Banking · Fair Practices Code
Assertion: Under RBI rules, a bank can continue to capitalize penal interest by compounding it monthly if a borrower defaults on non-financial loan covenants. Reasoning: RBI guidelines state that penal levies for breaches of terms and conditions should be treated as penal charges rather than penal interest, and no interest can be computed on such charges.
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Both Assertion and Reasoning are true and the Reasoning is the correct explanation of the Assertion.
- 2Both Assertion and Reasoning are true but the Reasoning is not the correct explanation of the Assertion.
- 3The Assertion is true but the Reasoning is false.
- 4The Assertion is false but the Reasoning is true.✓
Correct answer
The Assertion is false but the Reasoning is true.
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