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CS Professional · Banking and Insurance - Laws and Practice · Performing and Non Performing Assets

During inspection, RBI finds that Anand Bank has an asset on which the bank's own auditors have identified a loss that has not been written off, and the asset is considered uncollectible, though some salvage value may exist. How should the bank treat it under the provisioning norms?

The bank must write off the entire asset, or hold a 100 per cent provision if it is kept on the books. A loss asset is uncollectible, and some salvage value does not change this treatment under RBI norms.

  1. AProvide 25 per cent of the outstanding amount
  2. BProvide 15 per cent of the outstanding amount
  3. CThe entire asset should be written off or 100 per cent provided forCorrect
  4. DTreat it as standard and make no provision

Explanation

A loss asset is one considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, even if some salvage value exists. RBI requires that the entire asset be written off; if retained on the books, 100 per cent provision is needed. The 15 and 25 per cent rates apply to sub-standard and first-year doubtful assets.

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