Module: | Priority Sector, Consumer Protection & Digital Lending
Q147: Which of the following statements regarding exceptions and exemptions in Asset Classification are correct?
1. Advances against Term Deposits, National Savings Certificates (NSCs), and Life Insurance Policies are exempt from NPA classification, provided adequate margin is available.
2. Credit facilities backed by Central Government Guarantees are classified as NPA only if the Government repudiates the guarantee when invoked.
3. Under the "borrower-wise" classification rule, bills discounted under a Letter of Credit (LC) favouring the borrower are NOT treated as NPA even if the borrower's other facilities are NPA.
4. Advances against Gold Ornaments and Government Securities are also exempt from NPA classification norms.
Which of the statements given above is/are correct?
2. Credit facilities backed by Central Government Guarantees are classified as NPA only if the Government repudiates the guarantee when invoked.
3. Under the "borrower-wise" classification rule, bills discounted under a Letter of Credit (LC) favouring the borrower are NOT treated as NPA even if the borrower's other facilities are NPA.
4. Advances against Gold Ornaments and Government Securities are also exempt from NPA classification norms.
Which of the statements given above is/are correct?
✅ Correct Answer: B
The correct answer is B. Statements 1, 2, and 3 represent valid exceptions to standard NPA classification norms under RBI guidelines.
Statement 1 is correct: Advances fully secured by Term Deposits, NSCs, Indira Vikas Patras, Kisan Vikas Patras, and Life Insurance Policies are strictly exempt from NPA classification, provided adequate margin is maintained.
Statement 2 is correct: Credit facilities backed by Central Government Guarantees do not attract NPA classification unless the government officially repudiates its guarantee when invoked (note: State Government guarantees do not enjoy this exemption). Statement 3 is correct: This is a specific carve-out to the standard "borrower-wise" classification rule; bills discounted under an LC favor the borrower and remain standard even if the borrower's other accounts turn NPA.
Statement 4 is incorrect: RBI explicitly states that advances against Gold Ornaments, Government Securities, and all other types of securities are NOT exempt from the prudential NPA norms.
Statement 1 is correct: Advances fully secured by Term Deposits, NSCs, Indira Vikas Patras, Kisan Vikas Patras, and Life Insurance Policies are strictly exempt from NPA classification, provided adequate margin is maintained.
Statement 2 is correct: Credit facilities backed by Central Government Guarantees do not attract NPA classification unless the government officially repudiates its guarantee when invoked (note: State Government guarantees do not enjoy this exemption). Statement 3 is correct: This is a specific carve-out to the standard "borrower-wise" classification rule; bills discounted under an LC favor the borrower and remain standard even if the borrower's other accounts turn NPA.
Statement 4 is incorrect: RBI explicitly states that advances against Gold Ornaments, Government Securities, and all other types of securities are NOT exempt from the prudential NPA norms.