correct Answer: B. Stamp duty has been waived. This exemption is for transactions in favour of asset reconstruction companies.

Question 49: What has the Insolvency and Bankruptcy Code, 2016 (IBC) created?

A. Separate laws for each type of insolvency
B. A single law for insolvency and bankruptcy
C. Multiple tribunals for recovery
D. A code to protect debtors from creditors

Show Explanation

Correct Answer: B. A single law for insolvency and bankruptcy. IBC has unified the laws.

Question 50: What is the primary objective of the Insolvency and Bankruptcy Code (IBC), 2016?

A. To harass debtors
B. To ensure continuation of business entities and protect creditors
C. To delay the recovery process
D. To write off all debts

Show Explanation

Correct Answer: B. To ensure continuation of business entities and protect creditors. IBC aims to keep businesses operational and protect creditor interests.

Question 51: Under what circumstances do banks try to recover dues by offering concessions to the borrower?

A. When legal action is quick and effective
B. When legal action is likely to take more time than anticipated
C. When the borrower has no intention of paying
D. As a first course of action

Show Explanation

Correct Answer: B. When legal action is likely to take more time than anticipated. Compromise is considered when legal actions are prolonged.

Question 52: What is the cardinal principle for accepting a compromise offer?

A. The compromise offer should be less than the realizable value of the security
B. The compromise offer should be equal to the realizable value of the security
C. The present value of the compromise offer should be higher than the present value of the realizable value of the security
D. The compromise offer should be accepted immediately

Show Explanation

Correct Answer: C. The present value of the compromise offer should be higher than the present value of the realizable value of the security. This is the key principle.

Question 53: When is an outstanding amount written off by a bank?

A. When the borrower requests it
B. When the bank wants to show higher profits
C. When all recovery efforts are exhausted
D. As a routine accounting practice

Show Explanation

Correct Answer: C. When all recovery efforts are exhausted. Write-off is the last resort.

Question 54: What does a write-off NOT imply for the borrower’s liability?

A. The borrower’s liability ends
B. The borrower’s liability continues
C. The bank cannot recover any amount in the future
D. The bank must write off the loan again

Show Explanation

Correct Answer: B. The borrower’s liability continues. The borrower is still liable to pay even after a write-off.

Question 55: What is the difference between a technical write-off and an actual write-off?

A. There is no difference
B. Technical write-off is debiting to the P&L account, while actual write-off is setting off provision on the liability side
C. Technical write-off is setting off provision on the liability side, while actual write-off is debiting to the P&L account
D. Technical write-off is only for secured loans

Show Explanation

Correct Answer: C. Technical write-off is setting off provision on the liability side, while actual write-off is debiting to the P&L account. This distinction is crucial.

Question 56: When should a compromise normally be considered?

A. As the first course of action
B. Before contemplating legal action
C. After contemplating legal action and analyzing pros and cons
D. Only for small loans

Show Explanation

Correct Answer: C. After contemplating legal action and analyzing pros and cons. Compromise is considered after exploring legal options.

Question 57: What is a key consideration when deciding on a compromise?

A. It is always the best option
B. It saves time and the time-value of money if done at the right time
C. It should be done to avoid legal action
D. It is not a desired course of action

Show Explanation

Correct Answer: B. It saves time and the time-value of money if done at the right time. Time efficiency is a key factor.

Question 58: Under what categories can banks restructure accounts?

A. Only standard accounts
B. Only sub-standard and doubtful accounts
C. Standard, sub-standard, and doubtful accounts
D. Only loss assets

Show Explanation

Correct Answer: C. Standard, sub-standard, and doubtful accounts. Banks can restructure accounts in these categories.

Question 59: Can banks restructure borrowal accounts with retrospective effect?

A. Yes, always
B. Yes, with RBI approval
C. No, never
D. Yes, in certain cases

Show Explanation

Correct Answer: C. No, never. Restructuring cannot be done retrospectively.

Question 60: What is a prerequisite for a bank to take up an account for restructuring?

A. Borrower’s request
B. Financial viability and reasonable certainty of repayment
C. Approval from the RBI
D. Only for MSME accounts

Show Explanation

Correct Answer: B. Financial viability and reasonable certainty of repayment. These are essential conditions.

Question 61: What is a mandatory requirement for all lenders regarding the resolution of stressed assets?

A. To avoid any resolution plan
B. To put in place Board-approved policies for resolution of stressed assets
C. To delay the resolution process
D. To focus only on legal proceedings

Show Explanation

Correct Answer: B. To put in place Board-approved policies for resolution of stressed assets. All lenders must have these policies.

Question 62: When should lenders ideally initiate the process of implementing a resolution plan (RP)?

A. Only after a borrower is reported to be in default
B. Even before a default occurs
C. Thirty days after the review period
D. Only when legal proceedings are initiated

Show Explanation

Correct Answer: B. Even before a default occurs. Lenders are expected to initiate the process before a default.

Question 63: What is the “Review Period” for a borrower account after a default is reported?

A. 15 days
B. 30 days
C. 60 days
D. 90 days

Show Explanation

Correct Answer: B. 30 days. The Review Period is thirty days.

Question 64: During the Review Period, what decisions can lenders make?

A. Only to initiate legal proceedings
B. Only to implement a Resolution Plan (RP)
C. On the resolution strategy, including the nature and approach for implementation of the RP, or to initiate legal proceedings
D. To write off the loan

Show Explanation

Correct Answer: C. On the resolution strategy, including the nature and approach for implementation of the RP, or to initiate legal proceedings. Lenders decide on the resolution strategy during this period.

Question 65: What is the purpose of the inter-creditor agreement (ICA)?

A. To delay the resolution process
B. To provide ground rules for finalisation and implementation of the RP
C. To avoid any resolution plan
D. To favour a single lender

Show Explanation

Correct Answer: B. To provide ground rules for finalisation and implementation of the RP. The ICA establishes these rules.

Question 66: For borrowers with credit facilities from more than one lender, when should the inter-creditor agreement (ICA) be entered into?

A. After the implementation of the resolution plan
B. During the Review Period
C. After 180 days from the default
D. Only if legal proceedings fail

Show Explanation

Correct Answer: B. During the Review Period. The ICA is formed during this period.

Question 67: What percentage of lenders by value of total outstanding credit facilities must agree to a decision for it to be binding on all lenders under the ICA?

A. 51%
B. 60%
C. 75%
D. 100%

Show Explanation

Correct Answer: C. 75%. 75% by value is required for a binding decision.

Question 68: What is the minimum percentage of lenders by number that must agree to a decision for it to be binding under the ICA?

A. 51%
B. 60%
C. 75%
D. 100%

Show Explanation

Correct Answer: B. 60%. 60% by number is the requirement.

Question 69: What should the Resolution Plans (RPs) provide for dissenting lenders?

A. Equal treatment to all lenders
B. Less than the liquidation values due
C. Payment not less than the liquidation values due
D. No payment to dissenting lenders

Show Explanation

Correct Answer: C. Payment not less than the liquidation values due. Dissenting lenders must receive at least the liquidation value.

Question 70: For accounts with aggregate exposure above a certain threshold, within how many days from the end of the Review Period should the RP be implemented?

A. 30 days
B. 90 days
C. 180 days
D. 365 days

Show Explanation

Correct Answer: C. 180 days. The RP must be implemented within 180 days.

Question 71: When does the Review Period commence if the borrower is in default as of the reference date?

A. After 30 days from the reference date
B. On the date of the first default
C. On the reference date
D. After 180 days from the reference date

Show Explanation

Correct Answer: C. On the reference date. The Review Period starts on this date if in default.

Question 72: If the borrower defaults after the reference date, when does the Review Period begin?

A. On the reference date
B. On the date of the first default after the reference date
C. After 30 days from the default
D. After 180 days from the default

Show Explanation

Correct Answer: B. On the date of the first default after the reference date. The Review Period starts from this date.

Question 73: What actions can a Resolution Plan (RP) involve?

A. Only regularisation of the account
B. Only sale of exposures
C. Regularisation, sale of exposures, change in ownership, and restructuring
D. Only restructuring

Show Explanation

Correct Answer: C. Regularisation, sale of exposures, change in ownership, and restructuring. The RP can include various actions.

Question 74: What is a requirement for the Resolution Plan (RP) even if there are no changes in terms and conditions?

A. No documentation is needed
B. The RP shall be clearly documented by the lenders concerned
C. Only a verbal agreement is sufficient
D. Only the borrower needs to document the RP

Show Explanation

Correct Answer: B. The RP shall be clearly documented by the lenders concerned. Documentation is always required.

Question 75: For RPs involving restructuring where the aggregate exposure of lenders is ₹100 crores and above, what is required?

A. No credit evaluation
B. Internal credit evaluation
C. Independent credit evaluation (ICE) by credit rating agencies
D. Borrower’s self-evaluation

Show Explanation

Correct Answer: C. Independent credit evaluation (ICE) by credit rating agencies. ICE is required for such RPs.

Question 76: How many independent credit evaluations (ICEs) are required for accounts with aggregate exposure of ₹500 crores and above?

A. One
B. Two
C. Three
D. None

Show Explanation

Correct Answer: B. Two. Two ICEs are needed for these accounts.

Question 77: What is the minimum credit opinion required for a Resolution Plan (RP) to be considered for implementation?

A. RP5 or better
B. RP4 or better
C. RP3 or better
D. Any credit opinion

Show Explanation

Correct Answer: B. RP4 or better. The credit opinion must be RP4 or better.

Question 78: Who engages the credit rating agencies (CRAs) for the independent credit evaluation (ICE)?

A. The borrower
B. The lenders
C. The RBI
D. The government

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Correct Answer: B. The lenders. Lenders engage the CRAs.

Question 79: Who pays the fee for the independent credit evaluation (ICE) assignments?

A. The borrower
B. The lenders
C. The RBI
D. The government

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Correct Answer: B. The lenders. Lenders pay the fee.

Question 80: If lenders obtain ICE from more than the required number of CRAs, what is the condition for the RP to be considered for implementation?

A. Only the best ICE opinion is considered
B. All ICE opinions shall be RP4 or better
C. The average of the ICE opinions must be RP4 or better
D. Only one ICE opinion needs to be RP4 or better

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Correct Answer: B. All ICE opinions shall be RP4 or better. All opinions must meet the threshold.

Question 81: When is a Resolution Plan (RP) that does not involve restructuring deemed to be implemented?

A. If the borrower is not in default with any of the lenders as on the 90th day from the end of the Review Period
B. If the borrower is not in default with any of the lenders as on the 180th day from the end of the Review Period
C. If the borrower is not in default for a period of 6 months after the Review Period
D. Immediately after the Review Period

Show Explanation

Correct Answer: B. If the borrower is not in default with any of the lenders as on the 180th day from the end of the Review Period. This is the condition for implementation.

Question 82: What happens if there is a subsequent default after the 180-day period in a Resolution Plan (RP) that does not involve restructuring?

A. It is ignored
B. It is treated as an extension of the original default
C. It triggers a fresh review
D. It leads to immediate liquidation

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Correct Answer: C. It triggers a fresh review. A new default starts a new review.

Question 83: When is a Resolution Plan (RP) involving restructuring deemed to be implemented?

A. Only if the borrower is not in default
B. Only if all related documentation is completed
C. Only if the new capital structure is reflected in the books
D. If all related documentation is completed, the new capital structure is reflected, and the borrower is not in default

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Correct Answer: D. If all related documentation is completed, the new capital structure is reflected, and the borrower is not in default. All conditions must be met.

Question 84: What happens to a Resolution Plan (RP) that involves lenders exiting the exposure by assigning it to a third party?

A. It is never implemented
B. It is deemed implemented only if the exposure to the borrower is fully extinguished
C. It is implemented partially
D. It requires RBI approval

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Correct Answer: B. It is deemed implemented only if the exposure to the borrower is fully extinguished. Full extinguishment is necessary.

Question 85: What is the additional provisioning requirement if a viable RP is not implemented within 180 days from the end of the Review Period?

A. 10% of total outstanding
B. 20% of total outstanding
C. 35% of total outstanding
D. 50% of total outstanding

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Correct Answer: B. 20% of total outstanding. This is the initial additional provisioning.

Question 86: What is the total additional provisioning required if the viable RP is not implemented within 365 days from the commencement of the Review Period?

A. 20% of total outstanding
B. 35% of total outstanding
C. 50% of total outstanding
D. 100% of total outstanding

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Correct Answer: B. 35% of total outstanding. This is the cumulative provisioning.

Question 87: What is the cap on the total provisions held?

A. 50% of total outstanding
B. 75% of total outstanding
C. 100% of total outstanding
D. No cap

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Correct Answer: C. 100% of total outstanding. The total provisions are capped at this level.

Question 88: When can the additional provisions be reversed if the RP involves only payment of overdues by the borrower?

A. Immediately after payment
B. If the borrower is not in default for a period of 3 months from the date of clearing the overdues
C. If the borrower is not in default for a period of 6 months from the date of clearing the overdues
D. After one year of clearing the overdues

Show Explanation

Correct Answer: C. If the borrower is not in default for a period of 6 months from the date of clearing the overdues. This is the condition for reversal.

Question 89: When can the additional provisions be reversed if the RP involves restructuring outside IBC?

A. Only after one year of implementation
B. Upon implementation of the RP
C. Only with RBI approval
D. Never

Show Explanation

Correct Answer: B. Upon implementation of the RP. Reversal occurs after implementation.

Question 90: How much of the additional provisions can be reversed when resolution is pursued under IBC upon filing of the insolvency application?

A. The entire amount
B. Half of the additional provisions
C. One-third of the additional provisions
D. None

Show Explanation

Correct Answer: B. Half of the additional provisions. Half is reversed on filing.

Question 91: When can the remaining additional provisions be reversed if resolution is pursued under IBC?

A. Upon filing of the insolvency application
B. Upon completion of the insolvency resolution process
C. Upon admission of the borrower into the insolvency resolution process under IBC
D. Never

Show Explanation

Correct Answer: C. Upon admission of the borrower into the insolvency resolution process under IBC. The rest is reversed upon admission.

Question 92: When can the additional provisions be reversed if assignment of debt/recovery proceedings are initiated?

A. Immediately
B. After one year
C. Upon completion of the assignment of debt/recovery
D. Never

Show Explanation

Correct Answer: C. Upon completion of the assignment of debt/recovery. Reversal happens upon completion.

Question 93: What does the Prudential Framework for Resolution of Stressed Assets provide?

A. Rules without principles
B. A principle-based resolution framework for addressing borrower defaults
C. Only legal procedures
D. No resolution framework

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Correct Answer: B. A principle-based resolution framework for addressing borrower defaults. This is what the framework provides.

Question 94: What does any resolution plan under the Prudential Framework that involves concessions generally entail?

A. An asset classification upgrade
B. No change in asset classification
C. An asset classification downgrade
D. Retaining the asset classification

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Correct Answer: C. An asset classification downgrade. Concessions usually lead to a downgrade.

Question 95: What was the major impact of the Covid-19 pandemic on borrowers?

A. Reduced financial stress
B. Significant financial stress
C. No financial impact
D. Improved cash flow

Show Explanation

Correct Answer: B. Significant financial stress. The pandemic caused widespread stress.

Question 96: What did the Reserve Bank of India (RBI) announce to facilitate the revival of real sector activities and mitigate the impact on borrowers due to Covid-19?

A. A new legal framework
B. Provision of a window under the Prudential Framework to enable lenders to implement a resolution plan
C. Increased interest rates
D. Reduced lending

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Correct Answer: B. Provision of a window under the Prudential Framework to enable lenders to implement a resolution plan. RBI provided this window.

Question 97: What was the condition for borrower accounts to be eligible for resolution under the Covid-19 framework?

A. Classified as NPA as on March 1, 2020
B. In default for more than 30 days as on March 1, 2020
C. Classified as standard and not in default for more than 30 days as on March 1, 2020
D. Any borrower account

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Correct Answer: C. Classified as standard and not in default for more than 30 days as on March 1, 2020. This was an eligibility criterion.

Question 98: What is DCCO?

A. Date of Credit Clearance Operation
B. Date of Commencement of Commercial Operation
C. Daily Cash Collection Objective
D. Debt Conversion and Credit Overhaul

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Correct Answer: B. Date of Commencement of Commercial Operation. This is the definition of DCCO.

Question 99: What is the general rule regarding capitalisation of interest after the Date of Commencement of Commercial Operation (DCCO)?

A. Capitalisation of interest is always allowed
B. No capitalisation of interest is possible
C. Capitalisation of interest is possible with RBI approval
D. Capitalisation of interest is allowed for 5 years

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Correct Answer: B. No capitalisation of interest is possible. Generally, interest cannot be capitalised after DCCO.

Question 100: What is the impact of deferment of DCCO?

A. It is always treated as standard
B. It is treated as restructuring, warranting down-gradation of the Standard Asset account to Sub Standard Asset
C. It has no impact on asset classification
D. It leads to immediate write-off

Show Explanation

Correct Answer: B. It is treated as restructuring, warranting down-gradation of the Standard Asset account to Sub Standard Asset. Deferment is generally considered restructuring.