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Recollected - Dec 2015
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Case Studies on NPA Provisions
A claim of Rs. 49 lacs has been settled by ECGC in favour of a bank against default of Rs. 70 lacs. Subsequently the bank realizes Rs. 15 lacs with the collaterals available to the loan. What will be actual amount settled by ECGC after realization of security by the bank?
a. Rs. 49 lacs
b. Rs. 42.5 lacs
c. Rs. 38.5 lacs
d. Rs. 34 lacs
Ans - c
Explanation :
ECGC had settled Rs. 49 lacs on default of 70 Lacs (That is 70% of the default amount)
But Subsequent to that settlement, Rs. 15 lacs was realised through the security held. So, the claim amount from ECGC should be, 55 Lacs only from ECGC.
And the ECGC had settled only 70 % of the claim amount. So, the settlement amount will be,
70% of Rs. 55 lacs = 5500000 x 70/100 = 38.5 lacs
So, actual amount settled by ECGC = Rs. 38.5 lacs
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Asset in doubtful category for 2 years – Rs. 500000/-
Realization value of security – Rs. 300000/-
What will be the provision requirement?
a. Rs. 500000/-
b. Rs. 320000/-
c. Rs. 200000/-
d. Rs. 175000/-
Ans - b
Explanation
Provision for secured portion of Doubtful Cat for 2 years = 40%
Provision for unsecured portion of Doubtful Cat for 2 years = 100%
Here,
Secured portion = Rs. 300000
Unsecured portion = Rs. 200000
Provision
= (300000 * 40/100) + 200000
= 120000 + 200000
= 320000
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An advance of Rs. 400000/- has been declared sub standard on 31/05/2015. It is covered by securities with realizable value of Rs. 250000/-. What will be the total provision in the account as on 31/03/2015?
a. 150000
b. 75000
c. 55000
d. 50000
Ans - b
Explanation :
Sub standard assets will attract provision of 15 % for secured portion and 25 % for unsecured portion. Please refer “http://rbidocs.rbi.org.in/rdocs/notification/PDFs/62MCIRAC290613.pdf”
Page - 25, Para – 5.4. So,
= 15% of 250000 + 25% of of 150000
= 37500 + 37500
= 75000
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Balance sheet of a bank provides the following information:
Fixed Assets - 1000cr
Investment in central Govt Securities - Rs 10000cr
In standard loan accounts
Housing Loans - RS 6000cr (Secured, below Rs 10 lac)
the Retail loan - Rs 4000cr
Other loans - Rs 8000cr
sub-standard secured loans - Rs 1000cr
sub-standard unsecured loans - Rs 500cr
Doubtful loans (D-1, secured) - Rs 800cr
Doubtful loans (D-1, unsecured) - Rs 600cr
Doubtful loans (D-2, secured) - Rs 500cr
Doubtful loans (D-2, unsecured) - Rs 1000cr
Doubtful loans (D-3, secured) - Rs 1000cr
Doubtful loans (D-3, unsecured) - Rs 600cr
Loss Assets - 50cr and
other assets - Rs 500cr.
Answer the following questions, based on this information, by using standard Approach for credit risk.
1. What is the amount of RWAs for investment in govt securities?
a. Rs 5000cr
b. Rs 3500cr
c. Rs 2500cr
d. Nil
2. What is the amount of RWAs for sub-standard unsecured accounts?
a. Rs 500cr
b. Rs 7500cr
c. Rs 1000cr
d. Rs 1500cr
3. What is the amount of RWAs for doubtful (D-1, unSecured) accounts?
a. Rs 300cr
b. Rs 500cr
c. Rs 800cr
d. Rs 900cr
4. What is the amount of RWAs for doubtful (D-2, unSecured) accounts?
a. Rs 300cr
b. Rs 500cr
c. Rs 800cr
d. Rs 900cr
5. What is the amount of RWAs for doubtful (D-3, unSecured) accounts?
a. Rs 300cr
b. Rs 500cr
c. Rs 800cr
d. Rs 900cr
6. What is the amount of RWAs for retail loans?
a. 3000cr
b. 4000cr
c. 5000cr
d. 6000cr
7. What is the amount of RWAs for housing loans?
a. 3000cr
b. 4000cr
c. 5000cr
d. 6000cr
Solution :
1. d
RW against Govt Securities = 0 %
So, RWA
= 10000 x 0%
= 0 Cr
2. a
If the provision is less than 20 %, then RW is 150%
If the provision is 20-49 %, then RW is 100%
If the provision is 50% or more, then RW is 50%
Provision in Sub-Standard Un-Secured - 25 %, and so, RW = 100 %
So, RWA
= 500 x 100 %
= 500 Cr
3. a
If the provision is less than 20 %, then RW is 150%
If the provision is 20-49 %, then RW is 100%
If the provision is 50% or more, then RW is 50%
Provision in doubtful (D-1, unsecured) - 100 %, and so, RW = 50 %
So, RWA
= 600 x 50 %
= 300 Cr
4. b
If the provision is less than 20 %, then RW is 150%
If the provision is 20-49 %, then RW is 100%
If the provision is 50% or more, then RW is 50%
Provision in doubtful (D-2, unsecured) - 100 %, and so, RW = 50 %
So, RWA
= 1000 x 50 %
= 500 Cr
5. a
If the provision is less than 20 %, then RW is 150%
If the provision is 20-49 %, then RW is 100%
If the provision is 50% or more, then RW is 50%
Provision in doubtful (D-3, unsecured) - 100 %, and so, RW = 50 %
So, RWA
= 600 x 50 %
= 300 Cr
6. a
RW on retail loans = 75 %
So, RWA
= 4000 x 75%
= 3000 Cr
7. a
RW on housing loans = 50 %
So, RWA
= 6000 x 50%
= 3000 Cr
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