CS Professional · Banking and Insurance - Laws and Practice · Analysis of Financial Statements of Banks
Kaveri Bank holds a standard term loan of Rs 40 crore to a commercial real estate borrower. Assume the RBI standard asset provision for commercial real estate (other than residential housing) is 1.00%. What general provision must the bank hold on this account?
The bank must hold Rs 0.40 crore. The standard asset provision for commercial real estate is 1% of the outstanding amount, so 1% of Rs 40 crore gives Rs 0.40 crore. Using the 0.25% rate would understate the provision.
- ARs 0.10 crore
- BRs 0.25 crore
- CRs 0.40 croreCorrect
- DRs 4.00 crore
Explanation
Provision = 1.00% x Rs 40 crore = Rs 0.40 crore. Rs 0.25 crore uses the 0.25% rate meant for ordinary standard advances. Rs 4.00 crore misplaces the decimal.
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