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

Kaveri Bank holds a secured loan of Rs 50 lakh that has been classified as a sub-standard asset. Applying the RBI general rule for secured sub-standard assets, which provision is required on the outstanding amount?

The required provision is 15 per cent of Rs 50 lakh, which is Rs 7.5 lakh. RBI prescribes a general 15 per cent provision for secured sub-standard assets, whereas 25 per cent applies to secured doubtful assets in the first year.

  1. A10 per cent, which is Rs 5 lakh
  2. B15 per cent, which is Rs 7.5 lakhCorrect
  3. C25 per cent, which is Rs 12.5 lakh
  4. D20 per cent, which is Rs 10 lakh

Explanation

The general provision for sub-standard assets is 15 per cent of the outstanding balance, so 15% x 50 lakh = Rs 7.5 lakh. The 25 per cent rate is for doubtful assets up to one year, and 10 per cent applies to unsecured exposure only in the sense of the additional provision for unsecured exposures, not to secured ones.

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