CAIIB Paper 1 Module C Quiz 8

NPA identification and classification must follow current RBI prudential norms, including applicable overdue criteria and account-level rules. Classification cannot be based solely on collateral or discretion.

Early identification allows engagement, additional information, viable restructuring where permitted and timely recovery steps. Delay can reduce enterprise and security value.

Wilful default concerns specified deliberate conduct under applicable directions, such as diversion or siphoning, despite capacity to pay. It requires evidence and prescribed process, not mere inability to pay.

Restructuring may alter repayment terms for a viable borrower, but must meet applicable regulatory conditions and be supported by realistic cash flows and a documented assessment.

Evergreening through fresh or circular funding can conceal stress and distort asset classification. Banks should recognize and resolve stress transparently under applicable norms.

SARFAESI provides a statutory framework for eligible secured creditors to enforce security interests subject to its scope, procedures, exceptions and borrower remedies.

The RDB framework provides specialised adjudication/recovery mechanisms through Debt Recovery Tribunals and related appellate arrangements for covered claims, subject to statutory scope and thresholds.

Asset sales to ARCs can transfer management of stressed exposures and support resolution, but pricing, eligibility, due diligence and regulatory requirements apply; recovery is not guaranteed.

A restructuring plan should be based on credible viability, cash-flow projections, promoter contribution where relevant, implementation capability and applicable prudential conditions.

Effective recovery starts with a clear view of exposure, enforceable security, guarantees, borrower viability, legal remedies and expected costs/timing.

A technical write-off generally removes an amount from the active books for accounting/reporting purposes while recovery may continue. A waiver or settlement release has different legal and commercial implications.

Security type, documentation, registration, priority and statutory exceptions affect the remedies available. Legal review helps select a viable and compliant recovery strategy.

Compromise settlements require due diligence, authority, rationale and documentation under the bank’s policy and applicable instructions. The decision should consider net recovery and legal alternatives.

The bank should establish the facts, determine whether stress is temporary or structural and evaluate appropriate, policy-compliant measures with safeguards.

Delay can lead to deterioration, depreciation, encumbrances or falling market values. Timely legal action and asset preservation can protect recoveries.

Potential diversion is a serious covenant and credit concern. The bank should investigate, preserve records, assess impact and pursue authorised corrective or legal steps.

Net recovery depends on realizable value after priority claims, costs, legal process, time and sale discounts. Gross valuation alone can materially overstate expected recovery.

Defined accountability and review help ensure that resolution and recovery actions are timely, compliant and adjusted as facts change.

A resolution plan should specify the selected route, viability/recovery assumptions, funding or restructuring actions, milestones, responsibilities and monitoring arrangements.

Guarantee enforcement depends on the guarantee’s scope, validity, invocation requirements and applicable law. The bank should review documents and facts before acting.