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The following are the RBI guidelines for NPAs classification and
provisioning:
Sub Standard Assets These are those accounts which have been
classified as NPAs for a period less than or equal to 18 months.
Doubtful Assets These are those accounts which have remained as
NPAs for a period exceeding 18 months.
Loss Assets In other words, such an asset is considered
uncollectable and of such little value that its continuance as a
bankable asset is not warranted although there may be some salvage
or recovery value. But a loss asset has not been written off, wholly or
partly.
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Banks lend to different types of borrowers and each carries its own
risk. They lend the deposits of public as well as money raised from
the market- equity and debt.
The intermediation activity exposes the bank to a variety of risks.
Cases of big banks collapsing due to their inability to sustain the risk
exposures are readily available.
Therefore, banks have to-keep aside a certain percentage of capital
as security against the risk of non-recovery.
Basel committee provided the norms called Basel norms to tackle
the risk.
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In 1988 Basel committee gave the first set of norms (Basel I) and
presently the Basel II norms are being complied with by Indian banks
as follows:
by 2008- foreign banks and Indian banks with overseas operation
and
by 2009 other Indian banks except local area banks and RRBs.
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It has been devised by the RBI in 2009. This index is simple average of
five sub indices chosen for banking stability map that RBI has
constructed. Banking Stability Map has used five key risk dimensions
like operational efficiency, asset- quality, liquidity and profitability.
These are based on capital adequacy ratio, cost-to-income ratio,
nonperforming loans to total loans ratio, liquid assets to total assets
ratio and net profit to total assets ratio.
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Even though many banks failed and some survived on huge bailouts in
the west due to the global financial crisis, Indian banking is almost
unscathed for the following reasons.
Public sector banks- 27- dominate.
FDI is 74% in private-banks but voting rights are only 10%.
We adopted capital account convertibility in a measured manner.
RET has been conservative and regulated the banks well. Banks were not
allowed to invest in risky instruments like credit default swaps (CDS).
Basel norms, SER and CRR levels were well maintained.
Prudential norms also saved the Indian banks from recklessness.
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The government has launched Swabhimaana programme to ensure banking facilities in habitation with a
population in excess of 2,000, by March 2012. The programme will
use various models and technologies, including branchless banking
through business correspondents. The government has decided to
pay banks Rs 140 for every no frills account they open as part of the
financial inclusion plan.
The initiative would enable small and marginal farmers obtain credit
at lower rates from banks and other financial institutions. This would
insulate them from exploitation of the money lenders
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Financial
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2009
Q. Consider the following pairs:
Large Bank
Country of Origin
1. ABN Amro Bank
USA
2. Barclays Bank
UK
3. Kookmin Bank
Japan
Which of the above pairs is/are correctly matched?
(a) 1 only
(b) 2 only
(c) 1 and 2
(d) 2 and 3
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Q. In the context of independent Indias economy, which one of the following was the
earliest event to take place?
(a) Nationalization of Insurance companies
(b) Nationalization of State Bank of India
(c) Enactment of Banking Regulation Act
(d) Introduction of First Five-Year Plan
2010
Q. Which of the following terms indicates a mechanism used by commercial banks
for providing credit to the government?
(a) Cash Credit Ratio
(b) Debt Service Obligation
(c) Liquidity Adjustment Facility
(d) Statutory Liquidity Ratio
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Q. When the Reserve Bank of India announces an increase of the Cash Reserve Ratio,
what does it mean?
(a) The commercial banks will have less money to lend.
(b) The Reserve Bank of India will have less money to lend.
(c) The Union Government will have less money to lend.
(d) The commercial banks will have more money to lend.
Q. With reference to the institution of Banking Ombudsman in India, which one of
the statements is not correct?
(a) The Banking Ombudsman is appointed by the Reserve Bank of India.
(b) The Banking Ombudsman can consider complaints from Non-Resident Indians
having accounts in India.
(c)The orders passed by the Banking Ombudsman, are final and binding on the
parties concerned.
(d)The service provided by the Banking Ombudsman is free of any fee.
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2011
Q. Why is the offering of teaser loans by commercial banks a cause of economic
concern?
1. The teaser loans are considered to be an aspect of sub-prime lending and
banks may be exposed to the risk of defaulters in future.
2. In India, the teaser loans are mostly given to inexperienced entrepreneurs to
set up manufacturing or export units.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2 (d) Neither 1 nor 2
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Q. In India, which of the following have the highest share in the disbursement of credit
to agriculture and allied activities?
(a) Commercial Banks
(b) Cooperative Banks
(c) Regional Rural Banks
(d) Microfinance Institutions
Q. The lowering of Bank Rate by the Reserve Bank of India leads to
(a) More liquidity in the market
(b) Less liquidity in the market
(c) No change in the liquidity in the market
(d) Mobilization of more deposits by commercial banks
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2012
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Q. The Reserve Bank of India (RBI) acts as a bankers bank. This would imply which
of the following?
1. Other banks retain their deposits with the RBI.
2. The RBI lends funds to the commercial banks in times of need.
3. The RBI advises the commercial banks on monetary matters.
Select the correct answer using the codes given below:
(a) 2, and 3 only
(c) 1 and 3 only
(b) 1 and 2 only
(d) 1, 2 and 3
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