General Knowledge · General Awareness
When a bank branch's agricultural advances are classified as Sub-Standard assets due to a regional drought, what is the direct impact of this classification on interest income recognition for the current financial year?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Interest income is increased artificially by adding a penal interest component.
- 2The Head Office provides a special Transfer Pricing credit to the branch to offset the loss of interest.
- 3The branch must stop recognizing interest on an accrual basis and recognize it only on a cash basis, leading to an immediate drop in Interest Income.✓
- 4Interest continues to be recognized on an accrual basis until the asset becomes a Doubtful asset.
Correct answer
The branch must stop recognizing interest on an accrual basis and recognize it only on a cash basis, leading to an immediate drop in Interest Income.
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