Punjab National Bank

Zonal Training Center

Ludhiana

100 Questions on Credit

(Up-dated up to 31.3.2014)

Q. 1 Define Small Business on the basis of annual Turnover?

Ans. Whose Annual turnover is less than 50 crore.
Q. 2 How will you define Corporate Customers?
Ans. Borrowers with exposure of more than 5.00 crore.
Q. 3 What is Priority sector target of Direct & Indirect Agriculture for Domestic banks?
Ans. 13.5% of ANBC or Off Balance Sheet Items whichever is higher 4.5% for Indirect Agri.
Q. 4 What are targets and sub-targets of DRI advances?
Ans. 1% of total outstanding advances of previous year. Out of which 40% should go to SC/St
and 2/3rd must route though Rural and Semi Urban branches.
Q.5 Priority Sector Target For Housing Loan
Ans. Housing Loan ----Rs. 25 lac for Metro stations having population 10.00 lac and above.
Rs. 15 lac for other cities. For Repair-----------up to 2.00 (Rural and SU) and Rs. 5.00 lac
(Urban and Metro). 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
Rs10 lakh per dwelling unit.
Q. 6 Define Small and Marginal farmer.
Ans. Farmers having land up to 1 hector are Marginal Farmers and others having land more
than 1 hector up to 2 hectors are Small Farmers.
Q. 7 Define Micro, Small and Medium for manufacturing and service units.
Ans. Investment in Plant and Investment in Equipment for
Machinery for Manufacturing Service Units (Excluding cost of
Units (Excluding cost of land). land).
Micro Up To Rs. 25 lac Up To Rs. 10 lac
Small Above 25 lac Up To Rs. 5.00 Above 10 lac Up to Rs. 2.00 crore
crore
Medium Above 5.00 crore Up To Rs. Above 2.00 crore Up To Rs. 5.00
10.00 crore crore

Q. 8 What are provisioning norms for NPAs?

Classification of assets Provision on Secured *Provision on Unsecured

Sub-Standard 15% 25%
Doubtful (D1) 25% 100%
Doubtful (D2) 40% 100%
Doubtful (D3) 100% 100%
 Loss Assets 100% 100%
*Where at the time of sanction, no security or security is less than 10%

Q. 9 What are Prudential norms for individuals and Groups as per RBI guidelines?
Ans. Individuals Groups
General 15% of Capital Funds 40% of Capital Funds
Infrastructure 20% of Capital Funds 50% of Capital Funds
Oil Companies 25% of Capital Funds
 The limit can be exceeded up to 5% in case of PSU and AA rated borrowers.

Q. 10 How much amount of loan can be sanctioned to Agriculture and SME without Collateral
Ans. Agriculture --------------1.00 lac
SME----------------------10.00 lac (mandatory). However, Collateral can be waived up to Rs.
1.00 crore.
Q. 11 Monetary and Credit policy is issued by RBI how many times in a year?
Ans. Monetary Policy is issued annually with quarterly review. Credit Policy twice a year.
Q. 12 RBI has restricted bank to finance against/to _______________?
Ans. 1. Bank’s own shares
2. Directors and Relatives of Directors without permission of Board.
3. Sensitive commodities under selective control measures.
4. FDRs of other banks, CDs, Companies for buy back of shares and Industries
consuming Ozone Depleting Substance (ODS)
Q. 13 Explain Delivery of credit for WC limits of 10 crore and above.
Ans. CC component --------20%
WCTL component-----80%
The proportion is not fixed but is flexible according to requirement of borrower.
Q. 14 What are provisioning norms for Standard Assets?
Ans. Classification Rate of provision
Direct SME and Direct Agriculture 0.25%
Others 0.40%
Commercial Real Estate (RH) 0.75%
Commercial Real Estate 1%
Teaser Housing Loans 2%
Restructured Accounts up to 2 yrs. 2.75%

Q. 15 What are PS targets for Micro and Small Enterprises?

Ans. All MSE loans will be treated as PS. But sub-targets within overall MSE loans are as
under:

40% 20% 40%

 Manufacturing units Up to Rs. 10.00 Above 10.00 up Above 25.00 lac
having Investment in Plant lac Rs. 25.00 lac
and Machinery
Service Units having Up to Rs. 4.00 Above 4.00 lac up Above Rs. 10.00
Investment in Equipment lac to 10.00 lac lac

Q. 16 What are PS targets for Foreign Banks having less than 20 branches in India?
Ans. Total Priority Sector 32% of ANBC or Off Balance Sheet Items (Higher)
Agriculture No specific target but forms part of Total PS
MSE units No specific target but forms part of Total PS
Export No specific target but forms part of Total PS
Weaker sector No specific target but forms part of Total PS

Q. 17 In how many years, Foreign banks with 20 branches and above in India need to achieve
PS target of 40%?
Ans. 5 years starting from 1.4.2013 up to 1.4.2018.
Q. 18 What are PS targets of weaker sector for Domestic banks and Foreign banks having 20
and above branches in India?
Ans. 10% of ANBC or Off Balance Sheet Items whichever is higher.
Q. 19 What is ANBC?
Ans. Bank Credit in India + Bills Rediscounted with RBI/other approved institutions +
Investment in non-SLR bonds under HTM category + other investments eligible to be
treated as PS.
Q. 20 Base Rate is determined in each bank by ------------------------
Ans. Asset Liability Management Committee (ALCO)
Q. 21 How would you calculate NWC from Long Term Sources and Long Term Uses?
Long term Sources (-) Long Term Uses
Q. 22 Long term Uses of a firm are 40, total liabilities are 120. Its Current Ratio is 2:1. Find
Current assets and Current Liabilities.
Current Liabilities :40 Current assets: 80
Q. 23 If Current Ratio works out to 2:1 and NWC (Net Working Capital) is 50000. What will be
current liabilities?
50000/-
Q. 24 Total Assets are Rs. 20 lac, Long term Uses are Rs. 11.00 lac and Current Ratio is 1.5:1.
What will be the amount of Current Liabilities?
6 lac.
Q. 25 Balance sheet of firm reveals that Current assets are 300 lac, Long term sources are 300
lac. Total of Balance sheet is 500 lac. What will be the amount of NWC and Current
Ratio?
100 lac and 1.5:1
Q. 26 Net Profit is 60, Depreciation is 40, Term Loan Interest is 20, Term Loan Balance is 300,
 Installment is 40, Capital and Reserves are 150. Find out DSCR.
2 or 200%
Q. 27 Find out Debt Equity Ratio in the above said example.
2:1
Q. 28 A firm has 3 months Debt Collection Period. Its Sales are 180 lac. What will be the
average Book Debts?
Rs. 45 lac
Q. 29 Net Working Capital is 8 lac and Current Ratio is 1.5:1. What will be the amount of
Current assets
24 lac
Q. 30 As per Companies Act, the maximum duration of Financial year can be ___________
15 months.
Q. 31 Simplified Turnover Method (Nayak Committee) is applicable in which cases?
Ans. SME units with Working Capital limit up to 5.00 crore and other units having WC limit up
to Rs. 2.00 crore.
Q. 32 How will you calculate Working Capital requirement under Simplified Turnover (Nayak
Committee) method
Ans. 25% of PATO (Projected Annual Turnover)
Q. 33 What is margin under above method
Ans. 5% of PATO or available margin i.e. NWC whichever is higher. NWC is calculated by
deducting Long term Uses from Long term sources.
Q. 34 What will be PBF (Permissible Bank Finance) under above method.
Ans. 20% of PATO
Q. 35 Explain Tandon Committee (2nd Method of lending)
Ans. It is applicable for SME units having WC limit above 5.00 crore and Other units having
WC limit above 2.00 crore.
2nd Method of lending
Ist step: Find Total CA by adding Chargeable Current Assets in Other Current Assets.
2nd Step: Calculate WC Gap = Total CA-OCL (Other Current liabilities i.e. CL excluding
bank borrowings)
Then deduct margin = 25% of TCA or NWC (Whichever is higher)
PBF = WC Gap – Margin
Q. 36 Cash Budget Method is applicable on which industries?
Ans. Sugar, Tea, Film and Seasonal Industries.
Q. 37 What is required margin for financing against book debts?
Ans. 25% Previously it was 40%
Q. 38 LC is governed by
Ans. UCPDC 600 (Uniform Code and Practice for Documentary Credit)
Q. 39 If Consumption of goods is 6 crore per year and Economic Ordering Quantity is 1 crore.
Period Lead time – 10 days, Transit period 20 days and Usance Period is 6 months. Total
Time period is 7 months.
What will be total LC limit?
Ans. LC will be realized in 7 months.
 Consumption is Rs. 6.00 crore in a year and EOQ is 1.00 crore. Therefore frequency of
opening LC is 2 months.
At any point of time, there will be LCs amounting to 7/2 i.e. 4 crore outstanding. 4 LCs of
1.00 crore each will be outstanding at a time.
Q. 40 Who can issue Commercial Papers?
Ans. 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
minimum amount of Rs. 5.00 lac and thereafter in multiples of 5.00 lac from 7 days to 1
year.
Q. 41 Distinguish between Factoring and Forfaiting?
Factoring:
Financing of Receivables is called Factoring. Financer is called Factor. This can be with or
Without Recourse. Factor makes payment of about 80% in advance and remaining 20%
is paid after receipt thereof from borrower.
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% of value of exports.
Q. 42 Under LC, Negotiating Bank falls in which country? Exporter’s or Importer’s
Ans. Exporters’ country
Q. 43 What is Red Clause Letter of Credit?
Ans. Where Intermediary bank can avail finance for Raw Material required for shipment.
Q. 44 What is reasonable time for Acceptance or Refusal of Documents under LC?
Ans. 5 Banking Days.
Q. 45 Documents must be presented within _________________days from date of shipment
by the exporter with Negotiating bank.
Ans. 21 Calendar days
Q. 46 WCTL is payable on demand but it is given normally for a period not exceeding _____
Ans. 1 year.
Q. 47 DPG (Deferred Payment Guarantee), a type of bank guarantee for repayment of
installments is used for financing Fixed Assets. It is a type of _____________facility.
Ans. Non-fund based
Q. 48 What is difference between Project appraisal and TL appraisal?
Ans. Under Project appraisal, all financial needs of borrower i.e. WC, TL , Bill Finance and LC
limit etc. are assessed.
But under TL appraisal, only Fixed Asset requirement is assessed.
Q. 49 What is Take-out Financing?
Ans. 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
books of the banks are transferred to FIs on pre-determined basis.
Q. 50 What are rules for providing Inter institutional Guarantees?
Ans. Inter institutional guarantees are permitted in favor of other lending institutions in
respect of infrastructure projects, provided the bank issuing guarantee takes a funded
 share in the project to the extent at-least 5% of Project cost.
Q. 51 In case of Companies, Charge is to be registered with ROC within a period of ______
Ans. 30 days from date of creation of charge.
Q. 52 This period of 30 days can be extended by ROC for another period of ______________
Ans. 30 days by payment of penalty.
Q. 53 The Charge will be effective from date of registration or from date of creation?
From date of creation
Q. 54 If Charge is not registered, then what will happen with the bank’s loan?
Ans. The loan can be recovered but it will be treated as Unsecured creditor and will not be
paid on priority in case the company is wound up.
Q. 55 Documents executed outside India must be stamped with in a period of _________
3 months from the date these reach India
Q. 56 Document requiring Registration with Registrar of Assurances or other authority must
be registered within a period of ---------------from the date of execution.
Ans. 4 months
Q. 57 In case of limit against Actionable claims (Book Debts, LIC policy and Govt Securities),
which type of charge is created and where it is defined?
Ans. Assignment. It is defined in Transfer of Property Act.
Q. 58 If total current assets of a firm are Rs. 11.70 lac, Current liabilities are Rs. 3.40 lac. What
will be the amount of Permissible Bank Finance (PBF) as per 2 nd method of lending.
(Given available margin 2.90 lac)
Ans. 5.37 lac
Q. 59 Sales are Rs. 300 lac and Rs. 500 lac in the previous 2 years. Projected Sales for the next
year is Rs. 800 lac. What will be the amount of Working Capital limit as per Simplified
Turnover method of Nayak Committee presuming NWC less than 40 lac.
Ans. 160 lac
Q. 60 Nayak Committee takes into consideration working capital requirement of unit for a
holding period of _________months.
Ans. 3 months
Q. 61 The sanctioned limit for pre-shipment loan is Rs. 10 lac and margin is 20%. To avail the
limit fully, the value of stock should be_____________
Ans. 12.5 lac
Q. 62 Stock Audit is done in which accounts?
Ans. Loan accounts in which Working Capital limit is 5.00 crore and above.
In B to D rated accounts, the limit is 3.00 crore and above.
Q. 63 What are the symptoms of bad conduct of account?
Ans. Decline in Sales, Decline in Profit, Increase in PMS rating, Bouncing of Cheques,
Devolvement of LC, non- submission of Stock statement and Financial data.
Q. 64 LRM denotes for which?
Ans. Loan Review Mechanism.
Q. 65 What is frequency of Review in loan accounts
Ans. High Risk Accounts – 3 months
Medium Risk (Average Risk) Accounts – 6 months
 Low Risk Accounts -----12 months.
Q. 66 Name 3 categories of Risks faced by business of Banking
Ans. 1. Credit Risk
2. Operational Risk
3. Market Risk
Q. 67 Which approach of Basel –II is approved by RBI for Credit Risk Rating? Standardized
Approach or Internal Rating Based approach.
Ans. Standardized approach. Some of the banks have been allowed to switch over to IRBA
w.e.f 1.4.2014.
Q. 68 Which is earliest date for applying to RBI by the banks for approval of IRBA approach
and When it is likely to be approved by RBI/
Ans. Application to RBI for approval of IRBA approach: 1.4.2012
Likely approval by RBI: 31.3.2014
Q. 69 External Rating is got done under which approach?
Ans. Standardization approach
Q. 70 Name four agencies approved by RBI for Credit Risk Rating?
Ans. CRISIL, CARE, ICRA, India Rating and Brickwork
Q. 71 Which credit agency is approved for Credit Risk Rating of SME units?
Ans. SMERA & ONICARA
Q. 72 Name two Credit Derivatives for Risk Management
Ans. CDS (Credit Default Swaps) and CLN (Credit Linked Notes)
Q. 73 What is Risk Weight on Housing Loan above 75 lac?
Ans. 75% (Now LTV has been restricted up to 75%)
Q. 74 What is Risk Weight in respect of a unit whose external Rating is BB?
Ans. 150%
Q. 75 Which loan cases are eligible for CDR i.e. Corporate Debt Restructuring?
Ans. 1. The unit enjoying credit facility from more than 1 bank i.e. Multiple
financing/Consortium/Syndication.
2. Total Exposure is Rs. 10 crore and above
Q. 76 Category CDR-1 is applicable on which type of loan accounts? Standard, Substandard or
Doubtful assets.
Ans. Standard and Substandard (to the extent of 90% of total loan by value) in the books of
the creditor.
Q. 77 Who can refer the matter for CDR?
Ans. 1. Any Creditor who has at-least 20% shares either in Working Capital or Term
finance.
2. Concerned corporate, if supported by bank or FI having stake of at-least 20%.
Q. 78 CDR is called a Debtor Creditor Agreement and Inter Creditor Agreement which provides
legal basis. Under agreement Creditors commit to the terms of restructuring. It will be
binding on all, if agreed by at-least_____% creditors by value and _______%creditors
by number.
Ans. 75% by Value and 60% by number
Q. 79 What are the elements of Debtor Creditor Agreement?
Ans. 1. Stand-still 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.
Foreign Exchange contracts can be crystallized.
2. Additional dose of finance can be given and will be shared by the creditors i.e.
banks (WC or TL). Any creditor can exercise Exit option.
Q. 80 Category 2 CDR is applicable on which type of loans – Standard, Substandard or
Doubtful Assets
Ans. Doubtful assets
Q. 81 What is the criteria of application of CDR 2?
Ans. If the creditors (75% by Value and 60% by number) agree, satisfy about the viability and
give consent.
Q. 82 What is Stand still clause forming part of Debtor Creditor Agreement under CDR 2?
Ans. Both Debtors and Creditors will not take any legal recourse for 90/180 days.
Q. 83 Whether it will be binding upon Creditors to take up additional finance under CDR 2.
Ans. No
Q. 84 Which SME units are eligible for Restructuring under SME Debt Restructuring
Mechanism of the bank?
Ans.  SME units enjoying Fund and Non-fund exposure up to Rs. 10 crore.
 Bank should work out the package with-in 90 days from date of receipt of
request.
Q. 85 Define Sick SSI Unit.
Ans. The SSI unit is considered sick :
 If it is being classified as Sub-standard for more than 6 months.
 If there is erosion of Net worth to the extent of 50% during previous year.
 If the unit has been in commercial production for the last 2 years.
Q. 86 Rehabilitation Package to sick units, if declared potentially viable must be implanted
within a period of _________Months.
Ans. 6 months.
Q. 87 During this period of 6 months. Banks are required to do Holding Operations. What is it?
Ans. Sick Units can draw funds from CC account to the extent of deposit of Sale Proceeds.
Q. 88 What concessions are available to viable sick units.
Ans.  Interest on WC limit 1.5% below the prevailing fixed rate/PLR
 Interest free FUNDED INTEREST TERM LOAN.
 Interest on WCTL 1.5% below the prevailing fixed rate/PLR
 Contingency Loan assistance.
 TL- Interest concession to the extent of maximum 2%
Q. 89 Name Credit Information agencies.
Ans. CIBIL, EQUIFAX ,EXPERIAN and High Mark
Q. 90 What fees is paid by bank to obtain credit information in case of individual from CIBIL
Ans. Rs. 50/-
Q. 91 Which are the two categories for which credit information is provided by CIBIL?
Ans. Consumer and Commercial
Q. 92 As per RBI guidelines, all banks/FIs provide list if Willful defaulters of Rs.
___________and above to CIBIL on quarterly basis.
Ans. 25 lac and above.
Q. 93 What is monetary limit up to which dispute can be settled in Lok Adalats?
Ans. 20 lac
Q. 94 For expediting loan recovery cases involving Principal and Interest in accounts with
outstanding Rs. ________ will be referred to DRT (Debt Recovery Tribunal).
Ans. 10 lac and above
Q. 95 Which loans are eligible to be recovered through SARFAESI?
Ans. 1. NPA accounts where amount due is at-least 20% of total dues.
2. Security is other than lien or pledge or mortgage of Agriculture land.
3. Where repayment exceeds Rs. 1.00 lac.
Q. 96 Possession Notice is served upon the borrower for how many days?
Ans. 60 days.
Q. 97 After possession, ___________Days Notice of Sale is served upon the borrower.
Ans. 30 days
Q. 98 Under SARFAESI, aggrieved party can approach _________________within a period of
45 days from date on which recourse has been taken.
Ans. DRT (Debt Recovery Tribunal)
Q. 99 Appeal against DRT can be made within a period of 30 days with DRAT after depositing
an amount of _____% of amount of debt due to him.
Ans. 50%
Q. Bank can approach Civil Court for Recovery of borrowal dues up to which amount?
100
Ans. Rs. 10.00 lac

------------------compiled by Kanwal Kumar, Sr. Faculty, ZTC, Ludhiana.