UPSC Prelims Practice Questions — RBI tightens bad loan rules to align with global norms

Q1. The Reserve Bank of India's revised Master Directions, which replace facility-level NPA classification with borrower-level classification, are scheduled to take effect for new loans from which one of the following dates?

  • A. April 1, 2026
  • B. April 1, 2027
  • C. April 27, 2026
  • D. April 1, 2028

Q2. With reference to the borrower-level NPA classification introduced by RBI's revised Master Directions, consider the following statements: 1. If any one loan of a borrower having multiple loans is classified as an NPA, all the loans of that borrower are tagged as NPA. 2. The 90-day overdue criterion for classifying an account as an NPA has been raised to 180 days under the new framework. 3. Restoration of standard-asset status requires repayment of the entire arrears of interest and principal across all credit facilities of the borrower. 4. Banks have been directed to set up automated systems to identify NPAs, reducing manual/discretionary tagging. Which of the statements given above are correctly identified?

  1. If any one loan of a borrower having multiple loans is classified as an NPA, all the loans of that borrower are tagged as NPA.
  2. The 90-day overdue criterion for classifying an account as an NPA has been raised to 180 days under the new framework.
  3. Restoration of standard-asset status requires repayment of the entire arrears of interest and principal across all credit facilities of the borrower.
  4. Banks have been directed to set up automated systems to identify NPAs, reducing manual/discretionary tagging.
  • A. 1 and 3 only
  • B. 2 and 4 only
  • C. 1, 3 and 4
  • D. 1, 2, 3 and 4

Q3. With reference to the Expected Credit Loss (ECL) framework being adopted by Indian banks, consider the following statements: 1. Stage 1 assets, where there is no significant increase in credit risk, attract a loss allowance based on 12-month expected credit losses. 2. Stage 2 assets are those that have seen a significant increase in credit risk but are not yet credit-impaired. 3. Stage 3 assets are those that are credit-impaired. 4. Under the ECL model, every loan must be provided for solely on the basis of losses that have already been incurred. Which of the statements given above are correctly identified?

  1. Stage 1 assets, where there is no significant increase in credit risk, attract a loss allowance based on 12-month expected credit losses.
  2. Stage 2 assets are those that have seen a significant increase in credit risk but are not yet credit-impaired.
  3. Stage 3 assets are those that are credit-impaired.
  4. Under the ECL model, every loan must be provided for solely on the basis of losses that have already been incurred.
  • A. 1, 2 and 3
  • B. 1 and 4 only
  • C. 2, 3 and 4
  • D. 1, 2, 3 and 4

Q4. The prudential Expected Credit Loss (ECL) framework governing loan-loss provisioning by scheduled commercial banks is issued by which one of the following?

  • A. Reserve Bank of India
  • B. Securities and Exchange Board of India
  • C. Insolvency and Bankruptcy Board of India
  • D. Institute of Chartered Accountants of India

Q5. Apart from scheduled commercial banks (other than Small Finance Banks, Payment Banks and Regional Rural Banks), the RBI's Expected Credit Loss framework effective April 1, 2027 also applies to which one of the following categories of institutions?

  • A. Regional Rural Banks
  • B. All India Financial Institutions
  • C. Payment Banks
  • D. Small Finance Banks

Q6. Comparing the transition milestones of the revised framework with the earlier regime, consider the following statements: 1. The revised norms replacing the incurred-loss approach come into effect on April 1, 2027. 2. All loans outstanding as on March 31, 2027 are to be brought under the Effective Interest Rate (EIR) method no later than March 31, 2030. 3. Banks must complete the additional provisioning required on their existing loan book by March 31, 2028. Which of the statements given above are correct?

  1. The revised norms replacing the incurred-loss approach come into effect on April 1, 2027.
  2. All loans outstanding as on March 31, 2027 are to be brought under the Effective Interest Rate (EIR) method no later than March 31, 2030.
  3. Banks must complete the additional provisioning required on their existing loan book by March 31, 2028.
  • A. 1 only
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q7. The Income Recognition and Asset Classification (IRAC) norms, including the 90-day overdue criterion for classifying an advance as a non-performing asset, are prescribed by which one of the following?

  • A. Ministry of Finance
  • B. Reserve Bank of India
  • C. Indian Banks' Association
  • D. Securities and Exchange Board of India

Q8. With reference to the Income Recognition and Asset Classification (IRAC) norms, consider the following statements: 1. An asset is classified as an NPA if interest and/or principal remains overdue for more than 90 days. 2. Income on an NPA may be recognised by a bank only on realisation, that is, on a cash basis. 3. An advance account should be classified as an NPA merely on account of temporary deficiencies such as non-submission of stock statements. 4. The prescribed provisioning norms represent the minimum requirement, and banks may voluntarily provide at higher rates with Board approval. Which of the statements given above is/are NOT correct?

  1. An asset is classified as an NPA if interest and/or principal remains overdue for more than 90 days.
  2. Income on an NPA may be recognised by a bank only on realisation, that is, on a cash basis.
  3. An advance account should be classified as an NPA merely on account of temporary deficiencies such as non-submission of stock statements.
  4. The prescribed provisioning norms represent the minimum requirement, and banks may voluntarily provide at higher rates with Board approval.
  • A. 1 and 2
  • B. 3 only
  • C. 2 and 4
  • D. 1, 3 and 4

Q9. With reference to the statutory basis of RBI's regulatory directions to banks, consider the following statements: 1. RBI issues Master Directions to consolidate and replace its circulars on a given subject. 2. RBI derives its power to issue binding directions to banking companies from Section 35A of the Banking Regulation Act, 1949. 3. The Banking Regulation Act, 1949 was enacted to regulate banking companies in India. 4. Master Directions on asset classification are issued under the Consumer Protection Act, 2019. Which of the statements given above is/are NOT correct?

  1. RBI issues Master Directions to consolidate and replace its circulars on a given subject.
  2. RBI derives its power to issue binding directions to banking companies from Section 35A of the Banking Regulation Act, 1949.
  3. The Banking Regulation Act, 1949 was enacted to regulate banking companies in India.
  4. Master Directions on asset classification are issued under the Consumer Protection Act, 2019.
  • A. 1 only
  • B. 4 only
  • C. 2 and 3
  • D. 3 and 4

Q10. With reference to global forward-looking provisioning norms (IFRS 9 / Basel Committee guidance), consider the following statements: 1. Under IFRS 9, loans are classified into three stages, with Stage 3 comprising credit-impaired (defaulted) loans. 2. Both the IASB (through IFRS 9) and the US FASB adopted expected-loss provisioning in place of incurred-loss models. 3. The G20 and the Basel Committee on Banking Supervision recommended a more forward-looking approach to provisioning. 4. Under IFRS 9, Stage 1 assets are provisioned on the basis of lifetime expected credit losses. Which of the statements given above is/are NOT correct?

  1. Under IFRS 9, loans are classified into three stages, with Stage 3 comprising credit-impaired (defaulted) loans.
  2. Both the IASB (through IFRS 9) and the US FASB adopted expected-loss provisioning in place of incurred-loss models.
  3. The G20 and the Basel Committee on Banking Supervision recommended a more forward-looking approach to provisioning.
  4. Under IFRS 9, Stage 1 assets are provisioned on the basis of lifetime expected credit losses.
  • A. 1 and 2
  • B. 4 only
  • C. 3 and 4
  • D. 2 only

Q11. With reference to NPA categorisation and provisioning norms in India, consider the following statements: 1. Non-performing assets are classified into sub-standard, doubtful and loss assets. 2. The prescribed provisioning norms represent the minimum requirement, and banks may, with Board approval, provide at higher rates. 3. Interest income on a non-performing asset is recognised on an accrual basis as and when it falls due. 4. A standard asset is one which does not disclose any problem and carries only the normal risk attached to the business. Which of the statements given above are correctly identified?

  1. Non-performing assets are classified into sub-standard, doubtful and loss assets.
  2. The prescribed provisioning norms represent the minimum requirement, and banks may, with Board approval, provide at higher rates.
  3. Interest income on a non-performing asset is recognised on an accrual basis as and when it falls due.
  4. A standard asset is one which does not disclose any problem and carries only the normal risk attached to the business.
  • A. 1 and 3 only
  • B. 1, 2 and 4
  • C. 2, 3 and 4
  • D. 1, 2, 3 and 4

Q12. Which one of the following correctly describes the institutional architecture for resolving bad loans through the National Asset Reconstruction Company Limited (NARCL)?

  • A. NARCL acquires stressed assets by paying 15% of the consideration in cash and the balance 85% through Security Receipts.
  • B. NARCL is wholly and exclusively owned only by private sector banks.
  • C. The Central Government guarantee backing NARCL's Security Receipts is valid in perpetuity.
  • D. India Debt Resolution Company Ltd (IDRCL) is majority-owned by public sector banks.