NPA Recovery Measures and Credit Risk Reduction in Off-Balance Sheet Exposures

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What are the five C's emphasized in credit assessment for wholesale financing?

Credit, Confirmation, Control, Capital, Collateral
Collateral, Credit, Cash, Compliance, Confirmation
Cost, Currency, Capacity, Conditions, Credit
Character, Capacity, Collateral, Capital, Conditions (correct)

How is credit risk in non-fund based business assessed?

Assessed differently from fund based business
Assessed similarly to fund based business (correct)
It does not require assessment as it is non-fund based
Assessment is based solely on the borrower's character

What is a key consideration when evaluating requests for financial guarantees?

Assessing the borrower's compliance issues
Analyzing the borrower's personal finances
Determining the cash flows over the term of the contract (correct)
Evaluating only the borrower's character

What is the recommended time horizon for assessing cash flows related to contracts in banking?

2-3 years (A) Signup and view all the answers

Why do banks need to assess credit risk in non-fund based business similar to fund based business?

Due to potential conversion into funded liability (B) Signup and view all the answers

What should banks focus on when evaluating financial guarantees compared to term loans?

Obtaining cash flows over the contract horizon (B) Signup and view all the answers

What can banks do to reduce credit risk on account of off-balance sheet exposures?

Take a charge over fixed assets (C) Signup and view all the answers

In retail financing, what is important for banks to consider when providing guarantees covering contracts?

Ensuring clients have the requisite technical skills (B) Signup and view all the answers

What action might be appropriate in the case of long-term guarantees in wholesale financing?

Taking a charge over fixed assets (A) Signup and view all the answers

How should banks determine the value of contracts in credit risk assessment?

On a case-by-case basis (B) Signup and view all the answers

What is an essential consideration for banks related to security in funded lines, LC lines, and guarantee facilities?

Ensuring security covers all areas (A) Signup and view all the answers

What should banks do if there are slippages in credit review according to the text?

Highlight the slippages (C) Signup and view all the answers

What aspect is primarily considered in collateral assessment for loan management systems?

Acceptability of various forms of collateral (D) Signup and view all the answers

When assessing the borrower's repayment capacity, what is a crucial factor considered for future cash flow projections?

Year-on-year growth rates (C) Signup and view all the answers

What does a bank evaluate when assessing the level of coverage provided by guarantees for wholesale financing?

Coverage in relation to credit quality and guarantor capacity (B) Signup and view all the answers

Which factor is NOT typically considered in assessing a borrower's risk profile for retail financing?

Leverage ratio (A) Signup and view all the answers

What is a critical aspect to evaluate in the terms and conditions of a facility for both retail and wholesale financing?

Covenants designed to limit risks on account of changes in borrower risk profile (D) Signup and view all the answers

In credit risk assessment, what plays a significant role to ensure enforceability and realizable value of collateral?

Ongoing valuation and enforceability mechanisms for collateral (A) Signup and view all the answers