During the audit of a bank, the auditor identifies the following situations relating to advances: A

During the audit of a bank, the auditor identifies the following situations relating to advances:

A term loan has been classified as an NPA because the interest and/or instalment of principal has remained overdue for the prescribed period.
A borrower has several credit facilities with the same bank. One facility has become NPA, but management continues to classify the other facilities as standard merely because repayments under those individual facilities are being received regularly.
A Cash Credit account has been continuously out of order for the prescribed period, although the outstanding amount has never exceeded the sanctioned limit.
Management states that an account classified as NPA can automatically be upgraded to standard merely because the repayment schedule has subsequently been rescheduled by the bank.

Which ONE of the following is correct?

A. Statements 1 and 3 are correct, whereas Statements 2 and 4 are incorrect because rescheduling automatically restores standard classification.

B. Statements 1, 2 and 3 are correct, whereas Statement 4 is incorrect because classification of each facility is always independent.

C. Statements 1 and 4 are correct, whereas Statements 2 and 3 are incorrect because an NPA must always exceed the sanctioned limit before classification.

D. Statements 1 and 3 are correct, whereas Statements 2 and 4 are incorrect because rescheduling alone does not automatically result in upgradation.