Module: | Capital Adequacy, Basel Norms & Monetary Policy
Q30: Which of the following rules governing the mechanics of Asset Classification and Provisioning are correct?
1. An NPA account can be upgraded to 'Standard' only if the entire arrears of interest and principal are paid by the borrower.
2. If the realizable value of security is less than 50% of the assessed value, the asset is straightaway classified as Doubtful.
3. If the realizable value of security is less than 10% of the outstanding balance, the asset is straightaway classified as Loss.
4. For Substandard assets with an unsecured portion, an additional 10% provision is required on the unsecured exposure (over and above the base 15%).
Which of the statements given above is/are correct?
2. If the realizable value of security is less than 50% of the assessed value, the asset is straightaway classified as Doubtful.
3. If the realizable value of security is less than 10% of the outstanding balance, the asset is straightaway classified as Loss.
4. For Substandard assets with an unsecured portion, an additional 10% provision is required on the unsecured exposure (over and above the base 15%).
Which of the statements given above is/are correct?
✅ Correct Answer: D
The correct answer is D. All four statements reflect correct regulatory mechanics under RBI guidelines.
Statement 1 is correct: Upgradation of an NPA account to 'Standard' status strictly requires the full clearance of all arrears of interest and principal; partial payments are insufficient.
Statements 2 and 3 are correct: They define the rules for "significant erosion" in the value of security.
If the realizable value drops below 50% of the originally assessed value, the asset is straightaway downgraded to Doubtful.
If it drops below 10% of the outstanding exposure, it is downgraded to Loss.
Statement 4 is correct: Substandard assets generally require a 15% provision, but an additional 10% provision (making it 25% total for that portion) is specifically mandated for the unsecured exposures within the substandard category.
Statement 1 is correct: Upgradation of an NPA account to 'Standard' status strictly requires the full clearance of all arrears of interest and principal; partial payments are insufficient.
Statements 2 and 3 are correct: They define the rules for "significant erosion" in the value of security.
If the realizable value drops below 50% of the originally assessed value, the asset is straightaway downgraded to Doubtful.
If it drops below 10% of the outstanding exposure, it is downgraded to Loss.
Statement 4 is correct: Substandard assets generally require a 15% provision, but an additional 10% provision (making it 25% total for that portion) is specifically mandated for the unsecured exposures within the substandard category.