N.Rangarajan's Model Online Promotion Test On Loan Policy Document 2010

According to Section 20(1) of the Banking Regulation Act 1949, a bank is prohibited from granting any loans and advances on the security of its own shares. This means that a bank cannot use its own shares as collateral for loans or advances. This regulation aims to prevent banks from engaging in risky practices and to ensure the stability and integrity of the banking system.

The cut off date for computing Adjusted Net Bank Credit is as on 31st March of the previous year. This means that the calculations for Adjusted Net Bank Credit are based on the financial data and transactions up until 31st March of the year before.

The correct answer is Differential Rate of Interest. This refers to the difference in interest rates between two financial instruments or loans. It is commonly used in banking and finance to determine the interest rate charged on loans or the interest paid on investments. The differential rate of interest helps to determine the cost of borrowing or the return on investment, taking into account factors such as the risk associated with the loan or investment and market conditions.

CIBIL Reports (Commercial) should be generated at the time of renewal of credit facilities. This means that when a credit facility is up for renewal, it is important to generate CIBIL reports to assess the creditworthiness of the borrower before deciding whether to renew the credit facility or not. By reviewing the CIBIL report, lenders can evaluate the borrower's credit history, repayment behavior, and overall financial health, helping them make an informed decision about renewing the credit facility.

The correct answer is Banking Codes and Standards. These codes are voluntary guidelines set by the Bank to ensure fair and transparent practices in banking and to protect the interests of customers. They cover various aspects such as customer service, transparency in fees and charges, grievance redressal mechanisms, and responsible lending practices. By adhering to these codes, the Bank demonstrates its commitment to providing a high level of service and ethical conduct towards its customers.

The Bank, as a member of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), will provide advances under the Credit Guarantee Fund Scheme for eligible Micro and Small Enterprises up to the credit limits of Rs 100 lakhs.

The answer is "Buffer and Unreleased Stock of Sugar Mills under Levy and Free Sale". This suggests that the commodities under selective credit control include the buffer and unreleased stock of sugar mills that are subject to levy and free sale regulations.

The correct answer is 40% of Adjusted Net Bank Credit or Credit Equivalent amount of OFF Balance Sheet Exposure whichever is higher. This means that banks in India should allocate 40% of their total credit towards PS advances, based on either the adjusted net bank credit or the credit equivalent amount of off-balance sheet exposure, whichever is higher. This ensures that a significant portion of the credit is directed towards priority sector advances, which are considered crucial for the development of certain sectors and segments of the economy.

The correct answer is 40% because DRI loans are specifically designed to provide financial assistance to the economically weaker sections of society, including SC/ST beneficiaries. Therefore, it is important to allocate a significant share of these loans to ensure that these communities have equal access to financial resources and opportunities for socio-economic development.

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A credit sanction is the approval given by a bank or financial institution to provide credit or a loan to a borrower. The validity of a credit sanction refers to the period within which the borrower can avail of the sanctioned credit. In this case, the correct answer is 6 months, meaning that the borrower has a timeframe of 6 months to utilize the sanctioned credit before it expires.

The Loan Policy Document 2010 will include the changes that are announced by the Reserve Bank of India (RBI) or the Government of India. These changes could be related to interest rates, eligibility criteria, repayment terms, or any other aspect of the loan policy. The Loan Policy Document is updated periodically to incorporate any amendments or circulars issued by the RBI or the government. It serves as a comprehensive guide for lenders and borrowers regarding the rules and regulations governing loans.

Two thirds of DRI advances should be routed through rural and semi urban branches. This means that out of the total DRI advances, two parts out of three should be allocated to these branches. This allocation is important to ensure that the benefits of DRI (Direct Rural Infrastructure) reach the rural and semi urban areas effectively. By routing a significant portion of DRI advances through these branches, it helps in promoting development and improving infrastructure in these areas, which in turn contributes to overall socio-economic growth.

Banks cannot sanction loans against Certificate of Deposits. Certificate of Deposits are a type of time deposit where the depositor agrees to keep the funds deposited for a fixed period of time. They cannot be used as collateral for loans or be used to obtain a loan from the bank.

Prepayment charges need not be recovered from borrowers when outstandings are adjusted out of resources. Prepayment charges are fees imposed on borrowers who pay off their loans before the agreed-upon term. In this scenario, since the outstandings are being adjusted out of resources, it implies that the borrowers are not making any prepayments. Therefore, prepayment charges are not applicable in this case.

The correct answer is A & D above. To prescribe a lower margin, the financial ratios that need to be complied with are a Current Ratio minimum of 1.20:1 and a Leverage Ratio of 3:1. The Current Ratio measures a company's ability to cover its short-term liabilities with its short-term assets, indicating its liquidity. A higher ratio indicates a better ability to meet short-term obligations. The Leverage Ratio, on the other hand, measures the proportion of debt used to finance a company's assets. A lower ratio indicates a lower level of debt and therefore lower financial risk.

A bank as Pledgee, Mortgagee, or Absolute Owner can hold a maximum of 30% of the paid-up share capital of the company or 30% of the paid-up share capital of the bank and reserves, whichever is less. This means that the bank's shareholding in a company cannot exceed 30% of either the company's paid-up share capital or the bank's paid-up share capital and reserves, whichever is lower.

Credit Audit is applicable to FB + NFB Limits of Rs 1 crore. This means that both Fund Based (FB) and Non Fund Based (NFB) limits of Rs 1 crore are subject to credit audit. Credit audit is a process of reviewing and evaluating the creditworthiness and credit risk associated with a borrower or a company. It involves assessing the financial health, repayment capacity, and adherence to loan terms and conditions. By conducting credit audits, lenders can ensure that the borrowers are utilizing the credit facilities effectively and managing their finances responsibly.

The tolerance level for not levying commitment charges is 20%. This means that if the borrower fails to fulfill their commitment by a certain percentage, which is less than or equal to 20%, the lender will not impose any charges. However, if the borrower exceeds this tolerance level, commitment charges may be imposed.

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The permission to allow operations in NPA account is known as "Holding On Operations". This term refers to the practice of allowing a non-performing asset (NPA) account to continue operations despite its inability to generate sufficient income to repay the loan. This permission is often granted by banks in order to avoid declaring the account as a bad debt and to give the borrower an opportunity to recover and repay the loan.

The portion on which overdue interest is to be charged is 117 lacs. This is because the total outstanding amount is 117 lacs, which exceeds the credit limit of 100 lacs. According to the given information, any excess over the limit will be charged overdue interest. Therefore, the entire outstanding amount of 117 lacs will be subject to overdue interest.

The correct answer is C & D above. This means that when an MSE Borrower prefers collateral security to CGFTSE cover for loans above 10 lacs up to 100 lacs, the bank will record the preference of the borrower and also record the bank's acceptance of collateral advance. This indicates that the bank will acknowledge the borrower's choice of collateral security and make a record of it for future reference and documentation purposes.

The validity of the Loan Policy Document 2010 is 1 year. This means that the document is applicable and in effect for a period of 1 year from the date it was issued. After this time, the policy may need to be reviewed, updated, or renewed to ensure it remains current and relevant.

The margin norm for book debts age up to 120 days is 25%. This means that a lender or financial institution will only provide a loan or credit facility up to 25% of the value of book debts that are aged up to 120 days. This norm helps to mitigate the risk associated with older and potentially unrecoverable debts, ensuring that the lender has a sufficient margin of safety in case of default.

When the variation between two valuation reports is greater than 10%, it is suggested to engage a third valuer at the cost of the borrower. This is because the significant difference in the valuation reports indicates a lack of consensus or accuracy between the two valuers. By involving a third valuer, it helps to provide an unbiased and independent assessment, ensuring a more reliable valuation of the property. The cost of engaging the third valuer is borne by the borrower to maintain fairness in the process.

The maximum TOD (Temporary Overdraft) limit that can be sanctioned in No Frill Accounts is 1000.

The correct answer is "IOB 4 and above." This rating parameter indicates that the bank should have a rating of IOB 4 or higher. This rating is likely based on the bank's financial stability, creditworthiness, and risk management practices. By prescribing a lower margin for banks with a higher rating, it suggests that these banks are considered to have a lower risk profile and are more likely to repay their loans.

The basic difference between Loan Review Mechanism and Credit Audit is the audit process location. Off Site Audit Process refers to conducting the audit remotely, without physically visiting the premises of the auditee. On the other hand, On Site Audit Process involves physically visiting the auditee's premises to conduct the audit.

SME units with working capital credit limits up to Rs. 7.50 crore will continue to be assessed as per the turnover method. This means that these units will have their credit limits determined based on their annual turnover. The turnover method is commonly used for assessing the creditworthiness of small and medium-sized enterprises (SMEs) as it provides a relatively simple and efficient way to evaluate their financial health and repayment capacity. The answer of 7.50 crore indicates the threshold limit for SME units to be assessed under this method.

ALIS is the system that takes care of the Maturity Profile of Loan Book.

Commitment charges are applicable for FB/NFB/TL limits Rs 50 lacs and above from the Banking System. This means that if the limit for a particular facility (FB/NFB/TL) is 50 lacs or more, the banking system will charge commitment charges.

Adjusted Net Bank Credit (ANBC) refers to the total bank credit available to borrowers, including both loans and investments made by banks in non-SLR (Statutory Liquidity Ratio) bonds held in the Held to Maturity (HTM) category. This measure takes into account the loans extended by banks as well as their investments in non-SLR bonds, providing a comprehensive view of the credit available in the banking system. It does not include advances made against FCNR (B) and NRNR Deposits, allowing for a more accurate assessment of the overall credit situation.

Public agencies can have the cost of land financed at a margin of 40%. This means that if a public agency is involved in a housing or commercial real estate project, they can secure financing for the land they need at a margin of 40% of the total cost. This allows them to acquire the necessary land for their project while minimizing their own upfront costs. It is important to note that this financing option is specifically available for public agencies and not for other entities such as private builders, real estate brokers, or quasi-government agencies.

Prepayment penalty for premature closure is not applicable on Working Capital Limits. This means that if a borrower decides to repay the loan before the agreed-upon term, they will not be charged any penalty for doing so. However, prepayment penalties may still be applicable for other types of limits such as Term Loan Limits and Non Fund Based Limits.

The CMD, or Chief Managing Director, has the authority to extend the validity of the Loan Policy Document 2010. The CMD is the highest-ranking executive in the organization and holds the power to make decisions and implement policies. As such, they have the ability to extend the validity of the loan policy document, ensuring that it remains in effect for a longer period of time.

The minimum Debt Service Coverage Ratio (DSCR) that can be accepted now is 1.25. DSCR is a financial metric used by lenders to assess the ability of a borrower to repay their debt obligations. A DSCR of 1.25 means that the borrower's operating income is 1.25 times higher than their debt payments, indicating a stronger ability to meet their financial obligations.

The correct answer is Traditional Method I. In this method of finance, the margin is fixed on the working capital gap. This means that a certain percentage of the working capital gap is considered as margin and the remaining amount is financed by external sources. This method is commonly used to determine the amount of funds required to meet the working capital needs of a business. It helps in assessing the adequacy of funds and ensures that the business has enough liquidity to operate smoothly.

The correct answer is Exit Policy. This is because a rating grade of IOB 9 and below indicates that the borrower is in a weak financial position and may not be able to repay the loan. In such cases, the Exit Policy is implemented, which outlines the steps to be taken to recover the loan amount and exit the borrower from the banking system. This policy helps the bank to minimize its losses and ensure proper recovery of funds.

Credit control under Selective Credit Control Commodities is controlled by margin. Margin refers to the difference between the market value of the commodity and the value of the loan provided. By setting a margin requirement, the authorities can control the amount of credit extended for the purchase of select commodities. This helps in preventing excessive speculation and ensuring that credit is provided in a controlled manner, reducing the risk of financial instability.