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BFM MODULE - D
Top MCQs

What we will study?

*High priority MCQs of Module D?
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Q1. Credit card will become NPA if?
a) When the minimum amount due (MAD) is overdue for more than 90
days.
b) When the amount due is overdue for more than 90 days.
c) When the amount due is overdue for more than 180 days.
d) When the minimum amount due (MAD) is overdue for more than 180
days.

Answer: A
Refer Page: 686, CH 28.
Explanation: Credit Card Accounts:
1. In credit card accounts, the amount spent is billed to the card users through a
monthly statement with a definite due date for repayment.
Banks give an option to the card users to pay either the full amount or a fraction of it,
i.e., minimum amount due, on the due date and roll-over the balance amount to the
subsequent months' billing cycle.
2. A credit card account will be treated as non-performing asset if the minimum
amount due, as mentioned in the statement, is not paid fully within 90 days from the
payment due date mentioned in the statement.
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Q2. Risk adjusted return on capital (RAROC) is considered a better measure
than Return on Assets (ROA) because it precisely ------?
a) Measures the impact of risk on capital.
b) Measures the Risk taken by bank to get the return.
c) Estimates the added capital needed to undertake the given risk.
d) Asses the future value of current return on capital.

Answer: B
Refer Page: 279, CH 11.
Explanation: RAROC is a better performance measures when compared to
measures like Return on Assets (ROA) or Return on Equity (ROE) as ROA
and ROE are not satisfactory for evaluating the performance of business
lines since they ignore the vital factor, the RISK taken by the bank to get the
returns.
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Q3. If bank has given Advances under Consortium Arrangements and where
the bank receiving remittances is not parting with the share of other
member banks. The account will be treated by other member banks as?
a) The account will be treated as not serviced in the books of the other
member banks and therefore, be treated as NPA.
b) The account will be treated as serviced in the books of the other member
banks and therefore, be treated as NPA.
c) The account will be treated as serviced in the books of the other member
banks and therefore, not be treated as NPA.
d) None.

Answer: A
Refer Page: 680, CH 28.
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Explanation: Advances under Consortium Arrangements:
Asset classification of accounts under consortium should be based on the
record of recovery of the individual member banks and other aspects
having a bearing on the recoverability of the advances.
Here the remittances by the borrower under consortium lending
arrangements are pooled with one and and/or where the bank receiving
remittances is not parting with the share of other member banks, he
account will be treated as not serviced in the books of the other member
banks and therefore, be treated as NPA.

Q4. Which is best for making choice about investment?

a) ROE. b) ROI.
c) RAROC. d) None.
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Answer: C
Refer Page: 279, CH 11.
Explanation: RAROC is a better performance measures when compared to
measures like Return on Assets (ROA) or Return on Equity (ROE) as ROA
and ROE are not satisfactory for evaluating the performance of business
lines since they ignore the vital factor, the RISK taken by the bank to get the
returns.

Q5. The ultimate responsibility for designing and implementation of the

ICAAP in one of the foreign banks with presence in India lies with the?
a) Risk Management committee of the Board.
b) Audit committee of the Board.
c) Chief Executive Officer.
d) Board of Directors.
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Answer: D
Refer Page: 648, CH 27.
Explanation: (ii) Board and Senior Management Oversight: The ultimate
responsibility for designing and implementation of the ICAAP lies with the
bank's board of directors.

Q6. In India factoring was introduced after recommendation of?

a) Dr. C. Rangarajan committee.
b) Bimal Jalan committee.
c) Kalyanasundaram Committee.
d) Dr. Raghuram Rajan Committee.

Answer: C
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Refer Page: 149, CH 5.
Explanation: Factoring: While factoring has a long history dating back to
several centuries, in India it was introduced in early 1990s after
recommendation of the Kalyanasundaram Committee, set up by the
Reserve Bank of India to examine the feasibility of introduction of factoring
in India.

Q7. As part of supervisory review process, banks are required to have a process for
assessing their overall capital adequacy in relation to their risk profile and a strategy
for maintaining their capital levels. The key elements of this rigorous process include
______?
i) Active Board and senior management oversight.
ii) Appropriate Policies, Procedures and Limits.
iii) Appropriate MIS.
iv) Comprehensive Internal Controls.

a) (i), (ii), and (iii). b) (i), (ii) and (iv) only.

c) (i), (iii) and (iv) only. d) All of the above.
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Answer: D
Refer Page: 648, Topic: 27.3.1.
Explanation: A sound risk management system should have the following
key features:
1. Active board and senior management oversight;
2. Appropriate policies, procedures and limits;
3. Comprehensive and timely identification, measurement, mitigation,
controlling, monitoring and reporting of risks;
4. Appropriate management information systems (MIS) at the business and
firm-wide level; and
5. Comprehensive internal controls.

Q8. Refinance obtained from SIDBI shall be classified under which of the
following category of liabilities?
a) Borrowing. b) Other liability and Provisions.
c) Bill payable. d) Depreciation.
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Answer: A
Refer Page: 627, Topic: 26.2.1.
Explanation: Borrowings: Borrowings in India consist of borrowings/
refinance obtained from the RBI, other commercial banks and other
institutions and agencies like IDBI, EXIM Bank of India, NABARD, etc.

Q9. The Basel Committee on Banking Supervision (BCBS) has agreed upon
five guiding principles on Pillar 3 disclosures. Which principle is not in this
list?
a) Disclosures should be clear.
b) Disclosures should be comprehensive.
c) Disclosures should be consistent over time.
d) Disclosures should be acceptable across banks.
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Answer: D
Refer Page: 660, CH 27.
Explanation: Principle 1. Disclosures should be clear.
Principle 2. Disclosures should be comprehensive.
Principle 3. Disclosures should be meaningful to users.
Principle 4. Disclosures should be consistent over time.
Principle 5. Disclosures should be comparable across banks.

Q10. As per circular of RBI on IRAC norms, banks are required to make
provision for country risk in respect of country where its net funded
exposure is ______ % or more of its total assets?
a) 1%. b) 4%.
c) 3%. d) 0.5%.
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Answer: A
Explanation: Provisioning for country risk:
Banks are required to make provision for country risk in respect of a
country where its net funded exposure is 1% or more of its total assets.

Q11. As on 31 mar 2023, bank had 250 BBB rated accounts out of which
10% accounts migrated to default category by 31 mar 2024. What is the
increase in the number of accounts in the default category?
a) 10. b) 15.
c) 25. d) 18.

Answer: C
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Refer Page: 431 CH: 15.
Explanation: Total BBB-rated accounts on 31 Mar 2023 = 250
10% migrated to default by 31 Mar 2024
10% of 250 = 25
Increase in number of default accounts = 25

Q12. What is Asset Liability Management (ALM)?

a) The process of creating assets with maturity exactly as that of liabilities.
b) Asset Liability Management (ALM) is the act of planning, acquiring, and
directing the flow of funds through an organization.
c) Strategizing to have more assets than liabilities always.
d) Funding short term assets with long term liabilities.
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Answer: B
Refer Page: 634, Topic: 26.3.
Explanation: Asset Liability Management (ALM) is the act of planning,
acquiring, and directing the flow of funds through an organization.

Q13. What is the formula for calculating Net Interest Income (NII)?
a) Net Interest Income = Interest Income + Interest Expenses.
b) Net Interest Income = Interest Income - Interest Expenses.
c) Net Interest Income = Interest Expenses - Interest Income.
d) Net Interest Income = Interest Income × Interest Expenses.

Answer: B
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Refer Page: 639, Topic: 26.5.1.
Explanation: Net Interest Income (NII):
The impact of volatility on the short-term profit is measured by Net Interest
Income.
Net Interest Income = Interest Income - Interest Expenses.
In order to stabilize short-term profits; banks have to minimize fluctuations
in the NII.

Q14. What is the formula for calculating Net Interest Margin (NIM)?
𝐍𝐞𝐭 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐈𝐧𝐜𝐨𝐦𝐞
a) Net Interest Margin = .
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬

𝐍𝐞𝐭 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐈𝐧𝐜𝐨𝐦𝐞

b) Net Interest Margin = .
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐓𝐨𝐭𝐚𝐥 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬

𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐈𝐧𝐜𝐨𝐦𝐞
c) Net Interest Margin = .
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬

𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐄𝐱𝐩𝐞𝐧𝐬𝐞𝐬
d) Net Interest Margin = .
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬
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Answer: A
Refer Page: 637, Topic: 26.5.1.
Explanation: Net Interest Margin (NIM):
Net Interest Margin is defined as net interest income divided by average
total assets.
𝐍𝐞𝐭 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐈𝐧𝐜𝐨𝐦𝐞
Net Interest Margin (NIM) = .
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬

Q15. Which of following parameters that are not selected for the purpose
of stabilizing Asset Liability Management of banks?
a) Net Interest Income (NII). b) Net Interest Margin (NIM).
c) Economic Equity Ratio. d) Cooke ratio.
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Answer: D
Refer Page: 637, Topic: 26.5.
Explanation: The parameters that are selected for the purpose of stabilizing
Asset Liability Management of banks are:
• Net Interest Income (NII).
• Net Interest Margin (NIM).
• Economic Equity Ratio.
𝐓𝐨𝐭𝐚𝐥 𝐂𝐚𝐩𝐢𝐭𝐚𝐥
Cooke Ratio = .
𝐑𝐢𝐬𝐤−𝐖𝐞𝐢𝐠𝐡𝐭𝐞𝐝 𝐀𝐬𝐬𝐞𝐭𝐬

Q16. From the details given below of a bank, arrive at its NIM (Net Interest
Margin)?
i) Total Assets as on 1st April 2020 Rs. 4,20,000 crores.
ii) Total Assets as on 31st March 2021 – Rs. 5,80,000 crores.
iii) Interest earned from Advances & Investments Rs. 60,000 crores.
iv) Interest paid on Deposits & Borrowings Rs. 40,000 crores.

a) 6%. b) 4%.
c) 5%. d) None of the above.
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Answer: B
Refer Page: 637, Topic: 26.5.2.
Explanation: Step 1: Calculate Average Total Assets
𝐎𝐩𝐞𝐧𝐢𝐧𝐠 𝐀𝐬𝐬𝐞𝐭𝐬 + 𝐂𝐥𝐨𝐬𝐢𝐧𝐠 𝐀𝐬𝐬𝐞𝐭𝐬
Average Total Assets =
𝟐
𝟒,𝟐𝟎,𝟎𝟎𝟎 + 𝟓,𝟖𝟎,𝟎𝟎𝟎
=
𝟐
𝟏𝟎,𝟎𝟎,𝟎𝟎𝟎
= = ₹5,00,000 crores.
𝟐

Step 2: Calculate Net Interest Income

Net Interest Income = Interest Earned - Interest Paid
= 60,000 - 40,000 = ₹20,000 crores.
Step 3: Calculate Net Interest Margin (NIM)
𝐍𝐞𝐭 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐈𝐧𝐜𝐨𝐦𝐞
NIM = × 100
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬

𝟐𝟎,𝟎𝟎𝟎
= × 100
𝟓,𝟎𝟎,𝟎𝟎𝟎

= 0.04 × 100 = 4%

Q17. The ultimate objective of ALM process is to generate adequate/stable

earnings and to steadily build an organization’s equity over time, while
taking reasonable and measured -------?
a) Business risks. b) Operational risks.
c) Regulatory risks. d) Market risks.
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Answer: A
Refer Page: 639, Topic: Lets sum up.
Explanation: The ultimate objective of ALM process is to generate
adequate/stable earnings and to steadily build an organisation's equity
over time, while taking reasonable and measured business risks.

Q18. ________ is to ensure that the banks have adequate capital to support
all the risks in their business as also to encourage them to develop and use
better risk management techniques for monitoring and managing their
risks?
a) Minimum Capital Requirement.
b) Supervisory Review Process (SRP).
c) Market Discipline.
d) Internal Rating Based Approach.
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Answer: B
Refer Page: 642, Topic: 27.0.
Explanation: Supervisory Review Process (SRP) is to ensure that the banks
have adequate capital to support all the risks in their business as also to
encourage them to develop and use better risk management techniques for
monitoring and managing their risks.

Q19. What formula is used to calculate Total Risk Weighted Assets under
Basel guidelines?
a) RWA for credit risk + 10.5 × Capital for market risk + 12.5 × Capital for
operational risk.
b) RWA for credit risk + 12.5 × Capital for market risk + 12.5 × Capital for
operational risk.
c) RWA for credit risk + 12.5 × Capital for market risk + 10.5 × Capital for
operational risk.
d) None of the above.
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Answer: B
Refer Page: 645, Topic: 27.2.
Explanation: Total Risk weighted assets = Risk weighted assets for credit
risk + 12.5*Capital requirement for market risk + 12.5*Capital requirement
for operational risk.

Q20. The Basel Committee has also laid down the following four key
principles in regard to the SRP envisaged under Pillar 2. According to
Principle 2, which of the following is not listed as a responsibility of
supervisors?
a) Supervisors should review and evaluate a bank's ICAAP.
b) Supervisors should take appropriate action if they are not satisfied with
the results of this process.
c) Supervisors should operate above the minimum regulatory capital ratios.
d) Supervisors should review and evaluate a bank's compliance with the
regulatory capital ratios.
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Answer: C
Refer Page: 647, Topic: 27.3.1.
Explanation: Supervisors' Responsibilities:
1. Supervisors should review and evaluate a bank's ICAAP. (Principle 2).
2. Supervisors should take appropriate action if they are not satisfied with the results
of this process. (Principle 2).
3. Supervisors should review and evaluate a bank's compliance with the regulatory
capital ratios. (Principle2).
4. Supervisors should have the ability to require banks to hold capital in excess of the
minimum. (Principle 3).
5. Supervisors should seek to intervene at an early stage to prevent capital from falling
below the minimum levels. (Principle 4).
6. Supervisors should require rapid remedial action if capital is not maintained or
restored. (Principle 4).

Q21. Which principle guides the implementation of ICAAP to ensure that

the level of sophistication in risk management matches the nature, scope,
scale, and complexity of a bank's business operations?
a) Principle of Risk Aggregation.
b) Principle of Proportionality.
c) Principle of Capital Efficiency.
d) Principle of Regulatory Compliance.
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Answer: B
Refer Page: 649, Topic: 27.3.1.
Explanation: The Principle of Proportionality: The implementation of ICAAP
should be guided by the principle of proportionality.
Though the banks are encouraged to migrate to and adopt progressively
sophisticated approaches in designing their ICAAP, the RBI would expect
the degree of sophistication adopted in the ICAAP in regard to risk
measurement and management to be commensurate with the nature,
scope, scale and the degree of complexity in the bank's business
operations. Principle of Proportionality is essential in balancing the
competing interests of different parties involved in a legal dispute.

Q22. The Basel Committee on Banking Supervision (BCBS) has agreed upon
the following_______ guiding principles on Pillar 3 disclosures?
a) 6. b) 5.
c) 4. d) 8.
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Answer: B
Refer Page: 660, Topic: 27.4.
Explanation: The Basel Committee on Banking Supervision (BCBS) has
agreed upon the following five guiding principles on Pillar 3 disclosures:
Principle 1: Disclosures should be clear.
Principle 2: Disclosures should be comprehensive.
Principle 3: Disclosures should be meaningful to users.
Principle 4: Disclosures should be consistent over time.
Principle 5: Disclosures should be comparable across banks.

Q23. How often does the BCBS committee typically meet each year?
a) Once a year. b) Twice a year.
c) Three or four times a year. d) Two or three times a year.
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Answer: C
Refer Page: 314, Topic: 13.2.
Explanation: BCBS has been instrumental in standardizing bank regulations
across jurisdictions with special emphasis on defining the roles of
regulators in cross-jurisdictional situations.
The committee meets three or four times a year.

Q24. As per the RBI circular dated 6th August, 2010, if the value of sales
and transfers of securities to/from the HTM category exceeds ----- % of the
book value of investments held in HTM at the beginning of the year, banks
must disclose the market value and related provision shortfall in the Notes
to Accounts?
a) 2%. b) 3%.
c) 5%. d) 10%.
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Answer: C
Refer Page: 670, Topic: 27.4.
Explanation: RBI vide its circular dated 6th August, 2010 observed the following: 'It
has been observed that many banks are resorting to sale of securities held under HTM
category, that too frequently, to take advantage of favorable market conditions and to
book profits.
It needs to be reiterated that securities under HTM category are intended to be held
till maturity and accordingly are not required to be marked to market. In view of this,
RBI has decided that if the value of sales and transfers of securities to/from HTM
category exceeds 5% of the book value of investments held in HTM category at the
beginning of the year, bank should disclose the market value of the investments held
in the HTM category and indicate the excess of book value over market value for
which provision is not made. This disclosure is required to be made in 'Notes to
Accounts' in banks' audited Annual Financial Statements'.

Q25. A High-Level Steering Committee (HLSC) was constituted under the

Chairmanship of ---------- for Review of Supervisory Processes for
Commercial Banks?
a) B. Sivaraman Committee.
b) Dr. K. C. Chakrabarty.
c) Nachiket Mor Committee.
d) Sukhamoy Chakravarty Committee.
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Answer: B
Refer Page: 357, Topic: 13.18.
Explanation: RISK BASED SUPERVISION (RBS):
A High-Level Steering Committee (HLSC) was constituted under the
Chairmanship of Dr. K. C. Chakrabarty, Deputy Governor for Review of
Supervisory Processes for Commercial Banks with representation from RBI,
commercial banks and the academia.

Q26. The Countercyclical Capital Conservation Buffer (CCCB) may vary from
______ of total risk-weighted assets (RWA) of the banks?
a) 0 to 5%. b) 0 to 3%.
c) 0 to 2.5%. d) 1 to 3%.
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Answer: C
Refer Page: 354, Topic: 13.16.2.
Explanation: The CCCB may be maintained in the form of Common Equity
Tier 1 (CET 1) capital only, and the amount of the CCCB may vary from 0 to
2.5% of total risk weighted assets (RWA) of the banks.

Q27. In the case of short duration crops, when does an installment of

principal or interest become overdue for classification as a non-performing
asset (NPA)?
a) 1 crop season. b) 2 crop seasons.
c) 3 crop seasons. d) 4 crop seasons.
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Answer: B
Refer Page: 675, Topic: 28.2.
Explanation: The installment of principal or interest thereon remains
overdue for two crop seasons for short duration crops.

Q28. What is the provisioning rate for advances to the Commercial Real
Estate (CRE) sector?
a) 0.25%. b) 0.40%.
c) 1.00%. d) 2.00%.

Answer: C
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Refer Page: 687, Topic: 28.3.
Explanation: (b) advances to Commercial Real Estate (CRE) Sector at 1.00%.
Standard Assets:
1. Banks are required to make general provision for standard assets at the following
rates for the funded outstanding on global loan portfolio basis:
(a) Farm Credit to agricultural activities and Small and Micro Enterprises (SMEs)
sectors at 0.25%.
(b) advances to Commercial Real Estate (CRE) Sector at 1.00 percent.
(c) advances to Commercial Real Estate - Residential Housing Sector (CRE - RH)2 at 0.75
percent.
(d) Housing loans extended at teaser rates at 2.00 per cent the provisioning on these
assets would revert to 0.40 per cent after 1 year from the date on which the rates are
reset at higher rates if the accounts remain 'standard'.
(e) Restructured advances as stipulated in the prudential norms for restructuring of
advances.
(g) Advances restructured and classified as standard in terms of the Master Direction -
Reserve Bank of India (Relief Measures by Banks in Areas affected by Natural
Calamities) Directions 2018 SCBs, as updated from time to time, at 5%.
(h) All other loans and advances not included in (a) - (f) above at 0.40 per cent.
2. The provisions on standard assets are not to be reckoned for arriving at net NPAs.
3. The provisions towards Standard Assets need not be netted from gross advances
but are to be shown separately as 'Contingent Provisions against Standard Assets'
under 'Other Liabilities and Provisions Others' in Schedule 5 of the balance sheet.
4. The Medium Enterprises will attract 0.40% standard asset provisioning.
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Q29. As of now, which of the following banks are categorized as Domestic
Systemically Important Banks (D-SIBs) in India, and which bucket do they
fall under?
a) State Bank of India-Bucket 3, ICICI Bank-Bucket 1, HDFC Bank-Bucket 1.
b) State Bank of India-Bucket 4, ICICI Bank-Bucket 1, HDFC Bank-Bucket 2.
c) State Bank of India-Bucket 1, ICICI Bank-Bucket 2, HDFC Bank-Bucket 1.
d) State Bank of India-Bucket 3, ICICI Bank-Bucket 2, HDFC Bank-Bucket 1.

Answer: B
Refer Page: 357, Topic: 13.17.
Explanation: SBI, HDFC Bank and ICICI Bank continue to be identified as
Domestic Systemically Important Banks (D-SIBs).
While ICICI Bank continues to be in the same bucketing structure as last
year, SBI and HDFC Bank move to higher buckets – SBI shifts from bucket 3
to bucket 4 and HDFC Bank shifts from bucket 1 to bucket 2.
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For SBI and HDFC Bank, the higher D-SIB buffer requirements on account of
the bucket increase will be effective from April 1, 2025.
The additional Common Equity Tier 1 (CET1) requirement will be in addition
to the capital conservation buffer.
The list of D-SIBs is as follows:
Bucket Banks Additional Common Equity Tier 1 requirement
as a percentage of Risk Weighted Assets (RWAs)

5 - 1%

4 State Bank of India* 0.80%

3 - 0.60%

2 HDFC Bank* 0.40%

1 ICICI Bank 0.20%

The higher D-SIB surcharge for SBI and HDFC Bank will be applicable from April 1, 2025.
Hence, up to March 31, 2025, the D-SIB surcharge applicable to SBI and HDFC Bank will
be 0.60% and 0.20% respectively.
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Case Study: (Q30-34).
The current provisioning requirement and the revised accelerated
provisioning in respect of such non-performing accounts are as under:

Asset Classification Period as NPA Current Revised

Provisioning (%) accelerated
Provisioning (%)
Sub-standard Up to 6 months No change
(secured)
6 months to 1 year

Sub-standard Up to 6 months
(unsecured)
6 months to One
year

Doubtful I 2nd year Secured

Unsecured
Doubtful II 3rd & 4th year Secured
Unsecured
Doubtful III 5th year onwards

Q30. What is the accelerated provisioning percentage for "Sub-Standard

(secured)" assets up to 6 months?
a) 10%. b) 25%.
c) 20%. d) 15%.
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Answer: D
Refer Page: 692, Topic: 28.3.
Explanation: The current provisioning percentage for "Sub-standard
(secured)" assets up to 6 months is 15%, and there is no change in the
revised accelerated provisioning.

Q31. What is the provisioning percentage for "Doubtful I" (2nd year) for the
secured portion under the revised accelerated provisioning?
a) 25%. b) 50%.
c) 40%. d) 100%.

Answer: C
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Refer Page: 692, Topic: 28.3.
Explanation: The revised accelerated provisioning for the secured portion
of "Doubtful I" assets in the 2nd year is 40%.

Q32. A bank has a total of ₹8,00,000 loans, and security available with bank
is of ₹ 50,000 which is NPA for last 8 months. Also, ECGC coverage is
available for 60% of loan amount. What will be the accelerated
provisioning requirement?
a) ₹3,20,000. b) ₹3,50,000.
c) ₹4,00,000. d) ₹2,50,000.

Answer: A
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Refer Page: 692, Topic: 28.3.
Explanation: If available security is up to 10% of loan, then it is unsecured
substandard loan, if more than 10% then it is secured substandard.
10% of 8 Lac = 80,000 (Security is 50,000 which is less than 10% so
Unsecured Substandard)
For "Sub-standard (unsecured)" loans between 6 months and 1 year, the
accelerated provisioning percentage is 40%.
Provisioning = 40% of ₹8,00,000.
= ₹3,20,000.

Q33. A loan worth ₹10,00,000 has been classified as "Doubtful III" (5th year
onwards). The value of security held is ₹2,00,000. What is the accelerated
provisioning requirement for this loan?
a) ₹8,00,000. b) ₹9,00,000.
c) ₹10,00,000. d) ₹12,00,000.
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Answer: C
Refer Page: 692, Topic: 28.3.
Explanation: For "Doubtful III" (5th year onwards), the provisioning
percentage is 100% for both secured and unsecured portions.
So, the total provisioning requirement will be ₹10,00,000.

Q34. A loan has outstanding balance of ₹4,00,000. ECGC Cover available is

50%. The account has remained doubtful for more than 2 years. Value of
security held is 1,50,000. What is the current provisioning requirement?
a) ₹1,85,000. b) ₹1,75,000.
c) ₹1,70,000. d) ₹2,00,000.
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Answer: A
Refer Page: 692, Topic: 28.3.
Explanation: The account is in doubtful II category.
Outstanding balance Rs. 4.00 lakhs

Less: Value of security held Rs. 1.50 lakhs

Unrealised balance Rs. 2.50 lakhs

Less: ECGC Cover (50% of unrealisable balance) Rs. 1.25 lakhs

Net unsecured balance Rs. 1.25 lakhs

Rs. 1.25 lakhs (@ 100% of unsecured

Provision for unsecured portion of advance
portion)

Provision for secured portion of advance (as on March Rs.0.60 lakhs (@ 40% of the secured
31, 2022) portion)

Total provision to be made Rs.1.85 lakhs

Asset Period as NPA Current Provisioning (%) Revised accelerated

Classification Provisioning (%)
Sub-standard Up to 6 months 15 No change
(secured)
6 months to 1 year 15 25
Sub-standard Up to 6 months 25 (other than 25
(unsecured infrastructure loans)
abilities)
20 (Infrastructure loans)
6 months to One 25 (other than 40
year infrastructure loans)
20 (Infrastructure loans)
Doubtful I 2nd year 25 (secured portion) 40 (secured Portion)
100 (unsecured portion) 100(unsecured portion)
Doubtful II 3rd & 4th year 40 (secured portion) 100 (for both secured
100 (unsecured portion) and unsecured portion)
Doubtful III 5th year onwards 100 100
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Q35. An account overdue for 75 days will be classified as which SMA

category?
a) SMA-0. b) SMA-1.
c) NPA. d) SMA-2.

Answer: D
Refer Page: 689, Topic: 28.3.
Explanation: When the overdue amount falls between 61 and 90 days, the
account is classified as SMA-2. Beyond 90 days, it will be categorized as a
Non-Performing Asset (NPA).
1 to 30 days SMA0.
31 to 60 days SMA1.
61 to 90 days SMA2.
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Q36. Loan to a company became NPA on 31.03.2024 and has remained as
NPA since then. Outstanding amount of account stood at Rs 1.20 crore as
on 31.12.2024. The account is fully secured. The name of director of the
company (other than nominee directors of government/financial
institutions) has appear more than once in the list of willful defaulters.
In the light of the given information, what would be the provisioning
requirement as on 31.12.2024? (Answer to be given in whole number, with
no comma)?

Answer: 30,00,000
Explanation: Account become NPA on: 31-03-2024.
Provisioning as on 31-12-2024. So, 9 months as Substandard Assets
(Secured).
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Accelerated provisioning for substandard Assets:
Up to 6 months: 15% (no change)
More than 6 months up to 1 year: 25%.
Substandard (Secured) Assets Accelerated provisioning will be: 25%
So, 1.2 Crore * 25% = 30,00,000

Q37. The Insolvency and Bankruptcy Code, 2016 (IBC) Code proposes to
cover Insolvency of -----?
i) Individuals.
ii) Unlimited liability partnerships.
iii) Limited Liability partnerships.
iv) Companies.

a) (i) & (ii) Only. b) (i), (iii) & (iv) Only.

c) (ii), (iii) & (iv) Only. d) All of the above.
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Answer: D
Refer Page: 690, Topic: 28.3.
Explanation: This will make it easier for banks and other financial
institutions to deal with bad debts arising out of failed ventures.
Some of the Key highlights of the Code are given below:
The Code proposes to cover Insolvency of individuals, unlimited liability
partnerships, Limited Liability partnerships (LLPs) and companies.

Q38. A bank holds High-Quality Liquid Assets (HQLAs) worth ₹12,000 crore.
Its total net cash outflows over the next 30 calendar days are projected to
be ₹10,000 crore. What is the bank's Liquidity Coverage Ratio (LCR), and is
it compliant with the Basel III minimum requirement?
a) 100% – Yes, the bank is compliant.
b) 120% – Yes, the bank is compliant.
c) 80% – No, the bank is not compliant.
d) 90% – No, the bank is not compliant.
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Answer: B
Refer Page: 500, Topic: 18.2.
𝐒𝐭𝐨𝐜𝐤 𝐨𝐟 𝐇𝐐𝐋𝐀𝐬
Explanation: LCR =
𝐓𝐨𝐭𝐚𝐥 𝐍𝐞𝐭 𝐂𝐚𝐬𝐡 𝐎𝐮𝐭𝐟𝐥𝐨𝐰𝐬 𝐨𝐯𝐞𝐫 𝟑𝟎 𝐝𝐚𝐲𝐬

₹𝟏𝟐,𝟎𝟎𝟎 𝐜𝐫𝐨𝐫𝐞
LCR =
₹𝟏𝟎,𝟎𝟎𝟎 𝐜𝐫𝐨𝐫𝐞

LCR = 1.2 = 120%

Since the LCR is 120%, which is greater than the minimum requirement of
100%, the bank is compliant with Basel III norms.

Q39. Provisioning Coverage Ratio (PCR) of a bank should not be less than ---
------%?
a) 30%. b) 50%.
c) 40%. d) 70%.
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Answer: D
Refer Page: 686, Topic: 28.3.
Explanation: Provisioning Coverage Ratio:
𝐓𝐨𝐭𝐚𝐥 𝐏𝐫𝐨𝐯𝐢𝐬𝐢𝐨𝐧𝐬
PCR =
𝐆𝐫𝐨𝐬𝐬 𝐍𝐏𝐀𝐬

(ii) From a macro-prudential perspective, banks should build up

provisioning and capital buffers in well times i.e. when the profits are good,
which can be used for absorbing losses in a downturn. This will enhance the
soundness of individual banks, as also the stability of the financial sector.
It was, therefore, decided that banks should augment their provisioning
cushions consisting of specific provisions against NPAs as well as floating
provisions, and ensure that their total provisioning coverage ratio,
including floating provisions, is not less than 70 per cent.
Accordingly, banks were advised to achieve this norm by the end of
September, 2010.

Q40. What is the day count convention in respect of corporate bonds?

𝟑𝟎 𝐀𝐜𝐭𝐮𝐚𝐥
a) . b) .
𝟑𝟔𝟎 𝟑𝟔𝟎
𝟑𝟎
c) . d) None of the above.
𝟑𝟔𝟓
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Answer: A
Explanation:
• The “day-count convention” defines how we count the fraction of a year
between two dates (e.g. coupon payments) to compute accrued interest.
• For corporate bonds, the commonly used convention is 30/360 — i.e.
assume each month has 30 days and a year has 360 days.

Q41. Which of the following are perspectives used to assess a bank’s

interest rate risk exposure?
i) Earnings perspective. ii) Economic perspective.
iii) Embedded losses. iv) Credit risk.

a) (i), (ii), (iii). b) (i), (iii), (iv).

c) (ii), (iii), (iv). d) (i), (ii), (iv).
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Answer: A
Refer Page: 724, Topic 30.3.4.
Explanation: EFFECTS OF INTEREST RATE RISK:
As the discussion above suggests, changes in interest rates can have
adverse effects both on a bank's earnings and its economic value.
This gives rise to two separates, but complementary, perspectives for
assessing a bank's interest rate risk exposure, i.e.
1. Earnings perspective.
2. Economic perspective.
3. Embedded losses.

Q42. Which of the following is not a major source of income for banks?
a) Interest income. b) Fee-based income.
c) Treasury income. d) Sales revenue from products.
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Answer: D
Refer Page: 748, Topic: 31.2.
Explanation: Profit Planning:
Banks' income arises from three sources, viz. interest income, fee-based
income and treasury income.

Q43. XYZ Bank provided the following details?

Gap Statement of XYZ bank (amt. in crore of Rs.)
Repricing Repricing Liabilities
Assets
Call Money 50 Savings Deposit 50
Cash credit 40 Fixed Deposits 50

On the basis of above table identify true statement?

a) The bank as of now has a positive gap of Rs. 10 crores.
b) The bank as of now has a negative gap of Rs. 10 crores.
c) The bank as of now has a no gap.
d) The bank as of now has a negative gap of Rs. 20 crores.
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Answer: B
Refer Page: 721, Topic 30.3.2.
Explanation: Basis Risk:
In a perfectly matched gap position, there is no timing difference between
the repricing dates; i.e., the magnitude of change in the deposit rates
would be exactly matched by the magnitude of change in the loan rate.
However, interest rate of two different instruments will seldom change by
the same degree during the same period of time.
The risk that the interest rate of different assets and liabilities may change
in different magnitudes is called basis risk.
The under noted table shows how the basis risk occurs.
Gap Statement of XYZ bank (amt. in crore of Rs.)
Repricing Assets Repricing Liabilities
Call Money 50 Savings Deposit 50
Cash credit 40 Fixed Deposits 50
90 100
Gap (-) 10
The bank as of now has a negative gap of Rs. 10 crores.
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Q44. A bank makes a profit of ₹12,00,000 on a particular product. The risk
capital allocated to that product is ₹4,00,000.
What is the Risk-Adjusted Performance Measurement (RAPM)?
a) 2.0. b) 3.0.
c) 4.0. d) 6.0.

Answer: B
Refer Page: 752, Topic: 31.4.
Explanation: We use the formula:
𝐏𝐫𝐨𝐟𝐢𝐭
RAPM =
𝐑𝐢𝐬𝐤 𝐂𝐚𝐩𝐢𝐭𝐚𝐥

So,
₹𝟏𝟐,𝟎𝟎,𝟎𝟎𝟎
RAPM = = 3.0
₹𝟒,𝟎𝟎,𝟎𝟎𝟎
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Q45. Economic value added (EVA) is calculated as?
a) EVA = Profit – (Capital * k), where k is discount rate.
b) EVA = Profit + (Capital * k), where k is discount rate.
c) EVA = Profit * (Capital * k), where k is discount rate.
d) EVA = Profit / (Capital * k), where k is discount rate.

Answer: A
Refer Page: 753, CH 31.
Explanation: EVA measures the residual economic profit as:
EVA = Profit - (Capital × k).
Where k = Weighted Average Cost of Capital (WACC).
Economic Value Added (EVA) is a financial performance metric used to
calculate a company's true economic profit.
Unlike traditional accounting measures like net income, EVA factors in the
cost of all capital, including both debt and equity, to provide a more
accurate picture of value creation.
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Q46. In a nutshell, profitability is a function of six variable. Which of the
following are these 6 variables?
m) Interest Income.
n) Fee-Based Income.
o) Trading Income.
p) Interest expense.
q) Staff expense.
r) Other operating expense.
s) Rent expense.

a) (m), (n), (o), (p), (r), (s) only. b) (m), (o), (p), (q), (r), (s) only.
c) (n), (o), (p), (q), (r), (s) only. d) (m), (n), (o), (p), (q), (r) only.

Answer: D
Refer Page: 750, CH 31.
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In a nutshell, profitability is a function of six variable. Which of the
following are these 6 variables?
m) Interest Income.
n) Fee-Based Income.
o) Trading Income.
p) Interest expense.
q) Staff expense.
r) Other operating expense.

Q47. In cases where there is no penalty for prepayment of loans, the

borrowers have a natural tendency to pay off their loans when a decline in
interest rate occurs. This is example of?
a) Embedded Option Risk. b) Basis Risk.
c) Gap Risk. d) Price Risk.
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Answer: A
Refer Page: 722, CH 30.
Embedded Option Risk:
Large changes in the level of market interest rates create another source of
risk to banks profit by prepayment of loans and bonds (with put or call
options) and/or premature withdrawal of deposits before their stated
maturity dates.
In cases where there is no penalty for prepayment of loans, the borrowers
have a natural tendency to pay off their loans when a decline in interest
rate occurs.
In such cases, the bank will receive only a lower NII.

Q48. Which of the following is not a method of measurement of Interest

rate Risk?
a) Repricing Schedules. b) Gap Analysis.
c) Duration. d) Estimation Approaches.
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Answer: D
Refer Page: 726, CH 30.
Explanation: *4th is Simulation Approaches.

Q49. Settlement risk is part of?

a) Credit Risk. b) Operational Risk.
c) Liquidity Risk. d) Market risk.

Answer: A
Explanation: Illustratively, some of the risks that the banks are generally
exposed to, but which are not captured or not fully captured in the
regulatory CRAR would include.
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1. Interest rate risk in the banking book, which is part of market risk.
2. Credit concentration risk, which is normally part of credit risk.
3. Liquidity risk, for convenience’s sake included as part of market risk.
4. Settlement risk, which is also called as counter-party risk and is part of
credit risk.
5. Reputational risk, which is equivalent to operational risk.
6. Strategic risk, which is equivalent to operational risk.
7. Risk of under-estimation of credit risk under the Standardized approach -
Credit risk.
8. "Model risk" which is equivalent to - Credit risk.
9. Risk of weakness in the credit-risk mitigant - Credit risk.
10. Residual risk of securitization, etc. can be part of Credit and Market risk.
Note. ICAAP. Internal capital adequacy assessments process.

Q50. Select the correct option of Treasury bill maturity days?

a) 91 days, 180 days, 364 days. b) 92 days, 185 days, 365 days.
c) 91 days, 182 days, 365 days. d) 91 days, 182 days, 364 days.
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Answer: D
Refer Page: 535, CH 20.
Explanation: Treasury Bills:
These are issued by Government of India through Reserve Bank for
maturities of 91-days, 182 days and 364-days, for pre-determined amounts.
The interest is by way of discount, so the bills are priced below Rs. 100.

Case Study: (Q51-54)

As per the circular on Operational Risk Management and Operational
Resilience by RBI dated 30 April 2024, Operational Risk Management and
Operational Resilience has been built on three pillars.

Q51. Which of the following are the three pillars outlined in the Guidance
Note on Operational Risk Management and Operational Resilience?
a) Prepare and Protect, Mitigate and Recover, Learn and Adapt.
b) Identify and Assess, Control and Monitor, Report and Review.
c) Prepare and Protect, Build Resilience, Learn and Adapt.
d) Prevent and Detect, Respond and Restore, Optimize and Improve.
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Answer: C
Explanation: RBI Circular:
The Guidance Note on Operational Risk Management and Operational
Resilience identifies its three fundamental pillars as: Prepare and Protect,
Build Resilience, and Learn and Adapt.
Prepare and Protect — involves building a strong governance framework,
embedding a risk-aware culture, identifying and assessing operational risks,
putting in place controls and mitigation measures, and
monitoring/reporting risk exposures.
Build Resilience — focuses on ensuring continuity and stability even when
disruptions occur: business-continuity planning, disaster-recovery, third-
party dependency management, ICT/cyber-security resilience, mapping
interdependencies, incident-response mechanisms, etc.
Learn and Adapt — emphasises continuous improvement: analyzing
incidents, conducting “lessons-learned” exercises, updating controls,
adapting to evolving risk landscapes, and continually strengthening the
organisation’s resilience posture.

Q52. How many principles are contained within the three pillars of the
Guidance Note on Operational Risk Management and Operational
Resilience?
a) 3. b) 10.
c) 17. d) 25.
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Answer: C
Explanation:
The Guidance Note on Operational Risk Management and Operational
Resilience — under the three pillars Prepare and Protect, Build Resilience
and Learn and Adapt — contains 17 principles in total.

Q53. In the 'Three lines of defence model' explicated by the Guidance Note,
which function is considered the third line of defence?
a) The Business unit.
b) The Organizational operational risk management function.
c) The Compliance function.
d) The Audit function.

Answer: D
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Explanation: "It explicates the ‘Three lines of defence model’ wherein
Business unit forms the first line of defence,
Organizational operational risk management function(including compliance
function) forms the second lineof defence, and
Audit function forms the third line of defence."

Q54. The Operational Risk Management Framework (ORMF) adopted by an

individual Regulated Entity (RE) depends on a range of factors.
which of the following is not one of those factors?
a) Nature of business. b) Size.
c) Complexity of business. d) Geographic location.

Answer: D
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Explanation:
1. Nature of business.
2. Size.
3. Complexity of business.
4. Risk Profile.