Question

Which type of loans are less prone to the risk of becoming NPA?

• A. Retail loans
• B. Wholesale loans
• C. Gold loans
• D. Mortgage loans

Hint:

Remember: Gold loans = low risk for banks because gold can be sold fast if the borrower doesn’t repay.

Answer 1

The Correct Option is C

A Non-Performing Asset (NPA) is a loan where the borrower has stopped paying interest or principal for a specified period, usually 90 days or more.
Some types of loans are naturally less prone to turning into NPAs because they are backed by strong collateral that holds value.
Gold loans are considered very safe because they are fully secured by gold ornaments or coins pledged by the borrower.
If the borrower defaults, the bank can easily auction the gold to recover the outstanding loan amount.
Retail loans and mortgage loans also have collateral but the recovery process can be lengthy and complex, involving legal procedures.
Wholesale loans, often given to big corporates or large projects, carry higher risk due to larger amounts and economic uncertainties.
Therefore, gold loans have the lowest risk of turning into NPAs because of their easy liquid collateral.