Prudential Norms Master Circular 2024

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Questions and Answers

What is the primary purpose of the Master Circular issued by the Reserve Bank of India?

To provide information on customer service standards.

To introduce new guidelines for bank operations.

To consolidate existing instructions and guidelines. (correct)

To specify penalties for non-compliance.

Which of the following is likely covered under the prudential norms for income recognition?

Employee salary disbursements and their accounting.

Sales promotions expenses related to loan products.

Revenue from cash transactions only.

Accrual of interest income based on the asset classification. (correct)

How does the Master Circular address non-performing assets (NPAs)?

It sets the interest rates for NPAs.

It eliminates the need for NPAs classification.

It encourages the expansion of NPAs for risk diversification.

It mandates the provisioning for non-performing assets. (correct)

What should banks ensure regarding loan repayment schedules under the prudential norms?

Repayment schedules are to be followed as per regulatory guidelines. Signup and view all the answers

What does the term 'provisioning' refer to in the context of the Master Circular?

Allocating funds to cover potential loan losses. Signup and view all the answers

What is a key regulatory compliance requirement mentioned in the Master Circular?

Adherence to prudential norms for asset classification. Signup and view all the answers

The Master Circular is updated to reflect instructions issued up to which date?

March 31, 2024. Signup and view all the answers

Which aspect does the Master Circular NOT specifically address?

Loan distribution strategies. Signup and view all the answers

What is the purpose of allowing banks to utilize floating provisions held as of December 31, 2020?

To enable capital conservation Signup and view all the answers

What is the maximum allowable period for banks to utilize floating provisions after December 31, 2020?

Until March 31, 2022 Signup and view all the answers

How should floating provisions be reflected in a bank's profit and loss account?

They cannot be reversed by credit to profit and loss Signup and view all the answers

What is the maximum percentage that floating provisions can constitute as part of Tier II capital?

1.25% Signup and view all the answers

Which of the following is NOT required in the comprehensive disclosures for floating provisions?

The profit and loss impact of floating provisions Signup and view all the answers

What constitutes a valid reason for a bank to make additional provisions beyond the prescribed rates?

To provide for estimated actual loss in collectible amounts Signup and view all the answers

What must be done for additional provisions made at higher than prescribed rates to be permitted?

They require prior approval from the Board of Directors Signup and view all the answers

What distinguishes additional provisions from floating provisions?

Floating provisions can only be used in extraordinary circumstances Signup and view all the answers

What criteria determine whether loans are treated as 'standard' when DCCO is extended?

The loans must meet stipulated conditions pertaining to DCCO and cost overruns. Signup and view all the answers

What is the provision percentage for loans classified as 'restructured standard'?

5 percent until project completion or for two years from restructuring. Signup and view all the answers

Under what condition can loans classified as 'restructured standard' be upgraded to 'standard'?

The entire project must commence commercial operations. Signup and view all the answers

Which of the following scenarios leads to a classification of loans as 'restructured standard'?

DCCO is extended but cost overruns do not comply with required conditions. Signup and view all the answers

What should the Boards of banks ensure during the restructuring process?

The viability of both the project and restructuring plan is satisfactory. Signup and view all the answers

What happens to loans with extended DCCOs exceeding the stipulated periods with compliance on cost overruns?

They are classified as 'restructured standard' and provisions apply. Signup and view all the answers

What is the consequence of failing to meet the cost overrun thresholds when DCCO is extended?

They are treated as 'restructured standard' loans requiring a provision. Signup and view all the answers

For which loans does regulatory forbearance apply during the restructuring process?

For cases where the boards assess the project's viability. Signup and view all the answers

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.