Banking · Asset Classification and Provisioning
Based on RBI guidelines for Asset Classification and Provisioning, which of the following statements accurately summarizes the operational relationship between asset aging and bank profitability?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Substandard assets are the most profitable for banks because they allow for higher interest rate accruals while requiring minimal provisioning.
- 2Secured assets do not require any provisioning until they reach the Doubtful category as the bank can fully recover the money through collateral.
- 3Restructuring is a tool used by banks to permanently bypass the provisioning norms and inflate the capital adequacy ratio without conditions.
- 4Aging of assets leads to higher provisioning requirements which directly reduces the net profit of the bank as these provisions are a charge against income.✓
Correct answer
Aging of assets leads to higher provisioning requirements which directly reduces the net profit of the bank as these provisions are a charge against income.
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