Punjab National Bank Zonal Training Center Ludhiana

100 Questions on Credit

(Up-dated up to 31.3.2013)

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DefineSmallBusinessonthebasisofannualTurnover? WhoseAnnualturnoverislessthan50crore. HowwillyoudefineCorporateCustomers? Borrowerswithexposureofmorethan5.00crore. WhatisPrioritysectortargetofDirect&IndirectAgricultureforDomesticbanks? 13.5%ofANBCorOffBalanceSheetItemswhicheverishigher4.5%forIndirectAgri. WhataretargetsandsubtargetsofDRIadvances? 1%oftotaloutstandingadvancesofpreviousyear.Outofwhich40%shouldgotoSC/St and2/3rdmustroutethoughRuralandSemiUrbanbranches. Q.5 PrioritySectorTargetForHousingLoan Ans. HousingLoanRs.25lacforMetrostationshavingpopulation10.00lacandabove. Rs.15lacforothercities.ForRepairupto2.00(RuralandSU)andRs.5.00lac (UrbanandMetro).Bank loans to any governmental agency for construction of dwelling
units or for slum clearance and rehabilitation of slum dwellers subject to a ceiling of Rs 5 lakh per dwelling unit.

Q.6 DefineSmallandMarginalfarmer. Ans. Farmershavinglandupto1hectorareMarginalFarmersandothershavinglandmore than1hectorupto2hectorsareSmallFarmers. Q.7 DefineMicro,SmallandMediumformanufacturingandserviceunits. Ans. InvestmentinPlantand InvestmentinEquipmentfor MachineryforManufacturing ServiceUnits(Excludingcostof Units(Excludingcostofland). land). Micro UpToRs.25lac UpToRs.10lac Small Above25lacUpToRs.5.00 Above10lacUptoRs.2.00crore crore Medium Above5.00croreUpToRs. Above2.00croreUpToRs.5.00 10.00crore crore Q.8 WhatareprovisioningnormsforNPAs? Classificationofassets ProvisiononSecured *ProvisiononUnsecured SubStandard 15% 25% Doubtful(D1) 25% 100% Doubtful(D2) 40% 100% Doubtful(D3) 100% 100% LossAssets 100% 100% *Whereatthetimeofsanction,nosecurityorsecurityislessthan10%

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WhatarePrudentialnormsforindividualsandGroupsasperRBIguidelines? Individuals Groups General 15%ofCapitalFunds 40%ofCapitalFunds Infrastructure 20%ofCapitalFunds 50%ofCapitalFunds 25%ofCapitalFunds OilCompanies HowmuchamountofloancanbesanctionedtoAgricultureandSMEwithoutCollateral Agriculture1.00lac SME10.00lac(mandatory).However,CollateralcanbewaiveduptoRs. 1.00crore.PermissionofCHisrequiredifcollateralistakenuptoRs.100lac. MonetaryandCreditpolicyisissuedbyRBIhowmanytimesinayear? MonetaryPolicyisissuedannuallywithquarterlyreview.CreditPolicytwiceayear. RBIhasrestrictedbanktofinanceagainst/to_______________? 1. Banksownshares 2. DirectorsandRelativesofDirectorswithoutpermissionofBoard. 3. Sensitivecommoditiesunderselectivecontrolmeasures. 4. FDRsofotherbanks,CDs,CompaniesforbuybackofsharesandIndustries consumingOzoneDepletingSubstance(ODS) ExplainDeliveryofcreditforWClimitsof10croreandabove. CCcomponent20% WCTLcomponent80% Theproportionisnotfixedbutisflexibleaccordingtorequirementofborrower. WhatareprovisioningnormsforStandardAssets? Classification Rateofprovision DirectSMEandDirectAgriculture 0.25% Others 0.40% CommercialRealEstate 1% TeaserHousingLoans 2% 2.75% RestructuredAccountsupto2yrs. WhatarePStargetsforMicroandSmallEnterprises? AllMSEloanswillbetreatedasPS.ButsubtargetswithinoverallMSEloansareas under: 40% 20% 40% Manufacturingunits UptoRs.5.00 Above5.00upRs. Above25.00lac havingInvestmentinPlant lac 25.00lac andMachinery ServiceUnitshaving UptoRs.2.00 Above2.00lacup AboveRs.10.00 to10.00lac lac InvestmentinEquipment lac WhatarePStargetsforForeignBankshavinglessthan20branchesinIndia? TotalPrioritySector 32%ofANBCorOffBalanceSheetItems(Higher) Agriculture NospecifictargetbutformspartofTotalPS MSEunits NospecifictargetbutformspartofTotalPS Export NospecifictargetbutformspartofTotalPS

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NospecifictargetbutformspartofTotalPS Weakersector Inhowmanyyears,Foreignbankswith20branchesandaboveinIndianeedtoachieve PStargetof40%? 5yearsstartingfrom1.4.2013upto1.4.2018. WhatarePStargetsofweakersectorforDomesticbanksandForeignbankshaving20 andabovebranchesinIndia? 10%ofANBCorOffBalanceSheetItemswhicheverishigher. WhatisANBC? Bank Credit in India + Bills Rediscounted with RBI/other approved institutions + Investment in nonSLR bonds under HTM category + other investments eligible to be treatedasPS. BaseRateisdeterminedineachbankby AssetLiabilityManagementCommittee(ALCO) HowwouldyoucalculateNWCfromLongTermSourcesandLongTermUses? LongtermSources()LongTermUses Long term Uses of a firm are 40, total liabilities are 120. Its Current Ratio is 2:1. Find CurrentassetsandCurrentLiabilities. CurrentLiabilities:40Currentassets:80 IfCurrentRatioworksoutto2:1andNWC(NetWorkingCapital)is50000.Whatwillbe currentliabilities? 50000/ TotalAssetsareRs.20lac,LongtermUsesareRs.11.00lacandCurrentRatiois1.5:1. WhatwillbetheamountofCurrentLiabilities? 6lac. BalancesheetoffirmrevealsthatCurrentassetsare300lac,Longtermsourcesare300 lac. Total of Balance sheet is 500 lac. What will be the amount of NWC and Current Ratio. 100lacand1.5:1 NetProfitis60,Depreciationis40,TermLoanInterestis20,TermLoanBalanceis300, Installmentis40,CapitalandReservesare150.FindoutDSCR. 2or200% FindoutDebtEquityRatiointheabovesaidexample. 2:1 Afirmhas3monthsDebtCollectionPeriod.ItsSalesare180lac.Whatwillbethe averageBookDebts? Rs.45lac Net Working Capital is 8 lac and Current Ratio is 1.5:1. What will be the amount of Currentassets 24lac AsperCompaniesAct,themaximumdurationofFinancialyearcanbe___________ 15months. SimplifiedTurnoverMethod(NayakCommittee)isapplicableinwhichcases? SMEunitswithWorkingCapitallimitupto5.00croreandotherunitshavingWClimitup

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toRs.2.00crore. How will you calculate Working Capital requirement under Simplified Turnover (Nayak Committee)method 25%ofPATO(ProjectedAnnualTurnover) Whatismarginunderabovemethod 5%ofPATOoravailablemargini.e.NWCwhicheverishigher.NWCiscalculatedby deductingLongtermUsesfromLongtermsources. WhatwillbePBF(PermissibleBankFinance)underabovemethod. 20%ofPATO ExplainTandonCommittee(2ndMethodoflending) ItisapplicableforSMEunitshavingWClimitabove5.00croreandOtherunitshaving WClimitabove2.00crore. 2ndMethodoflending Iststep:FindTotalCAbyaddingChargeableCurrentAssetsinOtherCurrentAssets. 2ndStep:CalculateWCGap=TotalCAOCL(OtherCurrentliabilitiesi.e.CLexcluding bankborrowings) Thendeductmargin=25%ofTCAorNWC(Whicheverishigher) PBF=WCGapMargin CashBudgetMethodisapplicableonwhichindustries? Sugar,Tea,FilmandSeasonalIndustries. Whatisrequiredmarginforfinancingagainstbookdebts? 25%Previouslyitwas40% LCisgovernedby UCPDC600(UniformCodeandPracticeforDocumentaryCredit) IfConsumptionofgoodsis6croreperyearandEconomicOrderingQuantityis1crore. PeriodLeadtime10days,Transitperiod20daysandUsancePeriodis6months.Total Timeperiodis7months. WhatwillbetotalLClimit? LCwillberealizedin7months. ConsumptionisRs.6.00croreinayearandEOQis1.00crore.Thereforefrequencyof openingLCis2months. Atanypointoftime,therewillbeLCsamountingto7/2i.e.4croreoutstanding.4LCsof 1.00croreeachwillbeoutstandingatatime. WhocanissueCommercialPapers? Corporate with minimum TNW 4 crore with minimum Credit Rating A2 from CRISIL or equivalent and enjoying working capital limit from banks/Fis. These can be issued with minimumamountofRs.5.00lacandthereafterinmultiplesof5.00lacfrom7daysto1 year. DistinguishbetweenFactoringandForfaiting? Factoring: FinancingofReceivablesiscalledFactoring.FinanceriscalledFactor.Thiscanbewithor Without Recourse. Factor makes payment of about 80% in advance and remaining 20% ispaidafterreceiptthereoffromborrower.

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Forfaiting: It is financing of Export Receivables supported by Bill of Exchange /Promissory Notes. Forfaiting is always without Recourse. Forfaitor makes payment to exporters equal to 100%ofvalueofexports. UnderLC,NegotiatingBankfallsinwhichcountry?ExportersorImporters Exporterscountry WhatisRedClauseLetterofCredit? WhereIntermediarybankcanavailfinanceforRawMaterialrequiredforshipment. WhatisreasonabletimeforAcceptanceorRefusalofDocumentsunderLC? 5BankingDays. Documents must be presented within _________________days from date of shipment bytheexporterwithNegotiatingbank. 21days WCTLispayableondemandbutitisgivennormallyforaperiodnotexceeding_____ 1year. DPG (Deferred Payment Guarantee), a type of bank guarantee for repayment of installmentsisusedforfinancingFixedAssets.Itisatypeof_____________facility. Nonfundbased WhatisdifferencebetweenProjectappraisalandTLappraisal? Under Project appraisal, all financial needs of borrower i.e. WC, TL , Bill Finance and LC limitetc.areassessed. ButunderTLappraisal,onlyFixedAssetrequirementisassessed. WhatisTakeoutFinancing? It is an arrangement under which banks financing infrastructure projects get Liquidity support from FIs (like IDFC) to avoid Asset Liability mismatches. The outstanding in the booksofthebanksaretransferredtoFIsonpredeterminedbasis. WhatarerulesforprovidingInterinstitutionalGuarantees? Inter institutional guarantees are permitted in favor of other lending institutions in respect of infrastructure projects, provided the bank issuing guarantee takes a funded shareintheprojecttotheextentatleast5%ofProjectcost. IncaseofCompanies,ChargeistoberegisteredwithROCwithinaperiodof______ 30daysfromdateofcreationofcharge. Thisperiodof30dayscanbeextendedbyROCforanotherperiodof______________ 30daysbypaymentofpenalty. TheChargewillbeeffectivefromdateofregistrationorfromdateofcreation? Fromdateofcreation IfChargeisnotregistered,thenwhatwillhappenwiththebanksloan? The loan can be recovered but it will be treated as Unsecured creditor and will not be paidonpriorityincasethecompanyiswoundup. DocumentsexecutedoutsideIndiamustbestampedwithinaperiodof_________ 3monthsfromthedatethesereachIndia Document requiring Registration with Registrar of Assurances or other authority must beregisteredwithinaperiodoffromthedateofexecution.

Ans. 4months Q.57 In case of limit against Actionable claims (Book Debts, LIC policy and Govt Securities), whichtypeofchargeiscreatedandwhereitisdefined? Ans. Assignment.ItisdefinedinTransferofPropertyAct. Q.58 IftotalcurrentassetsofafirmareRs.11.70lac,CurrentliabilitiesareRs.3.40lac.What will be the amount of Permissible Bank Finance (PBF) as per 2nd method of lending. (Givenavailablemargin2.90lac) Ans. 5.37lac Q.59 SalesareRs.300lacandRs.500lacintheprevious2years.ProjectedSalesforthenext year is Rs. 800 lac. What will be the amount of Working Capital limit as per Simplified TurnovermethodofNayakCommitteepresumingNWClessthan40lac. Ans. 160lac Q.60 Nayak Committee takes into consideration working capital requirement of unit for a holdingperiodof_________months. Ans. 3months Q.61 The sanctioned limit for preshipment loan is Rs. 10 lac and margin is 20%. To avail the limitfully,thevalueofstockshouldbe_____________ Ans. 12.5lac Q.62 StockAuditisdoneinwhichaccounts? Ans. Loan accounts in which Working Capital limit is 5.00 crore and above. In B to D rated accounts,thelimitis3.00croreandabove. Q.63 Whatarethesymptomsofbadconductofaccount? Ans. Decline in Sales, Decline in Profit, Increase in PMS rating, Bouncing of Cheques, DevolvementofLC,nonsubmissionofStockstatementandFinancialdata. Q.64 LRMdenotesforwhich? Ans. LoanReviewMechanism. Q.65 WhatisfrequencyofReviewinloanaccounts Ans. HighRiskAccounts3months MediumRisk(AverageRisk)Accounts6months LowRiskAccounts12months. Q.66 Name3categoriesofRisksfacedbybusinessofBanking Ans. 1. CreditRisk 2. OperationalRisk 3. MarketRisk Q.67 Which approach of Basel II is approved by RBI for Credit Risk Rating? Standardized ApproachorInternalRatingBasedapproach. Ans. Standardizedapproach Q.68 Which is earliest date for applying to RBI by the banks for approval of IRBA approach andWhenitislikelytobeapprovedbyRBI/ Ans. ApplicationtoRBIforapprovalofIRBAapproach:1.4.2012 LikelyapprovalbyRBI:31.3.2014 Q.69 ExternalRatingisgotdoneunderwhichapproach? Ans. Standardizationapproach

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NamefouragenciesapprovedbyRBIforCreditRiskRating? CRISIL,CARE,ICRAIndiaRatingandBrickwork WhichcreditagencyisapprovedforCreditRiskRatingofSMEunits? SMERA&ONICARA NametwoCreditDerivativesforRiskManagement CDS(CreditDefaultSwaps)andCLN(CreditLinkedNotes) WhatisRiskWeightonHousingLoanabove75lac? 125%irrespectiveofLTV. WhatisRiskWeightinrespectofaunitwhoseexternalRatingisBB? 150% WhichloancasesareeligibleforCDRi.e.CorporateDebtRestructuring? 1. The unit enjoying credit facility from more than 1 bank i.e. Multiple financing/Consortium/Syndication. 2. TotalExposureisRs.10croreandabove CategoryCDR1 is applicable on which type of loan accounts? Standard, Substandard or Doubtfulassets. Standard and Substandard (to the extent of 90% of total loan by value) in the books of thecreditor. WhocanreferthematterforCDR? 1. Any Creditor who has atleast 20% shares either in Working Capital or Term finance. 2. Concernedcorporate,ifsupportedbybankorFIhavingstakeofatleast20%. CDR is called a Debtor Creditor Agreement and Inter Creditor Agreement which provideslegalbasis.UnderagreementCreditorscommittothetermsofrestructuring.It will be binding on all, if agreed by atleast_____% creditors by value and _______%creditorsbynumber. 75%byValueand60%bynumber WhataretheelementsofDebtorCreditorAgreement? 1. Standstill agreement for 90 days/180 days by both sides (Debtors and Creditors). No legal action will be taken during this period. Borrower will undertake that Documents shall stand extended for the purpose of limitation. ForeignExchangecontractscanbecrystallized. 2. Additional dose of finance can be given and will be shared by the creditors i.e. banks(WCorTL).AnycreditorcanexerciseExitoption. Category 2 CDR is applicable on which type of loans Standard, Substandard or DoubtfulAssets Doubtfulassets WhatisthecriteriaofapplicationofCDR2? Ifthecreditors(75%byValueand60%bynumber)agree,satisfyabouttheviabilityand giveconsent. WhatisStandstillclauseformingpartofDebtorCreditorAgreementunderCDR2? BothDebtorsandCreditorswillnottakeanylegalrecoursefor90/180days. WhetheritwillbebindinguponCreditorstotakeupadditionalfinanceunderCDR2.

Ans. No Q.84 Which SME units are eligible for Restructuring under SME Debt Restructuring Mechanismofthebank? Ans. SMEunitsenjoyingFundandNonfundexposureuptoRs.10crore. Bank should work out the package within 90 days from date of receipt of request. Q.85 DefineSickSSIUnit. Ans. TheSSIunitisconsideredsick: IfitisbeingclassifiedasSubstandardformorethan6months. IfthereiserosionofNetworthtotheextentof50%duringpreviousyear. Iftheunithasbeenincommercialproductionforthelast2years. Q.86 Rehabilitation Package to sick units, if declared potentially viable must be implanted withinaperiodof_________Months. Ans. 6months. Q.87 Duringthisperiodof6months.BanksarerequiredtodoHoldingOperations.Whatisit? Ans. SickUnitscandrawfundsfromCCaccounttotheextentofdepositofSaleProceeds. Q.88 Whatconcessionsareavailabletoviablesickunits. Ans. InterestonWClimit1.5%belowtheprevailingfixedrate/PLR InterestfreeFUNDEDINTERESTTERMLOAN. InterestonWCTL1.5%belowtheprevailingfixedrate/PLR ContingencyLoanassistance. TLInterestconcessiontotheextentofmaximum2% Q.89 Name3CreditInformationagencies. Ans. CIBIL,EQUIFAX,EXPERIANandHighMark Q.90 WhatfeesispaidbybanktoobtaincreditinformationincaseofindividualfromCIBIL Ans. Rs.50/ Q.91 WhicharethetwocategoriesforwhichcreditinformationisprovidedbyCIBIL? Ans. ConsumerandCommercial Q.92 As per RBI guidelines, all banks/FIs provide list if Willful defaulters of Rs. ___________andabovetoCIBILonquarterlybasis. Ans. 25lacandabove. Q.93 WhatismonetarylimituptowhichdisputecanbesettledinLokAdalats? Ans. 20lac Q.94 For expediting loan recovery cases involving Principal and Interest in excess of Rs. ________willbereferredtoDRT(DebtRecoveryTribunal). Ans. InexcessofRs.10.00lac. Q.95 WhichloansareeligibletoberecoveredthroughSARFAESI? Ans. 1. NPAaccountswhereamountdueisatleast20%oftotaldues. 2. SecurityisotherthanlienorpledgeormortgageofAgricultureland. 3. WhererepaymentexceedsRs.1.00lac. Q.96 PossessionNoticeisservedupontheborrowerforhowmanydays? Ans. 60days.

Q.97 Afterpossession,___________DaysNoticeofSaleisservedupontheborrower. Ans. 30days Q.98 Under SARFAESI, aggrieved party can approach _________________within a period of 45daysfromdateonwhichrecoursehasbeentaken. Ans. DRT(DebtRecoveryTribunal) Q.99 Appeal against DRT can be made within a period of 30 days with DRAT after depositing anamountof_____%ofamountofdebtduetohim. Ans. 50% Q. BankcanapproachCivilCourtforRecoveryofborrowalduesuptowhichamount? 100 Ans. Rs.10.00lac compiledbyKanwalKumar,Sr.Faculty,ZTC,Ludhiana.