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      Question

      What approach do banks in India currently use for loan

      loss provisions?
      A "Expected loss" approach Correct Answer Incorrect Answer
      B "Sudden loss" approach Correct Answer Incorrect Answer
      C "Incurred loss" approach Correct Answer Incorrect Answer
      D "Inevitable loss" approach Correct Answer Incorrect Answer
      E None of the above Correct Answer Incorrect Answer

      Solution

      Currently, all commercial banks in India make a provision for any diminution in the value of advances in accordance with the Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances (IRACP norms). As per the IRACP norms, provision on advances, at a minimum, is created at a prescribed percentage depending on the category of the advances1 using an ‘incurred loss’ approach.

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