Question

Q8. Consider the following

1. Under provisioning, banks have to set aside or provide funds to a prescribed percentage of their bad assets.

2. The percentage of bad asset that has to be ‘provided for’ is called provisioning coverage ratio.

Which of the above statements are correct?

• A. a) 1 only
• B. b) 2 only
• C. c) Both 1 and 2
• D. d) Neither 1 nor 2

Answer 1

The correct option is C

c) Both 1 and 2

Under provisioning, banks have to set aside or provide funds to a prescribed percentage of their bad assets. The percentage of bad asset that has to be ‘provided for’ is called provisioning coverage ratio. The provisioning coverage ratio is the percentage of bad assets that the bank has to provide for (keep money) from their own funds –most probably profit