Professional Knowledge: Regulation, Compliance and Risk Management
Professional Knowledge: Regulation, Compliance and Risk Management
This domain tests the rulebook around housing finance and banking: NHB/RBI regulation of HFCs, prudential norms, KYC/AML, asset classification, recovery laws and risk types.
Core rules
- NHB is the statutory regulator for HFCs under the National Housing Bank Act, 1987; RBI regulates banks and monetary policy.
- KYC and AML require customer identification, beneficial-ownership checks, ongoing monitoring and suspicious-transaction reporting.
- Asset classification: SMA-0 (1–30 days overdue), SMA-1 (31–60), SMA-2 (61–90); a loan becomes an NPA after 90 days overdue.
- CRAR = capital ÷ risk-weighted assets; it buffers credit, market and operational risk.
- SARFAESI allows secured creditors to enforce security without court intervention after a demand notice, subject to the statutory notice period.
- ALM matches cash inflows and outflows across time buckets; liquidity risk arises when outflows exceed inflows.
Worked example
A home loan instalment is due on 1 April and remains unpaid. On 1 July it is 91 days overdue (April 30 + May 31 + June 30 = 91). It is therefore an NPA, not merely SMA-2, because the 90-day threshold has been crossed. If it were paid on 25 June, it would still be SMA-2 but not NPA.
Traps
- Counting the due date itself as day 1 and misclassifying the 90-day boundary.
- Confusing SMA-2 with NPA.
- Treating SARFAESI as available before a loan turns NPA.
- Assuming CRAR covers only credit risk.
- Ignoring KYC for joint holders and beneficial owners.