Question
The Axis bank has Gross Loans of 1200 million with ALL of 60 million. Two years ago, the bank disbursed a term loan amounting to
The Axis bank has Gross Loans of 1200 million with ALL of 60 million. Two years ago, the bank disbursed a term loan amounting to 20 million to finance the Smartex Garments outlet. Before the borrower defaulted on the loan, Smartex repaid 4 million euros in principal. The loan settlement committee of Axis bank believes that the outlet will sell at auction for 14 million. At this point, they want to charge-off the loan immediately.
(a) What is the euro figure for Net Loans before charge-off? (b) After the charge-off, what are the euro figures for (i) Gross Loan, (ii) ALL, (iii) Net Loans? (assuming no other transactions) (c) If the bank can sell Smartex Garments outlet at auction for 16 million euros, how will this affect the relevant balance sheet accounts? (d) Explain the relationship between allowance for loan losses (ALL) and provision for loan losses (PLL)
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