Module: | Priority Sector, Consumer Protection & Digital Lending
Q150: Which of the following statements regarding special provisioning norms are correct?
1. For fraud accounts, the bank must generally provide for the entire amount (100%) immediately, though this can be spread over 4 quarters.
2. Provisioning for "Country Risk" is mandatory only if the bank's net funded exposure to that country is 1.00% or more of its total assets.
3. Housing loans at "teaser rates" attract a higher standard asset provisioning of 2.00%, which reverts to the normal rate only after 1 year of satisfactory performance post-reset.
4. Fraud accounts are treated as Standard assets until the police investigation is complete.
Which of the statements given above is/are correct?
2. Provisioning for "Country Risk" is mandatory only if the bank's net funded exposure to that country is 1.00% or more of its total assets.
3. Housing loans at "teaser rates" attract a higher standard asset provisioning of 2.00%, which reverts to the normal rate only after 1 year of satisfactory performance post-reset.
4. Fraud accounts are treated as Standard assets until the police investigation is complete.
Which of the statements given above is/are correct?
✅ Correct Answer: D
The correct answer is D. Statement 1 is correct: Upon detection of fraud, the entire outstanding amount requires an immediate 100% provision.
However, RBI permits banks to spread this provisioning impact over four consecutive quarters to manage sudden financial shocks.
Statement 2 is correct: Banks are required to make provisions for "Country Risk" exclusively if their net funded exposure to a specific foreign country reaches or exceeds 1.00% of their total assets.
Statement 3 is correct: Housing loans offered at artificially low initial "teaser rates" attract a structurally higher standard asset provisioning of 2.00%. This elevated rate reverts to normal only after one full year of satisfactory repayment following the upward rate reset.
Statement 4 is strictly incorrect: Fraud accounts are not kept as Standard assets.
Banks must classify them as doubtful/loss and provision immediately upon internal detection, completely irrespective of the timeline or completion of external police investigations.
However, RBI permits banks to spread this provisioning impact over four consecutive quarters to manage sudden financial shocks.
Statement 2 is correct: Banks are required to make provisions for "Country Risk" exclusively if their net funded exposure to a specific foreign country reaches or exceeds 1.00% of their total assets.
Statement 3 is correct: Housing loans offered at artificially low initial "teaser rates" attract a structurally higher standard asset provisioning of 2.00%. This elevated rate reverts to normal only after one full year of satisfactory repayment following the upward rate reset.
Statement 4 is strictly incorrect: Fraud accounts are not kept as Standard assets.
Banks must classify them as doubtful/loss and provision immediately upon internal detection, completely irrespective of the timeline or completion of external police investigations.