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Question

An asset would be classified as substandard if it has remained an NPA for a period:

A Less than or equal to 6 months Correct Answer Incorrect Answer
B Less than or equal to 9 months Correct Answer Incorrect Answer
C Less than or equal to 12 months Correct Answer Incorrect Answer
D Less than or equal to 18 months Correct Answer Incorrect Answer
E Less than or equal to 24 months Correct Answer Incorrect Answer

Solution

An asset is classified as substandard if it has remained a Non-Performing Asset (NPA) for a period less than or equal to 12 months. This means that the borrower has failed to make the required principal and/or interest payments for up to 12 months. Substandard assets have well-defined credit weaknesses that pose a risk to the bank's ability to recover the debt. If these weaknesses are not corrected, the bank is likely to incur some loss.

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