Question

    As per RBIтАЩs income recognition policy, under what

    condition can banks recognize interest income on advances against Term Deposits, NSCs, KVPs, and life insurance policies?
    A Only when such advances are backed by government guarantees Correct Answer Incorrect Answer
    B Only if the loan is rescheduled or renegotiated Correct Answer Incorrect Answer
    C Only if the borrower explicitly agrees to pay Correct Answer Incorrect Answer
    D If adequate margin is maintained in the accounts Correct Answer Incorrect Answer
    E On the due date, irrespective of margin availability Correct Answer Incorrect Answer

    Solution

    According to RBIтАЩs income recognition and asset classification (IRAC) norms, interest on loans and advances against fully secured instruments like Term Deposits, NSCs, KVPs, and life insurance policies can be recognized as income on the due date only when: тАв The borrower maintains an adequate margin in the account, ensuring that the value of the security sufficiently covers the advance. тАв This protects the bank from credit risk while allowing recognition of income. тАв If the margin is inadequate, the bank cannot transfer the accrued interest to the income account. Thus, recognition of interest depends on the adequacy of margin, not merely the due date or borrower consent.

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