Banking sector reforms: Basel norms, risk and NPA management - One Line Questions

1. Under Basel I, what was the minimum capital requirement as a percentage of risk-weighted assets? — 8%
2. Under Indian banking regulations, a loan becomes an NPA if interest and/or installment of principal remains overdue for a period of how many days? — 90 days
3. Which of the following is an example of a 'substandard' asset in India, assuming a 90-day NPA norm? — A loan on which principal or interest is overdue for 100 days
4. What is a 'Non-Performing Asset' (NPA) in the context of banking? — A loan or advance for which principal or interest payment has remained overdue for a specified period
5. What is a 'stressed scenario' in the context of Basel norms, particularly for liquidity risk? — A scenario where a bank faces significant outflows of funds
6. What is the 'capital conservation buffer' introduced in Basel III? — An additional layer of common equity tier 1 capital
7. Basel III, developed in response to the 2007-2008 financial crisis, aims to strengthen which of the following? — Global banking regulation, supervision, and risk management
8. The 'Standardised Approach' for credit risk under Basel II/III involves: — Using external credit ratings to assign risk weights
9. Which Basel accord introduced a specific capital charge for operational risk? — Basel II
10. The 'Internal Ratings-Based' (IRB) approach for calculating credit risk capital is a feature of which Basel framework? — Basel II and Basel III
11. The introduction of the 'Common Equity Tier 1' (CET1) capital ratio is a key feature of: — Basel III
12. Which of the following is NOT a type of risk that banks typically manage? — Inflation Risk (as a primary bank-managed risk, though it impacts)
13. Which aspect of risk management is most directly related to the potential for large, infrequent losses due to external events or internal failures? — Operational Risk Management
14. Market risk for a bank primarily relates to potential losses arising from: — Changes in interest rates, foreign exchange rates, or equity prices
15. The SARFAESI Act, 2002 in India provides a legal framework for: — Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
16. What is the classification of an NPA that has remained in the 'Substandard' category for 12 months or less? — Substandard Asset
17. Basel III's focus on 'leverage ratio' aims to: — Provide a simple, non-risk-based backstop to the risk-weighted capital requirements
18. Which of the following is a risk that could lead to a bank's failure if not managed properly? — Inadequate capital reserves and poor risk management
19. What does 'early warning system' for NPAs typically involve? — Monitoring borrower financial health, repayment patterns, and industry trends
20. The 'countercyclical capital buffer' under Basel III is designed to: — Ensure banks build up capital buffers during periods of excess credit growth that can be drawn down during stress
21. Which of the following is a consequence of high NPAs on a bank's financial health? — Reduced ability to lend and potential capital erosion
22. What is the primary risk associated with a high level of NPAs for a bank? — Reduced capital adequacy and profitability
23. Which of the following is a common strategy for NPA management? — Restructuring loans and debt recovery tribunals
24. Pillar 3 of Basel II is concerned with: — Market Discipline through enhanced disclosure
25. The Basel Committee on Banking Supervision (BCBS) is part of which international organization? — Bank for International Settlements (BIS)
26. Which of the following is a key component of Basel II, introduced in 2004? — Introduction of operational risk capital charge
27. Credit risk in banking refers to the risk of: — Loss arising from a borrower's failure to repay a loan
28. Which type of risk is most directly addressed by the concept of 'loan loss reserves'? — Credit Risk
29. Liquidity risk for a bank is the risk that it will: — Not be able to meet its obligations as they fall due
30. Basel I accord, introduced in 1988, primarily focused on which type of risk? — Credit Risk
31. Operational risk encompasses losses resulting from: — Inadequate or failed internal processes, people, systems, or external events
32. Which of the following is a significant challenge in managing NPAs? — Long legal processes for recovery and borrower insolvency
33. Which of the following is a significant enhancement in Basel III compared to Basel II? — Increased focus on leverage
34. Which of the following is a tool for managing credit risk at the origination stage? — Credit scoring and robust underwriting standards
35. The Net Stable Funding Ratio (NSFR) in Basel III aims to promote: — Long-term structural funding stability
36. What is the primary impact of Basel III on the capital requirements for banks? — Higher quality and quantity of capital, with additional buffers
37. Which of the following is a measure taken by banks to mitigate market risk? — Diversification of investments and use of hedging instruments
38. A loan classified as 'Doubtful' for more than one year falls under which NPA category? — Doubtful Asset
39. Which NPA category signifies an asset where loss has been identified by the bank or internal/external auditors but has no realisable value or very little value? — Loss Asset
40. Basel II introduced three pillars. What does Pillar 1 primarily address? — Minimum Capital Requirements
41. What is the primary purpose of the Liquidity Coverage Ratio (LCR) introduced by Basel III? — To ensure banks can meet their short-term obligations
42. What is the primary objective of Basel norms in the banking sector? — To enhance financial stability and reduce systemic risk
43. What is the main objective of the 'recovery' process for NPAs? — To recover the maximum possible amount from the non-performing loan
44. What is the purpose of 'provisioning' in NPA management? — To set aside funds to cover potential losses from bad loans
45. What is the main objective of asset reconstruction companies (ARCs) in managing NPAs? — To acquire NPAs from banks and resolve them
46. What is the ultimate goal of banking sector reforms, including Basel norms and NPA management? — To create a more resilient, stable, and trustworthy financial system
47. What is the primary goal of robust risk management frameworks in banks? — To ensure the long-term solvency and stability of the bank
48. What is the main purpose of Pillar 2 in the Basel II framework? — To enhance supervisory review of a bank's risk profile and capital adequacy
49. What is the role of the Reserve Bank of India (RBI) in relation to Basel norms and NPA management? — To implement and enforce Basel norms and issue guidelines for NPA management
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