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CS Professional · Banking and Insurance - Laws and Practice · Various Government Schemes

A bank sanctions a Rs 20 lakh collateral-free loan to a micro enterprise under a credit guarantee scheme that covers 75% of the amount in default. The borrower defaults and, after the bank's recovery efforts, the outstanding loss claimable is Rs 16 lakh. Assuming the cover applies to the entire claimable amount and no other deductions or caps, how much can the bank claim, and what remains as the bank's own risk?

The bank can claim 75% of the Rs 16 lakh loss, which is Rs 12 lakh. The remaining 25%, Rs 4 lakh, stays with the bank as its own risk. Credit guarantee schemes share risk with lenders and the cover applies to the amount in default, not the sanction.

  1. AClaim Rs 12 lakh; bank bears Rs 4 lakhCorrect
  2. BClaim Rs 15 lakh; bank bears Rs 1 lakh
  3. CClaim Rs 16 lakh; bank bears nil
  4. DClaim Rs 4 lakh; bank bears Rs 12 lakh

Explanation

The guarantee covers 75% of the amount in default: 75% x 16 lakh = Rs 12 lakh. The bank bears the balance 25% = Rs 4 lakh. Using 75% of the sanctioned Rs 20 lakh gives Rs 15 lakh, which wrongly uses the sanction as the base. Claiming the full loss ignores the risk-sharing feature. Rs 4 lakh reverses the shares.

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