Consider the following statements regarding historical restructuring schemes introduced by the RBI:
1. Under the Scheme for Sustainable Structuring of Stressed Assets (S4A), the debt of a stressed company was bifurcated into 'sustainable' and 'unsustainable' debt.
2. The Strategic Debt Restructuring (SDR) scheme allowed banks to convert their outstanding loans into a majority equity stake to take operational control of the stressed company.
3. These schemes (SDR and S4A) were introduced by the RBI in 2019 to completely replace the Insolvency and Bankruptcy Code.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Statements 1 and 2 correctly define the mechanisms of S4A and SDR, which were tools used to handle corporate stress. Statement 3 is incorrect because these schemes pre-date the IBC; in fact, the RBI withdrew SDR, S4A, and CDR schemes in 2018 (via the February 12 circular) to harmonize resolution predominantly under the newly established IBC framework.
Consider the following statements regarding the classification of Non-Performing Assets (NPAs):
1. A standard asset is classified as a Non-Performing Asset if the interest or principal installment remains overdue for a period of more than 90 days.
2. An asset is classified as 'substandard' if it has remained an NPA for a period less than or equal to 12 months.
3. An asset is classified as 'doubtful' if it has remained in the substandard category for a period of 12 months.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: All three statements are correct. According to RBI guidelines, a loan becomes an NPA when overdue for 90 days. It is then classified as substandard for up to 12 months. Once it exceeds 12 months in the substandard category, it is classified as a doubtful asset.
Consider the following statements regarding loan write-offs and waivers:
1. A loan write-off is a legal process that permanently extinguishes the borrower's obligation to repay the loan to the bank.
2. When a bank completely writes off a loan, the non-performing asset continues to be reflected actively on the bank's published balance sheet.
3. A farm loan waiver is an internal accounting exercise undertaken independently by commercial banks without any financial involvement of the government.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: None of the statements are correct. Statement 1 is incorrect because a write-off is merely an internal accounting maneuver to clean the balance sheet; it does not extinguish the borrower's legal obligation to pay, and the bank continues recovery efforts. Statement 2 is incorrect because written-off loans are removed from the active balance sheet. Statement 3 is incorrect because loan waivers (like farm loan waivers) are political decisions where the government bears the cost and compensates the banks.
Consider the following statements regarding the Pre-Packaged Insolvency Resolution Process (PIRP):
1. PIRP is an expedited resolution framework available to all corporate debtors irrespective of their size, provided the default amount exceeds Rs 100 crore.
2. Under PIRP, the existing management is immediately suspended, and the Resolution Professional takes complete operational control of the enterprise.
3. A PIRP can be unilaterally initiated by an operational creditor without requiring any consent from the financial creditors of the debtor.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: None of the statements are correct. Statement 1 is incorrect because PIRP is exclusively available for Micro, Small, and Medium Enterprises (MSMEs), with a much lower default threshold of Rs 10 lakh. Statement 2 is incorrect because PIRP operates on a "debtor-in-possession" model, allowing existing management to retain control during the process. Statement 3 is incorrect because initiating a PIRP requires the approval of financial creditors representing at least 66% in value of the debt.
Consider the following statements regarding the Adjudicating Authorities under the IBC:
1. Debt Recovery Tribunals (DRTs) serve as the adjudicating authority for insolvency proceedings concerning individuals and partnership firms.
2. The National Company Law Tribunal (NCLT) serves as the adjudicating authority for corporate debtors as well as sole proprietorships.
3. Appeals against the final insolvency orders issued by the NCLT must be filed directly to the Supreme Court of India.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Only statement 1 is correct. DRTs handle individual and partnership insolvency. Statement 2 is incorrect because sole proprietorships fall under the jurisdiction of the DRT, not the NCLT (which handles companies and LLPs). Statement 3 is incorrect because appeals against NCLT orders are first heard by the National Company Law Appellate Tribunal (NCLAT) before reaching the Supreme Court.
Consider the following statements regarding Special Mention Accounts (SMA):
1. SMA-0 denotes an account where the principal or interest payment is overdue between 1 and 30 days.
2. SMA-1 denotes an account where the principal or interest payment is overdue between 31 and 60 days.
3. SMA-2 denotes an account where the payment is overdue between 61 and 90 days, immediately preceding the NPA classification.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: All three statements are correct. The RBI introduced the SMA classification to identify incipient stress in accounts before they formally become NPAs (which happens at 90 days of default). SMA-0 (1-30 days), SMA-1 (31-60 days), and SMA-2 (61-90 days).
Consider the following statements regarding the Capital Adequacy Ratio (CAR) and NPAs:
1. CAR measures a bank's core capital in relation to its risk-weighted assets, serving as a buffer to absorb a reasonable amount of financial loss.
2. An accumulation of high NPAs mathematically increases a bank's Capital Adequacy Ratio by expanding its asset base.
3. The Basel III norms recommend completely eliminating the CAR requirement to free up banking capital for extensive corporate lending.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Only statement 1 is correct. CAR is a vital health metric for banks. Statement 2 is incorrect because high NPAs require banks to set aside capital as provisions, which depletes their core capital, mathematically *decreasing* the CAR. Statement 3 is incorrect because Basel III was introduced specifically to *strengthen* CAR requirements and introduce additional buffers after the 2008 financial crisis.
Consider the following statements regarding past restructuring schemes like SDR and S4A:
1. Strategic Debt Restructuring (SDR) allowed banks to convert their loan dues into equity to permanently entrench the original promoters as owners.
2. The Scheme for Sustainable Structuring of Stressed Assets (S4A) was introduced to permanently waive off 50% of the principal amount for all MSME borrowers.
3. Both SDR and S4A are currently the active, primary resolution tools used by the RBI, having replaced the IBC in 2021.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: None of the statements are correct. Statement 1 is incorrect because SDR allowed banks to take a majority equity stake precisely to oust the errant original promoters and bring in new management. Statement 2 is incorrect because S4A bifurcated deep corporate debt into sustainable and unsustainable portions, it was not a blanket 50% waiver for MSMEs. Statement 3 is incorrect because the RBI withdrew SDR, S4A, and CDR in 2018 via its 'Revised Prudential Framework' to consolidate resolution under the IBC.
Consider the following statements regarding the Committee of Creditors (CoC) under the IBC:
1. The Committee of Creditors is primarily composed of the financial creditors of the corporate debtor.
2. The CoC holds the supreme commercial authority to approve or reject a proposed resolution plan for the distressed company.
3. The approval of a resolution plan by the CoC strictly requires an affirmative vote of at least 66% of the voting share.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: All three statements are correct. Under the IBC, the CoC (comprising financial creditors) drives the resolution process. The commercial wisdom of the CoC is supreme regarding the approval of plans, and the threshold for approving a resolution plan was amended from 75% to 66% to facilitate smoother decision-making.
Consider the following statements regarding the core structural shifts introduced by the IBC, 2016:
1. The IBC consolidated a plethora of existing, overlapping insolvency laws to create a single, unified legal framework for India.
2. It fundamentally shifted the corporate insolvency regime from a "debtor-in-possession" model to a "creditor-in-control" model.
3. The primary objective of the code is to establish a time-bound mechanism to maximize the value of assets and balance the interests of all stakeholders.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: All three statements are correct. The IBC replaced fragmented laws (like SICA, RDDBFI) with one code. It crucially ousted defaulting promoters, handing control to a Resolution Professional guided by creditors (Creditor-in-control). Its overarching goal remains value maximization within a strict, time-bound framework.
Consider the following statements regarding Section 29A of the Insolvency and Bankruptcy Code:
1. Section 29A was introduced retroactively to prevent defaulting promoters from acquiring their own distressed companies at steep discounts during the resolution process.
2. The section bars willful defaulters and individuals whose accounts have been classified as NPAs for over a year from submitting a resolution plan.
3. The IBC provides a specific statutory carve-out exempting the promoters of MSMEs from the applicability of certain strict provisions of Section 29A.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: All three statements are correct. Section 29A acts as a moral and legal gatekeeper preventing errant promoters from misusing the IBC. However, acknowledging that third-party buyers are rare for MSMEs, the code allows MSME promoters (who are not willful defaulters) to bid for their own companies to save them from liquidation.
Consider the following statements regarding the 'Waterfall Mechanism' for liquidation under Section 53 of the IBC:
1. Insolvency resolution process costs and liquidation costs are given absolute priority and paid before any other debts.
2. Workmen's dues for the twenty-four months preceding the liquidation commencement date rank pari passu (equally) with the debts owed to secured creditors.
3. Outstanding statutory dues owed to the Central and State Governments rank higher than the debts owed to unsecured financial creditors.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Statements 1 and 2 are correct according to the Section 53 waterfall. Statement 3 is incorrect because unsecured financial creditors [Section 53(1)(d)] are positioned higher in the priority order than government statutory dues [Section 53(1)(e)].
Consider the following statements regarding 'Willful Defaulters' in the Indian banking system:
1. A willful defaulter is legally defined as a borrower who has the financial capacity to clear their dues but intentionally refuses to do so.
2. Diverting a bank loan for purposes other than the specific project it was sanctioned for constitutes willful default.
3. RBI guidelines state that classifying an individual as a willful defaulter automatically imposes a lifetime ban on their ability to travel abroad.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Statements 1 and 2 are correct according to RBI's master circular on willful defaulters. Statement 3 is incorrect because being a willful defaulter does not automatically ban foreign travel; preventing travel requires specific Look Out Circulars (LOCs) to be issued by investigating agencies or public sector banks on a case-by-case basis.
Consider the following statements regarding a 'Haircut' in banking resolution:
1. A haircut refers to the difference between the actual outstanding loan amount and the final amount the bank agrees to accept as settlement.
2. A mathematically larger haircut indicates that the lending bank is absorbing a greater financial loss on the defaulted loan.
3. Lenders often consent to significant haircuts during the IBC resolution process to recover viable value rather than forcing the company into total liquidation.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: All three statements are correct. A haircut is the percentage of the debt the bank sacrifices during resolution. Banks accept haircuts because the recovered value from a resolution plan is often higher and quicker than the scrap value obtained through liquidation.
Consider the following statements regarding the 'Moratorium' period under Section 14 of the IBC:
1. Upon the commencement of CIRP, the NCLT declares a moratorium that strictly halts all pending civil suits and legal debt recovery proceedings against the corporate debtor.
2. The moratorium legally prevents the corporate debtor's employees from receiving any wages, salaries, or terminal benefits until the final resolution plan is approved.
3. During the moratorium period, the corporate debtor is permitted to transfer its core unencumbered assets to repay favored operational creditors.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Only statement 1 is correct. The moratorium provides a "calm period" to prevent asset stripping by creditors. Statement 2 is incorrect because the company is run as a going concern, meaning current employee wages and supplier payments essential for operations continue to be paid. Statement 3 is incorrect because the transfer, encumbrance, or disposal of any of the corporate debtor's assets is strictly prohibited during the moratorium.
Consider the following statements regarding Cross-Border Insolvency:
1. Cross-border insolvency addresses scenarios where a distressed debtor has assets or creditors located in more than one sovereign jurisdiction.
2. The UNCITRAL Model Law provides a globally accepted legislative framework to help nations manage cross-border insolvency issues.
3. The Indian Parliament has already passed and enacted a fully functional Cross-Border Insolvency chapter within the IBC framework.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Statements 1 and 2 are correct. Cross-border insolvency deals with international asset recovery, and the UNCITRAL Model Law is the standard blueprint. Statement 3 is incorrect because, while recommended by various committees, the cross-border insolvency framework has not yet been enacted into law in India.
Consider the following statements regarding Project Sashakt:
1. Project Sashakt was proposed by the Sunil Mehta Committee as a five-pronged strategy to resolve the NPA problem in India.
2. The project recommended the immediate privatization of all public sector banks possessing an NPA ratio above 15%.
3. It legally mandates that all bad loans above Rs 50 crore must be directly transferred to the NCLT for liquidation within 30 days.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Only statement 1 is correct. Project Sashakt, formulated by the Sunil Mehta Committee, provided a 5-prong approach (SME resolution, bank-led resolution, AMC/AIF approach, NCLT, and asset trading). Statement 2 is incorrect because it did not recommend mass privatization. Statement 3 is incorrect because it proposed an AMC/AIF approach for loans above Rs 500 crore to be resolved outside NCLT, rather than mandating immediate NCLT liquidation.
Consider the following statements regarding Insolvency Professionals (IPs) under the IBC:
1. An Insolvency Professional is appointed to take over the management of the corporate debtor's operations during the CIRP.
2. To practice, IPs must be registered with an Insolvency Professional Agency (IPA) and subsequently with the IBBI.
3. Foreign nationals residing outside India can freely practice as Insolvency Professionals for Indian companies without IBBI registration.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Statements 1 and 2 are correct. The IP (as an IRP/RP) suspends the board of directors and runs the company as a going concern, and must be strictly registered with an IPA and IBBI. Statement 3 is incorrect because foreign nationals are not permitted to register and practice as IPs under the current IBBI regulations.
Consider the following statements regarding the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002:
1. The SARFAESI Act applies to both secured and unsecured loans, as well as loans with an outstanding amount below Rupees one lakh.
2. Cooperative banks operating in India are explicitly excluded from the provisions and powers of the SARFAESI Act.
3. The Act requires the mandatory intervention and permission of civil courts before a bank can take possession of the collateral.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: None of the statements are correct. Statement 1 is incorrect because SARFAESI only applies to secured loans and specifically excludes loans below Rs. 1 lakh. Statement 2 is incorrect because the Supreme Court has ruled that cooperative banks can invoke the SARFAESI Act. Statement 3 is incorrect because the primary feature of SARFAESI is to allow banks to take possession of collateral without court intervention.
Consider the following statements regarding the evolution of balance sheet stress in India as highlighted by the Economic Survey:
1. The 'Twin Balance Sheet' problem initially referred to over-leveraged corporate balance sheets combined with NPA-laden commercial bank balance sheets.
2. It subsequently evolved into the 'Four Balance Sheet Challenge' involving NBFCs and Real Estate companies alongside banks and corporates.
3. The severe liquidity squeeze that followed the collapse of IL&FS significantly exacerbated the stress within the NBFC and real estate sectors.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: All three statements are correct. Arvind Subramanian initially highlighted the TBS problem (banks and infrastructure corporates). Later Economic Surveys noted its evolution into a 4-balance sheet problem, adding NBFCs and Real Estate developers, largely triggered by the IL&FS default in 2018 which dried up liquidity.
Consider the following statements regarding the Provisioning Coverage Ratio (PCR):
1. The Provisioning Coverage Ratio indicates the percentage of funds that a bank has set aside from its profits to cover its bad debts.
2. A high PCR indicates that the bank is highly vulnerable to asset quality shocks and is at risk of failure.
3. The RBI mandates specific provisioning percentage norms based on whether the NPA is classified as substandard, doubtful, or a loss asset.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Statements 1 and 3 are correct. PCR measures the provisioning buffer against NPAs, and RBI sets these norms based on asset classification. Statement 2 is incorrect because a high PCR indicates that the bank is well-cushioned and resilient against asset quality shocks, not vulnerable.
Consider the following statements regarding Information Utilities (IUs) under the IBC:
1. Information Utilities are statutory bodies created to provide financial advice to retail investors regarding high-risk stock market investments.
2. The submission of financial information regarding debtors to Information Utilities is completely voluntary for financial creditors.
3. The Central Bureau of Investigation (CBI) acts as the sole authorized Information Utility for tracking corporate defaults under the IBC.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: None of the statements are correct. Statement 1 is incorrect because IUs securely store financial information, defaults, and security interests to establish facts during insolvency proceedings, not to give stock advice. Statement 2 is incorrect because submission of financial information to an IU is mandatory for all financial creditors. Statement 3 is incorrect because the National E-Governance Services Limited (NeSL) is the registered IU, not the CBI.
Consider the following statements regarding 'Haircuts' in the context of debt resolution:
1. A 'haircut' signifies the difference between the outstanding loan amount and the amount the bank agrees to accept as the final settlement during resolution.
2. Consenting to a haircut is often considered commercially viable for lenders when compared to the extreme delays and vastly lower recovery values associated with corporate liquidation.
3. Excessively high haircuts approved during CIRP have raised concerns among regulators regarding the massive disparity between admitted claims and actual realized value.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: All three statements are correct. A haircut is the financial loss absorbed by a lender. Despite the loss, it is often better than the scrap value obtained in liquidation. However, deep haircuts (sometimes up to 80-90% in large IBC cases) have raised alarm regarding the effectiveness of the resolution process in preserving value.
Consider the following statements differentiating Gross NPA and Net NPA:
1. Gross NPA represents the absolute total value of all non-performing assets held by a bank without taking any accounting provisions into consideration.
2. Net NPA is calculated strictly by deducting the financial provisions made by the bank for bad debts from the Gross NPA.
3. A high Net NPA ratio alongside a high Gross NPA ratio indicates that the commercial bank is exceptionally well-provisioned against its bad loans.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Statements 1 and 2 are correct. Gross NPA is the total raw bad debt, while Net NPA reflects the unprovisioned portion of bad debt (Net NPA = Gross NPA - Provisions). Statement 3 is incorrect because a high Net NPA ratio indicates that the bank has *not* made sufficient provisions to cover its bad loans, exposing it to severe financial shock.
Consider the following statements regarding Asset Reconstruction Companies (ARCs):
1. ARCs operate under the regulatory oversight of the Securities and Exchange Board of India (SEBI).
2. They are specialized financial institutions that acquire NPAs from banks to clean up their balance sheets and recover the debts.
3. The SARFAESI Act strictly prohibits ARCs from raising funds from Qualified Institutional Buyers (QIBs).
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Only statement 2 is correct. ARCs buy bad loans to help banks clean up balance sheets. Statement 1 is incorrect because ARCs are regulated by the Reserve Bank of India (RBI). Statement 3 is incorrect because the SARFAESI Act specifically empowers ARCs to raise funds by issuing Security Receipts to Qualified Institutional Buyers (QIBs).
Consider the following statements regarding the Prompt Corrective Action (PCA) framework:
1. The PCA framework is a supervisory tool used by the RBI to monitor and intervene in banks exhibiting weak financial metrics.
2. The key parameters triggering PCA include Capital to Risk-Weighted Assets Ratio (CRAR), Net NPA ratio, and Return on Assets (RoA).
3. Depending on the risk threshold, the RBI can impose restrictions on dividend distribution, branch expansion, and management compensation.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: All three statements are correct. The PCA framework allows the RBI to rein in stressed banks. Triggers include capital adequacy (CRAR), asset quality (Net NPA), and profitability (RoA). Corrective actions range from restricting dividends and branch expansion to halting certain lending activities.
Consider the following statements regarding the Insolvency and Bankruptcy Board of India (IBBI):
1. The IBBI was established as a statutory regulatory body under the Insolvency and Bankruptcy Code, 2016.
2. It exercises robust regulatory oversight over Insolvency Professionals, Insolvency Professional Agencies, and Information Utilities.
3. The IBBI functions as the final judicial appellate tribunal for all corporate insolvency cases, superseding the jurisdiction of the NCLAT.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Statements 1 and 2 are correct. The IBBI is the chief regulator for the ecosystem established under the IBC. Statement 3 is incorrect because the IBBI is a regulatory and administrative body; it has no judicial powers. The NCLAT and the Supreme Court function as the appellate tribunals.
Consider the following statements regarding the institutional framework for resolving bad loans (Bad Banks) in India:
1. The National Asset Reconstruction Company Limited (NARCL) is a purely public sector entity with 100% government ownership.
2. The India Debt Resolution Company Ltd. (IDRCL) purchases bad loans directly from commercial banks using upfront cash.
3. The sovereign guarantee provided by the Government of India for the Security Receipts (SRs) issued by NARCL is valid for a maximum period of one year.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: None of the statements are correct. Statement 1 is incorrect because Public Sector Banks hold 51% in NARCL, while the rest is held by private sector banks. Statement 2 is incorrect because NARCL purchases the loans, whereas IDRCL acts as an exclusive asset management company providing market-linked resolution and management services. Statement 3 is incorrect because the government guarantee backing the SRs is valid for 5 years, not one year.
Consider the following statements regarding the Waterfall Mechanism under Section 53 of the IBC:
1. The waterfall mechanism determines the strict priority order in which proceeds from the sale of liquidation assets are distributed to claimants.
2. Statutory dues owed to the Central and State Governments are given the absolute highest priority in the distribution waterfall.
3. Unsecured financial creditors receive their dues prior to the payment of workmen's dues.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Only statement 1 is correct. The mechanism prioritizes the distribution of liquidation proceeds. Statement 2 is incorrect because insolvency resolution process costs, workmen's dues, and secured creditors rank much higher than government dues. Statement 3 is incorrect because workmen's dues (for 24 months) rank pari passu with secured creditors, placing them higher than unsecured financial creditors.
Consider the following statements regarding the Pre-pack Insolvency Resolution Process (PIRP) under the IBC:
1. PIRP is an alternative resolution framework available exclusively for Micro, Small and Medium Enterprises (MSMEs).
2. Under PIRP, the management of the company immediately shifts entirely to the Resolution Professional, displacing the existing promoters.
3. The minimum default amount required to trigger PIRP is significantly lower than that required for the standard Corporate Insolvency Resolution Process (CIRP).
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Statements 1 and 3 are correct. PIRP was introduced specifically for MSMEs, and its default threshold is Rs 10 lakh, compared to Rs 1 crore for CIRP. Statement 2 is incorrect because PIRP operates on a 'debtor-in-possession' model, meaning the existing management continues to run the company during the process, unlike CIRP.
Consider the following statements regarding the SARFAESI Act, 2002:
1. The Act empowers secured creditors to take possession of the collateral security without requiring the intervention of any court or tribunal.
2. The provisions of the SARFAESI Act are universally applicable to both secured and unsecured financial loans.
3. The Act grants commercial banks the authority to enforce security interests on agricultural land if a farmer defaults on an agricultural equipment loan.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Only statement 1 is correct, highlighting the primary feature of SARFAESI. Statement 2 is incorrect because the Act is applicable strictly to secured loans where an underlying asset is pledged. Statement 3 is incorrect because Section 31 of the SARFAESI Act explicitly exempts agricultural land from its purview; banks cannot seize agricultural land under this Act.
Consider the following statements regarding Agricultural NPAs and farm loan waivers:
1. A short-term agricultural loan is classified as an NPA if the installment of principal or interest remains overdue for two crop seasons.
2. A long-term agricultural loan is classified as an NPA if the installment remains overdue for one crop season.
3. The RBI strongly advocates for frequent farm loan waivers as they permanently improve the credit culture and profitability of commercial banks.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Statements 1 and 2 represent the correct RBI definitions for agricultural NPAs, which differ from the standard 90-day rule due to crop cycles. Statement 3 is incorrect because the RBI has consistently warned that farm loan waivers destroy the credit culture, penalize honest borrowers, and ultimately harm bank balance sheets and future lending.
Consider the following statements regarding Cross-Border Insolvency:
1. The UNCITRAL Model Law on Cross-Border Insolvency automatically applies to and binds all WTO member countries without requiring separate domestic legislation.
2. India has fully enacted and implemented the Cross-Border Insolvency chapter into the IBC, allowing the automatic seizure of corporate assets located in foreign jurisdictions.
3. Cross-border insolvency proceedings under the IBC exclusively target the personal offshore assets of Non-Resident Indians (NRIs) accused of financial fraud.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: None of the statements are correct. Statement 1 is incorrect because the UNCITRAL Model Law is a template that countries must voluntarily adopt and enact into their domestic legal frameworks; it is not automatically binding. Statement 2 is incorrect because India has not yet enacted the cross-border insolvency framework into law, though committees have drafted frameworks for it. Statement 3 is incorrect because cross-border insolvency deals with multinational corporations with assets and creditors across multiple jurisdictions, not exclusively NRIs.
Consider the following statements regarding the distribution of proceeds during liquidation under the IBC:
1. According to the waterfall mechanism, operational creditors are paid out immediately after the CIRP costs are settled.
2. Unsecured financial creditors rank below the equity shareholders in the priority of distribution of liquidation proceeds.
3. Outstanding statutory dues to the government rank pari passu (equally) with the dues owed to secured creditors who have relinquished their security interest.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: None of the statements are correct. Statement 1 is incorrect because after CIRP costs, the next priority is given to workmen's dues and secured creditors, not operational creditors. Statement 2 is incorrect because equity shareholders are at the absolute bottom of the waterfall, receiving payment last. Statement 3 is incorrect because government dues rank much lower (Section 53(1)(e)) than secured creditors (Section 53(1)(b)).
Consider the following statements regarding the National Asset Reconstruction Company Limited (NARCL), often referred to as the 'Bad Bank':
1. NARCL acquires bad loans from banks entirely through 100% upfront cash payments.
2. The Government of India provides a 100% sovereign guarantee covering the entire initial book value of the NPAs acquired by NARCL.
3. Private sector banks hold the majority equity stake (over 51%) in NARCL.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: None of the statements are correct. Statement 1 is incorrect because NARCL pays 15% upfront in cash and 85% in Security Receipts (SRs). Statement 2 is incorrect because the sovereign guarantee only covers the shortfall between the face value of the SRs and the actual realized value, up to a limit of Rs 30,600 crore, not the entire book value. Statement 3 is incorrect because Public Sector Banks (PSBs) maintain the majority 51% stake in NARCL.
Consider the following statements differentiating loan write-offs from farm loan waivers:
1. A loan write-off clears the NPA from the bank's active balance sheet but does not extinguish the borrower's legal liability to repay the loan.
2. Farm loan waivers are purely internal accounting exercises funded by the RBI to aggressively reduce the NPA burden of commercial banks.
3. Technical write-offs legally prohibit commercial banks from pursuing any future recovery proceedings or civil suits against the defaulting borrower.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Only statement 1 is correct. Write-offs are accounting measures used to cleanse balance sheets and utilize tax benefits, but recovery efforts continue. Statement 2 is incorrect because farm loan waivers are political decisions funded entirely by the state or central government exchequer, not the RBI. Statement 3 is incorrect because banks retain the legal right to pursue recovery even after a loan has been technically written off.
Consider the following statements regarding the Insolvency and Bankruptcy Code (IBC), 2016:
1. The provisions of the IBC apply to companies, limited liability partnerships (LLPs), partnership firms, and individuals.
2. The Insolvency and Bankruptcy Board of India (IBBI) is the apex regulatory body responsible for implementing the Code.
3. The National Company Law Tribunal (NCLT) serves as the adjudicating authority for the corporate insolvency resolution process.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: All three statements are correct. The IBC covers corporates, partnerships, and individuals. IBBI regulates the professionals and agencies under the code, and the NCLT is the designated adjudicating authority for corporate debtors.
Consider the following statements regarding the practice of 'Evergreening' of loans:
1. Evergreening occurs when a bank deliberately grants a fresh loan to a borrower so that they can repay the interest or principal of an existing defaulted loan.
2. Evergreening is an officially approved mechanism by the RBI to help highly rated corporate borrowers seamlessly navigate temporary liquidity mismatches.
3. The practice of evergreening structurally reduces the long-term systemic risk of the banking sector by keeping official NPA levels artificially low.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Only statement 1 is correct, defining the practice of evergreening (masking bad loans with new credit). Statement 2 is incorrect because the RBI heavily penalizes and discourages evergreening as it hides financial stress. Statement 3 is incorrect because by delaying the recognition of bad loans, evergreening drastically *increases* the long-term systemic risk of the banking sector.
Consider the following statements regarding Asset Reconstruction Companies (ARCs):
1. Asset Reconstruction Companies operate under the regulatory framework of the Reserve Bank of India (RBI) via the SARFAESI Act.
2. ARCs primarily acquire stressed assets and bad loans from commercial banks, thereby transferring the recovery risk to themselves.
3. To raise working capital for purchasing bad loans, ARCs are legally permitted to accept retail deposits directly from the general public.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Statements 1 and 2 are correct. ARCs specialize in cleaning up bank balance sheets by purchasing NPAs, usually via Security Receipts. Statement 3 is incorrect because ARCs are not depository institutions; they are strictly prohibited from accepting deposits from the retail public and must raise funds from Qualified Institutional Buyers (QIBs).
Consider the following statements regarding Debt Recovery Tribunals (DRTs):
1. DRTs were established under the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, 1993.
2. Under the IBC framework, DRTs serve as the adjudicating authority for the insolvency resolution of individuals and partnership firms.
3. Appeals against the orders of a Debt Recovery Tribunal can be made directly and exclusively to the Supreme Court of India.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Statements 1 and 2 are correct. DRTs were set up in 1993 and handle individual/partnership insolvency under IBC. Statement 3 is incorrect because appeals against DRT orders are first heard by the Debt Recovery Appellate Tribunal (DRAT), not directly by the Supreme Court.
Consider the following statements regarding Provisioning norms for NPAs:
1. Commercial banks are not required to make any financial provisions or set aside capital for assets classified as "Standard Assets."
2. When an asset is downgraded to the "Substandard" category, banks are mandated by the RBI to immediately make a 100% provision against the outstanding amount.
3. The Provisioning Coverage Ratio (PCR) is calculated as the ratio of a bank's total non-performing assets to its total risk-weighted assets.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: None of the statements are correct. Statement 1 is incorrect because banks must make general provisions (typically around 0.4%) even for standard assets. Statement 2 is incorrect because the provisioning requirement for substandard assets is generally 15% to 25%, not 100% (100% is for loss assets or doubtful assets over 3 years). Statement 3 is incorrect because PCR is the ratio of provisioning made to the Gross NPAs, not to total risk-weighted assets.
Consider the following statements regarding Section 29A of the Insolvency and Bankruptcy Code (IBC):
1. Section 29A lists specific categories of persons, including willful defaulters, who are ineligible to submit a resolution plan.
2. The provision aims to prevent promoters who contributed to the default from regaining control of the company at a discounted price.
3. The IBC grants specific exemptions to promoters of MSMEs under Section 29A, allowing them to bid for their own companies.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: All three statements are correct. Section 29A acts as a crucial gatekeeper, barring willful defaulters and errant promoters from the resolution process. However, to ensure MSMEs find buyers, the Code explicitly exempts MSME promoters from certain clauses of Section 29A, allowing them to submit resolution plans.
Consider the following statements regarding Special Mention Accounts (SMA) classification by the RBI:
1. An account is classified as SMA-0 when the principal or interest payment is overdue for a period between 1 and 30 days.
2. An account is classified as SMA-2 when the payment is overdue for a period between 61 and 90 days.
3. Once a loan account enters the SMA-2 classification, it is legally and automatically declared a Non-Performing Asset (NPA) requiring 100% provisioning.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Statements 1 and 2 are correct. The SMA framework (SMA-0, 1, and 2) acts as an early warning system for accounts showing signs of stress. Statement 3 is incorrect because an account becomes an NPA only *after* it remains overdue for more than 90 days. SMA-2 is the stage immediately preceding an NPA, but it is not yet an NPA and does not automatically require 100% provisioning.
Consider the following statements regarding the Corporate Insolvency Resolution Process (CIRP):
1. Only financial creditors possess the legal right to initiate the Corporate Insolvency Resolution Process under the IBC.
2. The maximum legally permitted time limit to complete the CIRP, including all litigations and extensions, is 180 days.
3. Operational creditors are given priority over financial creditors in the "waterfall mechanism" for liquidation distribution.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: None of the statements are correct. Statement 1 is incorrect because financial creditors, operational creditors, and the corporate debtor itself can initiate CIRP. Statement 2 is incorrect because the maximum time limit, including extensions and litigation time, is 330 days. Statement 3 is incorrect because financial creditors rank higher than operational creditors in the Section 53 waterfall mechanism.
Consider the following statements regarding 'Willful Defaulters' in the Indian banking system:
1. A borrower who defaults on a commercial loan strictly due to unforeseen macroeconomic downturns is legally classified as a willful defaulter.
2. Willful defaulters are legally permitted to participate in the Corporate Insolvency Resolution Process (CIRP) as resolution applicants to buy back their distressed assets.
3. The Reserve Bank of India strictly prohibits commercial banks from publishing the photographs of willful defaulters under any circumstances to protect their privacy.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: None of the statements are correct. Statement 1 is incorrect because a willful default involves intentional non-payment despite having the capacity to pay, or fund diversion, not genuine business failure. Statement 2 is incorrect because Section 29A of the IBC explicitly bars willful defaulters from being resolution applicants. Statement 3 is incorrect because banks are permitted (and often do) publish photographs of willful defaulters in newspapers to name and shame them.
Consider the following statements regarding the Insolvency and Bankruptcy Board of India (IBBI):
1. The IBBI exercises regulatory oversight over Insolvency Professionals, Insolvency Professional Agencies, and Information Utilities.
2. The Governor of the Reserve Bank of India acts as the ex-officio Chairperson of the IBBI to ensure monetary coordination.
3. The IBBI is the designated agency responsible for the physical recovery and public auction of assets belonging to defaulting companies.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Only statement 1 is correct. The IBBI regulates the professionals and institutions that facilitate the IBC. Statement 2 is incorrect because the IBBI has a separate Chairperson appointed by the Central Government. Statement 3 is incorrect because the actual administration, recovery, and auction of assets are handled by the Resolution Professional or Liquidator, not the regulatory board.
Consider the following statements regarding Information Utilities (IUs) under the Insolvency and Bankruptcy Code (IBC):
1. National E-Governance Services Limited (NeSL) is India's first Information Utility established under the IBC.
2. The primary role of an IU is to act as a centralized repository of authenticated financial information of debtors to facilitate swift insolvency resolution.
3. The submission of financial information to an Information Utility is entirely voluntary for both financial and operational creditors.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Statements 1 and 2 are correct. NeSL is India's first IU, designed to store financial data and defaults to establish facts quickly during CIRP. Statement 3 is incorrect because the submission of financial information and information relating to defaults to an IU is mandatory for all financial creditors, though it is voluntary for operational creditors.
Consider the following statements regarding the Inter-Creditor Agreement (ICA) under the RBI's Prudential Framework for Resolution of Stressed Assets:
1. The ICA provides ground rules for the collaborative resolution of stressed assets by lenders outside the NCLT framework.
2. It mandates that a resolution plan approved by lenders holding 75% by value of total outstanding credit can bind all other participating lenders.
3. The framework strictly requires that dissenting lenders must be paid an amount not less than the liquidation value of their exposure.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: All three statements are correct. The ICA (stemming from the June 2019 RBI circular) ensures a coordinated approach among banks for out-of-court resolutions. It establishes a voting threshold (75% by value and 60% by number) to make decisions binding on the consortium and guarantees dissenting lenders at least the liquidation value of their debt.
Consider the following statements regarding the role of the Resolution Professional under the IBC:
1. Upon the formal admission of an application for CIRP, the adjudicating authority appoints an Interim Resolution Professional (IRP).
2. Immediately upon the appointment of the IRP, the powers of the board of directors of the corporate debtor are legally suspended.
3. The management of the affairs of the corporate debtor vests entirely in the IRP to run the entity as a going concern.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: All three statements are correct. The IBC shifts control from the debtor to the creditors. Upon admission, the NCLT appoints an IRP who immediately assumes control, displacing the existing board of directors to preserve the value of the assets and run the company as a going concern.
Consider the following statements regarding the Inter-Creditor Agreement (ICA) in India:
1. The ICA is an international treaty signed between the RBI and the World Bank to manage the cross-border insolvency of multinational corporations.
2. The agreement mandates that any out-of-court resolution plan must be unanimously approved by 100% of the lenders involved.
3. The ICA is initiated strictly after a corporate debtor is formally admitted into the NCLT for the insolvency process.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: None of the statements are correct. Statement 1 is incorrect because the ICA is a domestic agreement among Indian banks (arising from Project Sashakt and RBI's Prudential Framework) to collectively resolve stressed assets. Statement 2 is incorrect because it requires approval by lenders representing 75% by value and 60% by number, not 100%. Statement 3 is incorrect because the ICA is designed to facilitate resolution *outside* the IBC, before going to the NCLT.
Consider the following statements regarding exceptions to the standard Non-Performing Asset (NPA) classification norms:
1. An agricultural loan granted for short-duration crops is classified as an NPA if the installment of principal or interest remains overdue for exactly one crop season.
2. Advances granted by commercial banks against National Savings Certificates (NSCs) are generally not classified as NPAs provided adequate margin is available.
3. A loan backed by the guarantee of the Central Government is immediately classified as an NPA the moment interest remains overdue for 90 days.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Only statement 2 is correct. Advances against term deposits, NSCs, and KVP are exempt from NPA classification provided adequate margin is available. Statement 1 is incorrect because a short-duration crop loan becomes an NPA if overdue for *two* crop seasons (one season applies to long-duration crops). Statement 3 is incorrect because loans backed by a Central Government guarantee are not classified as NPAs for provisioning purposes until the government officially repudiates the guarantee when invoked.
Consider the following statements regarding the Committee of Creditors (CoC) under the IBC:
1. The Committee of Creditors primarily consists of the financial creditors of the corporate debtor.
2. The commercial wisdom of the CoC regarding the approval of a resolution plan is generally supreme and non-justiciable by the NCLT.
3. Directors and partners of the corporate debtor are legally permitted to attend CoC meetings but do not hold any voting rights.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: All three statements are correct. The CoC is formed entirely of financial creditors who dictate the resolution. The Supreme Court has repeatedly upheld the supremacy of the CoC's "commercial wisdom." Furthermore, while the suspended board of directors can attend the meetings, they have no voting power.
Consider the following statements regarding the National Company Law Appellate Tribunal (NCLAT):
1. The NCLAT acts as the appellate authority to hear appeals against the insolvency orders passed by the NCLT.
2. The NCLAT is a constitutional body explicitly established under Article 323B of the Constitution of India.
3. Judgments delivered by the NCLAT are final and cannot be appealed further in the Supreme Court of India.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Only statement 1 is correct. The NCLAT hears appeals from the NCLT. Statement 2 is incorrect because the NCLAT is a statutory body constituted under Section 410 of the Companies Act, 2013, not a constitutional body. Statement 3 is incorrect because appeals against NCLAT orders on questions of law can be filed directly in the Supreme Court.
Consider the following statements regarding the handling of stressed assets:
1. 'Evergreening' of loans occurs when a bank grants a fresh loan to a distressed borrower so they can pay off the interest or principal of an existing defaulted loan.
2. The RBI actively encourages the evergreening of loans to prevent a sudden, systemic spike in NPA levels during severe economic downturns.
3. Loan restructuring is a recognized practice involving modifying the terms of the loan, such as reducing the interest rate or extending the repayment period.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Statements 1 and 3 are correct. Evergreening is masking bad loans with new ones, while restructuring is a formal modification of loan terms. Statement 2 is incorrect because the RBI heavily penalizes evergreening, as it conceals the true extent of asset quality deterioration in the banking system.
Consider the following statements regarding the structural functions of NARCL and IDRCL:
1. NARCL acquires stressed assets from commercial banks by paying 15% of the agreed value upfront in cash and issuing Security Receipts for the remaining 85%.
2. IDRCL acts as a specialized sovereign wealth fund mandated to directly inject foreign capital into defaulting public sector companies.
3. Commercial banks are legally forbidden from holding any equity stake in either NARCL or IDRCL to prevent conflicts of interest.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Only statement 1 is correct. NARCL uses the 15:85 structure to acquire bad loans. Statement 2 is incorrect because IDRCL is a debt resolution company acting as an AMC; it brings in market professionals to resolve the bad loans acquired by NARCL, not to inject foreign capital as a sovereign wealth fund. Statement 3 is incorrect because public and private banks hold the equity stakes in both NARCL and IDRCL.
Consider the following statements regarding the Prompt Corrective Action (PCA) framework:
1. The PCA framework is a supervisory tool used by the RBI exclusively for regulating public sector banks, exempting private entities.
2. A breach of the prescribed Net NPA ratio threshold is one of the primary triggers for initiating PCA against a commercial bank.
3. Under the PCA framework, the RBI is legally empowered to forcefully merge a stressed private bank with a public sector bank without conducting a shareholder vote.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Only statement 2 is correct. High Net NPAs, low Capital Adequacy, and negative Return on Assets are triggers for PCA. Statement 1 is incorrect because the PCA framework applies equally to all Scheduled Commercial Banks (both public and private) and was recently extended to NBFCs. Statement 3 is incorrect because the PCA matrix involves restrictions on dividends, branch expansion, and management compensation; forced mergers fall under Section 45 of the Banking Regulation Act, not the standard PCA operating matrix.
Consider the following statements regarding the 'Twin Balance Sheet Problem':
1. It refers to the simultaneous and severe financial stress observed in both the banking sector and the corporate sector.
2. It describes a macroeconomic situation where both the fiscal deficit and the current account deficit of a country reach unsustainable levels.
3. The Economic Survey of India identified that this problem originated primarily due to massive over-leveraging by retail consumers in the real estate market.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Only statement 1 is correct. The Twin Balance Sheet problem denotes stressed balance sheets in both banks (high NPAs) and corporates (over-leveraged debt). Statement 2 is incorrect as that describes the "Twin Deficit" problem. Statement 3 is incorrect because the problem originated from over-leveraging by the corporate sector during the infrastructure boom of the 2000s, not retail consumers.
Consider the following statements regarding the timelines of the Corporate Insolvency Resolution Process (CIRP):
1. The Insolvency and Bankruptcy Code limits the standard duration of the CIRP, excluding any extensions or litigation time, to exactly 90 days.
2. An extension to the CIRP timeframe can only be legally granted by an explicit order from the Supreme Court of India.
3. If a viable resolution plan is not approved by the CoC within the maximum legally prescribed time limit, the corporate debtor is automatically nationalized by the government.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: None of the statements are correct. Statement 1 is incorrect because the standard duration is 180 days (extendable by 90 days, with an absolute mandatory cap of 330 days including litigation). Statement 2 is incorrect because the NCLT (Adjudicating Authority) grants the extensions, not the Supreme Court. Statement 3 is incorrect because failure to approve a plan within the time limit triggers mandatory liquidation of the company, not nationalization.
Consider the following statements regarding the 'Swiss Challenge Method':
1. It is a bidding process often employed in the resolution of stressed assets and the auctioning of NPAs by commercial banks.
2. Under this method, an interested party initiates a base proposal, and the original proponent is given the right to match any subsequent superior counter-offers.
3. The method is utilized to ensure transparency and optimal price discovery while rewarding the entity that first recognized the value of the asset.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: All three statements are correct. The Swiss Challenge method involves an initial bidder whose bid serves as the base (anchor). The bank then invites public counter-bids. If a better bid emerges, the original bidder has the right to match it, ensuring price maximization for the bank while respecting the initiator's effort.
Consider the following statements regarding Domestic Systemically Important Banks (D-SIBs):
1. D-SIBs are banks characterized as 'too big to fail', meaning their failure would cause massive disruption to the essential services of the financial system.
2. The RBI currently restricts the D-SIB classification exclusively to foreign multinational banks operating within India.
3. Due to their size, D-SIBs are granted regulatory relief and allowed to maintain a lower Capital Conservation Buffer compared to regular banks.
How many of the statements given above are correct?
- Only one
- Only two
- All three
- None
Explanation: Only statement 1 is correct. D-SIBs are deeply interconnected institutions whose collapse would threaten the economy. Statement 2 is incorrect because the RBI classifies domestic banks (SBI, ICICI, HDFC) as D-SIBs. Statement 3 is incorrect because D-SIBs are required to maintain a *higher* Capital Conservation Buffer (additional Common Equity Tier 1 capital) to prevent their failure.