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Consider the following statements.
- A loan turns into a nonperforming asset (NPA), if the interest or instalment remains unpaid for a period of more than 60 days.
- To avoid classifying a loan as an NPA, banks adopt the evergreening of loans.
- An accommodative monetary policy strictly restrict banks from indulging in evergreening of loans.
How many of the above statements are correct?
- a)Only one
- b)Only two
- c)All three
- d)None
Correct answer is option 'A'. Can you explain this answer?
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Most Upvoted Answer
Consider the following statements. A loan turns into a nonperforming a...
Explanation:
The correct answer is option 'A' - Only one.
Statement 1: A loan turns into a nonperforming asset (NPA), if the interest or instalment remains unpaid for a period of more than 60 days.
This statement is correct. According to the guidelines issued by the Reserve Bank of India (RBI), a loan is classified as a nonperforming asset (NPA) if the interest or principal installment remains unpaid for a period of more than 90 days. Therefore, this statement stating that it turns into an NPA after 60 days is incorrect.
Statement 2: To avoid classifying a loan as an NPA, banks adopt the evergreening of loans.
This statement is incorrect. Evergreening of loans refers to the practice of providing additional loans or extending the repayment period of existing loans to borrowers who are unable to repay their existing loans. This practice is often used by banks to hide the true nature of the borrower's financial difficulties and avoid classifying the loan as an NPA. However, this statement is incorrect because evergreening of loans is used to avoid classifying a loan as an NPA, not to avoid classifying it as an NPA.
Statement 3: An accommodative monetary policy strictly restrict banks from indulging in evergreening of loans.
This statement is incorrect. An accommodative monetary policy is a policy measure taken by the central bank to stimulate economic growth by reducing interest rates and increasing liquidity in the market. It aims to encourage borrowing and investment. It does not restrict banks from indulging in evergreening of loans. In fact, during an accommodative monetary policy, banks may be more inclined to engage in evergreening of loans as they are encouraged to lend more and provide financial support to struggling borrowers.
Therefore, out of the three given statements, only statement 1 is correct.
The correct answer is option 'A' - Only one.
Statement 1: A loan turns into a nonperforming asset (NPA), if the interest or instalment remains unpaid for a period of more than 60 days.
This statement is correct. According to the guidelines issued by the Reserve Bank of India (RBI), a loan is classified as a nonperforming asset (NPA) if the interest or principal installment remains unpaid for a period of more than 90 days. Therefore, this statement stating that it turns into an NPA after 60 days is incorrect.
Statement 2: To avoid classifying a loan as an NPA, banks adopt the evergreening of loans.
This statement is incorrect. Evergreening of loans refers to the practice of providing additional loans or extending the repayment period of existing loans to borrowers who are unable to repay their existing loans. This practice is often used by banks to hide the true nature of the borrower's financial difficulties and avoid classifying the loan as an NPA. However, this statement is incorrect because evergreening of loans is used to avoid classifying a loan as an NPA, not to avoid classifying it as an NPA.
Statement 3: An accommodative monetary policy strictly restrict banks from indulging in evergreening of loans.
This statement is incorrect. An accommodative monetary policy is a policy measure taken by the central bank to stimulate economic growth by reducing interest rates and increasing liquidity in the market. It aims to encourage borrowing and investment. It does not restrict banks from indulging in evergreening of loans. In fact, during an accommodative monetary policy, banks may be more inclined to engage in evergreening of loans as they are encouraged to lend more and provide financial support to struggling borrowers.
Therefore, out of the three given statements, only statement 1 is correct.
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Community Answer
Consider the following statements. A loan turns into a nonperforming a...
Only statement 2 is correct.
The process of evergreening of loans, a form of zombie lending, is typically a temporary fix for a bank. If an account turns into a non-performing asset (NPA), banks are required to make higher provisions which will impact their profitability. A loan turns into a nonperforming asset, or NPA, if the interest or instalment remains unpaid even after the due date — and remains unpaid for a period of more than 90 days.
So, to avoid classifying a loan as an NPA, banks adopt the evergreening of loans. In the past, many banks had indulged in dressing up bad loans and given additional funds to companies who didn’t have the capacity to repay.
An accommodative monetary policy creates an enabling environment for weak banks to evergreen loans to zombies and keeps them alive. The RBI has been following an accommodative policy since March 2020 when the pandemic struck the country. Most of the evergreening has happened in public sector banks which subsequently led to a jump in NPAs.
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Consider the following statements. A loan turns into a nonperforming asset (NPA), if the interest or instalment remains unpaid for a period of more than 60 days. To avoid classifying a loan as an NPA, banks adopt the evergreening of loans. An accommodative monetary policy strictly restrict banks from indulging in evergreening of loans.How many of the above statements are correct?a)Only oneb)Only twoc)All threed)NoneCorrect answer is option 'A'. Can you explain this answer?
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Consider the following statements. A loan turns into a nonperforming asset (NPA), if the interest or instalment remains unpaid for a period of more than 60 days. To avoid classifying a loan as an NPA, banks adopt the evergreening of loans. An accommodative monetary policy strictly restrict banks from indulging in evergreening of loans.How many of the above statements are correct?a)Only oneb)Only twoc)All threed)NoneCorrect answer is option 'A'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements. A loan turns into a nonperforming asset (NPA), if the interest or instalment remains unpaid for a period of more than 60 days. To avoid classifying a loan as an NPA, banks adopt the evergreening of loans. An accommodative monetary policy strictly restrict banks from indulging in evergreening of loans.How many of the above statements are correct?a)Only oneb)Only twoc)All threed)NoneCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements. A loan turns into a nonperforming asset (NPA), if the interest or instalment remains unpaid for a period of more than 60 days. To avoid classifying a loan as an NPA, banks adopt the evergreening of loans. An accommodative monetary policy strictly restrict banks from indulging in evergreening of loans.How many of the above statements are correct?a)Only oneb)Only twoc)All threed)NoneCorrect answer is option 'A'. Can you explain this answer?.
Consider the following statements. A loan turns into a nonperforming asset (NPA), if the interest or instalment remains unpaid for a period of more than 60 days. To avoid classifying a loan as an NPA, banks adopt the evergreening of loans. An accommodative monetary policy strictly restrict banks from indulging in evergreening of loans.How many of the above statements are correct?a)Only oneb)Only twoc)All threed)NoneCorrect answer is option 'A'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements. A loan turns into a nonperforming asset (NPA), if the interest or instalment remains unpaid for a period of more than 60 days. To avoid classifying a loan as an NPA, banks adopt the evergreening of loans. An accommodative monetary policy strictly restrict banks from indulging in evergreening of loans.How many of the above statements are correct?a)Only oneb)Only twoc)All threed)NoneCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements. A loan turns into a nonperforming asset (NPA), if the interest or instalment remains unpaid for a period of more than 60 days. To avoid classifying a loan as an NPA, banks adopt the evergreening of loans. An accommodative monetary policy strictly restrict banks from indulging in evergreening of loans.How many of the above statements are correct?a)Only oneb)Only twoc)All threed)NoneCorrect answer is option 'A'. Can you explain this answer?.
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ample number of questions to practice Consider the following statements. A loan turns into a nonperforming asset (NPA), if the interest or instalment remains unpaid for a period of more than 60 days. To avoid classifying a loan as an NPA, banks adopt the evergreening of loans. An accommodative monetary policy strictly restrict banks from indulging in evergreening of loans.How many of the above statements are correct?a)Only oneb)Only twoc)All threed)NoneCorrect answer is option 'A'. Can you explain this answer? tests, examples and also practice UPSC tests.
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