Examine the comparative data: Bank A has NPA ratio of 1.8% with provision coverage of 72%, Bank B has NPA ratio of 2.2% with provision coverage of 68%. Which bank has better asset quality indicators in terms of net NPA?
ABank A with 0.50% net NPA
BBank A with 0.35% net NPA
CBank B with 0.70% net NPA
DBoth banks are equivalent
Correct Answer:
B. Bank A with 0.35% net NPA
Explanation:
Net NPA = GNPA × (1 - Provision Coverage). Bank A: 1.8% × (1 - 0.72) = 1.8% × 0.28 = 0.504% ≈ 0.50%. Bank B: 2.2% × 0.32 = 0.704% ≈ 0.70%. Bank A is better
A bank reports Floating Rate Advances of ₹1,50,000 crore and Fixed Rate Advances of ₹90,000 crore. If rates rise by 200 bps, what is the repricing benefit compared to a bank with 60% floating rate portfolio?
AThe first bank benefits more due to higher floating rate exposure
BBoth banks benefit equally regardless of floating rate mix
CThe second bank (60% floating) would benefit more
DCannot be determined without deposit repricing data
Correct Answer:
A. The first bank benefits more due to higher floating rate exposure
Explanation:
First bank has 62.5% floating rate (150,000/240,000), second bank has 60%. First bank will capture more repricing benefit when rates rise as more of its portfolio reprices upward, enhancing net interest income.
Analyze the quarterly data: A bank's Advances grew 14% QoQ while Deposits grew 8% QoQ. If this trend continues, which regulatory metric is most at risk?
AReturn on Equity (ROE)
BLoan-to-Deposit ratio and liquidity coverage metrics
CGross NPA ratio
DCost-to-Income ratio
Correct Answer:
B. Loan-to-Deposit ratio and liquidity coverage metrics
Explanation:
Advances growing faster (14%) than deposits (8%) will increase LTD ratio unsustainably and strain liquidity metrics. If continued, it could breach LCR and NSFR requirements, risking regulatory non-compliance.
Under RBI's resolution framework for financial stress, what is the key trigger for invoking prompt corrective action (PCA) for a bank?
AWhen net profit declines by 10% YoY
BWhen capital ratio falls below specified thresholds or when net NPA exceeds 6%
CWhen operating expenses exceed 50% of operating income
DWhen return on assets becomes negative for a quarter
Correct Answer:
B. When capital ratio falls below specified thresholds or when net NPA exceeds 6%
Explanation:
RBI's PCA framework is triggered when a bank's capital ratio, asset quality (Net NPA > 6%), or profitability metrics breach specified thresholds. This is designed to protect financial stability.
A bank's Commercial Advances showed CAR of 18.5%, Agricultural Advances CAR of 15.2%, and Consumer Advances CAR of 11.8%. Which segment carries the highest credit risk as per risk weighting?
ACommercial Advances
BAgricultural Advances
CConsumer Advances
DAll carry equal risk
Correct Answer:
A. Commercial Advances
Explanation:
Higher CAR for a segment indicates higher risk weights assigned. Commercial Advances at 18.5% CAR carries highest risk weighting under Basel III norms
