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

Nirmal Bank has a loan account with an outstanding balance of Rs 20 lakh. The account has been in the doubtful category for over three years, and the security is valued at Rs 8 lakh. The loan is not classified as a loss asset. What is the correct provision under the RBI norms, with 100 per cent on the unsecured portion and 100 per cent on the secured portion for this vintage?

The provision is Rs 20 lakh, the full outstanding. For a doubtful asset older than three years, RBI requires 100 per cent on the secured portion as well as the unsecured portion, so the Rs 8 lakh of security gives no relief.

  1. ARs 12 lakh
  2. BRs 20 lakhCorrect
  3. CRs 8 lakh
  4. DRs 15 lakh

Explanation

For assets doubtful for more than three years, RBI requires 100 per cent provision on the secured portion as well as on the unsecured portion. Unsecured Rs 12 lakh at 100 per cent plus secured Rs 8 lakh at 100 per cent equals Rs 20 lakh. Providing only for the unsecured part (Rs 12 lakh) ignores the vintage rule.

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