Q1. Discuss what is an NPA Account? Classify the loan accounts basis the IRAC norms?

Ans:
“An NPA (Non-Performing Asset) for a Bank is the one that is not “performing”, meaning it is
Not yielding any income by interest “

1. Standard:
2. Sub-Standard
3. Doubtful
4. Loss

Q2. What are the actions taken by bank during downgrading of Account – Non Performing Assets?
Ans:

Provisioning
TYPES Condition
Secured Exposure Unsecured Exposure
Standard Assets SMA 0 First Day of Due Date - -
SMA 1 SMA 0 + 30 days - -
SMA 2 SMA 1 + 30 days - -
Sub-standard Assets SMA 2 + 30 days 15% of outstanding balance 25% of outstanding balance
Doubtful Assets DA1 Sub Standard + 12 Month 25% of secured portion 100% of unsecured portion
DA2 DA1 + 12 Month 40% of the secured portion 100% of unsecured portion
DA3 DA2 + 24 Month 100% of unsecured portion 100% of unsecured portion
Loss Assets - - 100% of unsecured portion 100% of unsecured portion

Bank Actions during downgrading of account - Sub-standard -

 Constant follow-up
 Take possession of Collateral
 Proceed to legal Action If required
 Stop the debit Interest and reverse the debits of any unrealized amount.
 Increase Provision – 15% of Secured exposure to – 25% unsecured exposure

Bank Actions during downgrading of account - Doubtful Account -

 Constant follow-up
 Take possession of Collateral
 Proceed to legal Action If required
 Provision – As per chart above
Bank Actions during downgrading of account - Loss Account -

 Value of the Security is less than 10% of O/S or Considered as uncollectible by Branches / auditors.
 Continuous efforts to recover the loan
 Technical write off from the books.
 Increase provision upto 100%

Bank Actions during downgrading of account FRAUD –

 Fraud Accounts – has to be categorized as loss Assets.

 Take legal course of action
  Provisioning:
1. If bank reported the detection of fraud to RBI without DELAY – 100% provisioning in 4 Quarters
2. If bank reported the detection of fraud to RBI DELAY – 100% provisioning – at ONCE

Q3. What is Provisioning? Why banks make provisioning?

Ans:

1. “Provisioning is setting aside some percentage of the loan balance outstanding, out of profits, so that the
Bank is in a position to absorb the shock in case of a possible loss out of the loan account”
2. Bank Recognizes a loss on a loan ahead of time

 Why banks make Provisioning –

A provision means that the bank recognizes a loss on a loan ahead of time. Banks use their capital to absorb
these losses: by booking a provision, the bank takes a loss and hence reduces its capital by the amount of
money that it will not be able to collect from the client.

 Factors on which Provisioning depends:

1. Assets Classification
2. Age of NPA
3. Availability of security
4. Value of security
5. CGTMSE claim received

Provisioning Requirement for NPA account

Types of Assets Secured Exposure Unsecured Exposure
Sub Standard Assets 25% of the outstanding balance 25% of the outstanding balance
DA1 25% of the secured portion 100% of the unsecured portion
DA2 40% of the secured portion 100% of the unsecured portion
DA3 40% of the secured portion 100% of the unsecured portion

Standard Assets Provisioning

Agriculture Advance 0.25%
All other advances(SME) 0.40%
CRE for housing) 0.75%
CRE (other than housing) 1%
Restructuring Account 2%
Q4. INFRASTRUCTURE PROJECT LOANS & NON-INFRASTRUCTURE PROJECT LOANS
Ans:

 INFRASTRUCTURE PROJECT LOANS

1. Restructured in Standard Status within 2 years from DCCO:
 Delay due to Court case - Classified as standard till another 2 years – Total 4 Years extension
 Delay due to any Other Reason - Classified as standard till another 1 years - Total 3 Years extension

2. Non-Restructured – Classified as NPA, if not commenced within 2 years.

 NON-INFRASTRUCTURE PROJECT LOANS

1. Restructured in Standard status within 6 Months from DCCO – Classified as Standard till another – 1 Year.
2. Non-Restructured – Classified as NPA - if not commenced within 6 months

Q5. What is Credit monitoring? Discuss the need & Importance of Credit Monitoring?
Ans:

 If assets are not monitored as to their health, they cannot be managed.

 It is very important that assets of the banks are to be maintained in perfect health so that they keep performing
and yielding income by way of interest to the bank.
 If the health of the assets go out of control the health of the bank itself will become waken
 Assets are never on self mode they have to be watched for any warning signals, so that proper and effective
timely remedial action can be taken.

Importance of Monitoring
1. To ensure that the loan accounts continue to perform
2. To identify any triggers that could lead to a slippage
3. To take effective timely remedial action to avoid slippage
4. To keep a healthy and NII and NIM and bottom line

Types of Credit Monitoring

1. Physical monitoring
 Unit Inspection
 Stock Inspection
2. Financial monitoring
 Based on Financial returns
 Measures efficiency of WC by comparing the actuals Vice-a-versa projection
 identify the borrower with the genuine interest
 ensures regular flow of information between Consortium members
 ensures auditors compliance of his responsibility

What does monitoring covers?

1. Tempo of activity level of performance wise a versa protections
2. whether the borrower has been adhering to the terms of sanction and maintaining financial discipline
3. Whether security coverage is maintain or is there any dilution
4. whether the funds are used for the purpose length
 5. whether all assets obtained as a security or properly charge and banks interest created
6. whether the documentation is in order and enforceable in a court of law
7. Weather there are any warning signals that have to be identified and remedy on it.

Q6. What is Early Warning Signals? List down any 5 EWS.

Ans:
1. Prevention of down grading of assets must be done right from the early stages
2. Assets showing Signs of deterioration should be segregated and treated separately to prevent.
3. identification of early warning signals can enable
 choosing of appropriate alternative correction plans
 avoid sleepy of accounts to NPA status
4. more the delay greater the difficulty in terms of
 rehabilitation of the project
 recovery of banks due

Identification and the categorization of EWS

1. By monitoring the operations in the account

2. Review of The returns and state means
3. During a visit to the unit
4. discussion with these Stake holders and market enquiry and can also be combination of both

EWS can be categorized into 3 broad areas :

1. finance
2. operations
3. management and industry

LIST OF EWS:

1. Default in the payment to the banks

2. Raid by Income Tax sales tax central excise duty officials
3. Frequent change in the scope of project to be undertaken by the borrower
4. Under insured or over insured inventory
5. Invoices divided of TAN and other details
6. Dispute on title of the Collateral security costing the project
7. Funds coming from other banks liquidate the outstanding loan amount
8. in merchanting trade, import leg not revealed to the bank
9. Request received from the borrower to postpone the inspection of godown for filmsy reaons.
10. Onerous clause in BG/LC.

Q7. what are the Stages of Monitoring? Discuss in brief?

Ans:
1. Pre sanction
2. Post sanction and Pre-disposal
3. Post disposal
  Pre-sanction –
Ascertaining -
1. the creditors of applicant
2. His business or employment Credentials
3. Genuineness of the quotations, invoice submitted
4. Genuineness of the KYC documents if a new customer
5. social and Market reports

 Post sanction and pre Disposal –

Ascertaining -
1. Submission of all require documents and papers
2. the genuine of such document submitted
3. weather the terms of sanction to be stipulated
4. Releasing specifically wherever assets is to be created

 Post Disposal –
1. Ensuring that the asset is purchased
2. Ensuring that the banks right is created on the Asset Financed
3. Ensuring compliance to the terms of sanction
4. Periodical visits and inspection of the Asset charged
5. Identifying warning signals
6. taking timely remedial steps
7. continuous connect

MANDATED STATEMENT

QIS FRR

QIS 1 Estimates for the ensuing Quarter FRR1 Quarterly Financial Statement

QIS 2 Performance during the previous quarter FRR2 Half yearly Operating Cum Fund flow Statement

QIS 3 A Operating Statement for Previous Half Year

QIS 3 B Fund Flow Statement for Previous Half Year

Q8. Process of Monitoring Term Loan?

Ans:

1. check the quotation for authenticity, the price and supplier

2. release the funds directly to the supplier after ensuring payment of margin
3. confirm the delivery of plant and machinery or installation
4. visit the place where plant and machinery has been installed
5. confirmed the installation and check the Identity Number
6. create a charge on the Asset, ensure insurance
7. Monitor timely repayments and send timely reminders in case of delay.
Q9. What are the NPA Management Measures?
Ans:

NPA management comprises of two Measures –

1. preventive
2. Curative

PREAVENTIVE MEAURES: RRR

Preventive measures are followed for handling accounts with the genuine difficulties and Temporary irregular
territories these majors give a chance to accounts to upgrade their status

1. Rephase -
o existing repayment period is extended without altering EMI
o required during temporary difficulties example monetary offer during the time of COVID

2. Reschedule
o EMIs are modified without extension of repayment period to compensate or non repayment

3. Restructure -
Change in the existing structure of repayments May include granting of additional facilities, reduction of interest
rates, extension of repayment period, compromise on Overdue etc.

Q10. Who is willful defaulter? What are the guidelines to deal with willful defaulter?
Ans:

1. “Wilful defaulter is one who has the good cash flow but refuses to meet his obligations to the bank
2. such borrows were able to continue their default by borrowing from different Institutions
3. to district this RBI periodically releases a list of Wilful defaulters for the caution of the lenders
4. RBI has frame guidelines for
o identification
o reporting
o Dissemination of credit information

Guidelines to deal :

1. Precautions:
o observe the track records of the borrower
o identification must not be based on isolated incidence
o default must be intentional, calculated and deliberate
2. Instances of Wilful Defaulter:
o non-repayment despite having capacity to repay
o default in the payment and improper use or diversification of funds
o default in payments and siphoning of funds
o default in payments and disposal of movable fixed assets or immovable property given as a collateral

3. identification of wilful defaults:

o evidence must be examined by ED and two senior officers in the rank of GM or DGM
o On conclusion of wilful default the borrower will be issued a show cause notice
o the order of the committee will be reviewed by another committee before finalizing the order

4. reporting of wilful defaults

 o list of Suit file and non Suite file accounts of Whirlpool defaulters about 25 lakh must be given to the four
credit information bureaus licenced by RBI CIBIL, Equifax, Experian, CRIF
o these companies must furnished this information in their website

5. Punitive measures
o no additional facilities to be granted by any bank defaulters accounts to be bad from getting institutional
finance to float any new ventures for a period of 5 years from the date of removal of their name from the
list
o legal process must be initiated
o Bank can consider change in the management of the unit
o a Covenant in the future loan Agreement against the wilful defaulters

Q11. Short note on “LOK ADALAT”

Ans:
1. Legal authority constituted under legal services authority act 1987
2. Organized by bank through district level services authority or state level service authority
3. Encourages amicable settlement between a Lender and borrower who are willing to come for a settlement
4. Guided by the principle of justice equity fair play and other legal principle
5. Pending cases before court / DRT can be referred to lok Adalat
6. Cost effective
7. All accounts with a maximum selling of 20 lakh
8. All NPA accounts with their Suit file or not which is in a doubtful or loss category

Q11. Short note on “DEBT RECOVERY TRIBUNAL”

Ans:
1. Established under recommendation of Narsimhan Committee
2. Tackles the problems of delay in Civill Court
3. DRT only deals with the cases related to bank
4. All accounts of 20 lakh & Above
5. Banks can also join the suits filed by other bank

Q12. Short note on “SARFAESI ACT”

1. It is “securitisation and reconstruction of financial assets and enforcement of security interest Act 2002”
2. The SARFAESI Act was enable to regulate legal Framework for securitization of assets
3. procedure for transfer of NPA to ARC for the reconstruction of financial assets
4. enforcement of the security interest without codes intervention

Q12. Short note on “IBC 2016”

ANS:

1. Indian Bankruptcy code – 2016

2. IBC is code not law
3. Regulated by insolvency and bankrupty board of India
4. insolvency is a situation and bankrupty is a legal status
5. Purpose –
o creating a single insolvency and bankruptcy Framework,
o provide a commercial solutions to commercial issues,
o allow genuine business failure a second Chance provide confidence to the lenders of the rights and
enforcement,
o expedite and simplify the process & ensure negotiations
6. timeline 180 with extension of 90 days all together 330 days inclusive of litigation
7. applicability
o individuals and unlimited partnership – DRT * DRAT
o limited partnership and companies – NCLT & NCLAT

8. Consequences of default
o company - liquidation
o borrower - bankruptcy

9. 4 Pillars of IBC
 Regulator
 Adjudicating Authority
 Insolvency Professionals
 Information Utilities