Questions and Answers
What is the primary purpose of the Master Circular issued by the Reserve Bank of India?
Which of the following is likely covered under the prudential norms for income recognition?
How does the Master Circular address non-performing assets (NPAs)?
What should banks ensure regarding loan repayment schedules under the prudential norms?
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What does the term 'provisioning' refer to in the context of the Master Circular?
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What is a key regulatory compliance requirement mentioned in the Master Circular?
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The Master Circular is updated to reflect instructions issued up to which date?
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Which aspect does the Master Circular NOT specifically address?
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What is the purpose of allowing banks to utilize floating provisions held as of December 31, 2020?
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What is the maximum allowable period for banks to utilize floating provisions after December 31, 2020?
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How should floating provisions be reflected in a bank's profit and loss account?
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What is the maximum percentage that floating provisions can constitute as part of Tier II capital?
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Which of the following is NOT required in the comprehensive disclosures for floating provisions?
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What constitutes a valid reason for a bank to make additional provisions beyond the prescribed rates?
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What must be done for additional provisions made at higher than prescribed rates to be permitted?
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What distinguishes additional provisions from floating provisions?
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What criteria determine whether loans are treated as 'standard' when DCCO is extended?
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What is the provision percentage for loans classified as 'restructured standard'?
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Under what condition can loans classified as 'restructured standard' be upgraded to 'standard'?
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Which of the following scenarios leads to a classification of loans as 'restructured standard'?
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What should the Boards of banks ensure during the restructuring process?
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What happens to loans with extended DCCOs exceeding the stipulated periods with compliance on cost overruns?
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What is the consequence of failing to meet the cost overrun thresholds when DCCO is extended?
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For which loans does regulatory forbearance apply during the restructuring process?
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Study Notes
Reserve Bank of India (RBI) Circular Overview
- Master Circular issued on April 2, 2024, regarding prudential norms on income recognition and asset classification for banks.
- Circular consolidates guidelines up to March 31, 2024, with no new instructions included.
Floating Provisions
- Banks are permitted to utilize 100% of floating provisions as of December 31, 2020, to create specific provisions for non-performing assets (NPAs) with Board approval, valid until March 31, 2022.
- Floating provisions cannot be reversed to impact profit and loss accounts but can be used for specific provisions in extraordinary circumstances.
- Banks must disclose details about floating provisions in balance sheet notes, including opening and closing balances, amounts drawn, and provisions made.
Additional Provisions for NPAs
- Banks may voluntarily establish provisions exceeding regulatory minimums for estimating actual loss, provided these are Board-approved and consistently applied.
- Additional provisions created are not classified as floating provisions.
Asset Classification for Projects Under Implementation
- Extensions of Date of Commercial Operations (DCCO) and adherence to funding conditions affect asset classification.
- Loans with compliant DCCO extensions will be considered 'standard.’
- Loans with DCCO extensions that do not meet funding conditions will be deemed 'restructured standard' with a 5% provisioning requirement.
- Such loans can transition to 'standard' classification once the project begins commercial operations.
Key Definitions
- Non-Performing Assets (NPAs): Loans or advances that are in default or arrears.
- Floating Provisions: Reserves set aside by banks that can be used to cover potential losses arising from NPAs.
- Restructured Standard Loans: Loans that have undergone a restructuring process but remain classified as standard under certain conditions.
These points encompass the major details and regulations from the Master Circular issued by the Reserve Bank of India regarding the financial operations of commercial banks.
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Description
This quiz focuses on the Master Circular by the Reserve Bank of India regarding prudential norms on income recognition, asset classification, and provisioning for advances. It is essential for understanding the regulatory framework guiding commercial banks in India. Review the key points and test your understanding of these banking norms.