This CAIIB ABM MCQ set is for bankers preparing for the IIBF CAIIB Advanced Bank Management paper. Attempt all 15 questions below—tap an option to see whether you are right, then read the short explanation. These are SimplifyingFin practice questions, not official IIBF questions.
Part of the CAIIB ABM MCQ practice series.
CAIIB ABM MCQ Day 1 quiz: 15 questions
Show answer
Answer: A — 75.6.
The idea: Two centres wrote the same test. Their averages differ, and so do their sizes (40 vs 60). You need one average for all 100 officers — a size-weighted mean, not a plain average of the two averages.
- Formula for a combined arithmetic mean of two groups: (n₁·x̄₁ + n₂·x̄₂) ÷ (n₁ + n₂).
- Plug in the figures: n₁ = 40, x̄₁ = 72, n₂ = 60, x̄₂ = 78.
- Total marks implied by Centre P: 40 × 72 = 2,880.
- Total marks implied by Centre Q: 60 × 78 = 4,680.
- Add them: 2,880 + 4,680 = 7,560. Divide by 100 officers: 7,560 ÷ 100 = 75.6.
Why the others are wrong:
- B (74.0): 74.0 understates the pull of the larger, higher-scoring centre; it is not the combined mean.
- C (75.0): 75.0 is the simple average of 72 and 78 — it ignores that Q has more officers.
- D (76.2): 76.2 does not match the weighted formula with these inputs.
- E (78.0): 78.0 is only Centre Q’s mean, not the combined figure.
Check: Quick sense-check: the answer must lie between 72 and 78, and closer to 78 because Q is bigger (60 > 40). 75.6 fits that.
Memory tip: Different group sizes → weight each mean by its n; never average the averages blindly.
Answer: A — 75.6.
The idea: Two centres wrote the same test. Their averages differ, and so do their sizes (40 vs 60). You need one average for all 100 officers — a size-weighted mean, not a plain average of the two averages.
- Formula for a combined arithmetic mean of two groups: (n₁·x̄₁ + n₂·x̄₂) ÷ (n₁ + n₂).
- Plug in the figures: n₁ = 40, x̄₁ = 72, n₂ = 60, x̄₂ = 78.
- Total marks implied by Centre P: 40 × 72 = 2,880.
- Total marks implied by Centre Q: 60 × 78 = 4,680.
- Add them: 2,880 + 4,680 = 7,560. Divide by 100 officers: 7,560 ÷ 100 = 75.6.
Why the others are wrong:
- B (74.0): 74.0 understates the pull of the larger, higher-scoring centre; it is not the combined mean.
- C (75.0): 75.0 is the simple average of 72 and 78 — it ignores that Q has more officers.
- D (76.2): 76.2 does not match the weighted formula with these inputs.
- E (78.0): 78.0 is only Centre Q’s mean, not the combined figure.
Check: Quick sense-check: the answer must lie between 72 and 78, and closer to 78 because Q is bigger (60 > 40). 75.6 fits that.
Memory tip: Different group sizes → weight each mean by its n; never average the averages blindly.
Show answer
Answer: B — P is more variable because its CV is 16% against Q’s 15%.
The idea: You are comparing relative risk of two portfolios whose means differ. Absolute SD alone misleads; the coefficient of variation (CV) puts SD on a common %-of-mean scale.
- Formula: CV = (SD ÷ Mean) × 100.
- Portfolio P: (8 ÷ 50) × 100 = 0.16 × 100 = 16%.
- Portfolio Q: (12 ÷ 80) × 100 = 0.15 × 100 = 15%.
- Compare: 16% > 15%, so P is more variable in relative terms even though Q’s raw SD is higher.
Why the others are wrong:
- A (Q is more variable because its SD is higher): Looks only at raw SD (12 > 8) and ignores that Q’s mean is also much larger.
- C (Both portfolios have the same CV of 15%): The CVs are 16% and 15%, not the same.
- D (P is less variable because its mean is lower): A lower mean does not by itself mean lower variability; CV is the fair comparison.
- E (CV cannot be computed without sample size): CV needs only SD and mean — sample size is not required for this formula.
Check:
| Portfolio | Mean | SD | CV |
|---|---|---|---|
| P | 50 | 8 | 16% |
| Q | 80 | 12 | 15% |
Higher CV → more relative dispersion.
Memory tip: When means differ, compare CVs — not raw SDs.
Answer: B — P is more variable because its CV is 16% against Q’s 15%.
The idea: You are comparing relative risk of two portfolios whose means differ. Absolute SD alone misleads; the coefficient of variation (CV) puts SD on a common %-of-mean scale.
- Formula: CV = (SD ÷ Mean) × 100.
- Portfolio P: (8 ÷ 50) × 100 = 0.16 × 100 = 16%.
- Portfolio Q: (12 ÷ 80) × 100 = 0.15 × 100 = 15%.
- Compare: 16% > 15%, so P is more variable in relative terms even though Q’s raw SD is higher.
Why the others are wrong:
- A (Q is more variable because its SD is higher): Looks only at raw SD (12 > 8) and ignores that Q’s mean is also much larger.
- C (Both portfolios have the same CV of 15%): The CVs are 16% and 15%, not the same.
- D (P is less variable because its mean is lower): A lower mean does not by itself mean lower variability; CV is the fair comparison.
- E (CV cannot be computed without sample size): CV needs only SD and mean — sample size is not required for this formula.
Check:
| Portfolio | Mean | SD | CV |
|---|---|---|---|
| P | 50 | 8 | 16% |
| Q | 80 | 12 | 15% |
Higher CV → more relative dispersion.
Memory tip: When means differ, compare CVs — not raw SDs.
Show answer
Answer: C — The two series move together, but correlation alone does not prove that one causes the other.
The idea: A high positive r says two series move together. It does not, by itself, prove that one causes the other.
- Rule: correlation measures linear co-movement, not cause-and-effect.
- Here r ≈ +0.85 only means RM strength and SMA-1 counts tend to rise and fall together.
- A third factor (for example larger business volume in the district) can drive both series, so causation is not established from r alone.
Why the others are wrong:
- A (Posting more RMs causes SMA-1 accounts to rise): Treats correlation as proof that more RMs cause SMA-1 — that overstates what r can show.
- B (Cutting RM strength will necessarily cut SMA-1 accounts): Assumes a causal lever (“cut RMs → cut SMA-1”) that the coefficient does not justify.
- D (r = +0.85 means 85% of SMA-1 accounts are caused by RMs): r = +0.85 is not “85% of accounts are caused by RMs”; r is not a causation percentage.
- E (Positive correlation is impossible for credit risk data): Positive correlation is perfectly possible in credit data; the sign alone is not a problem.
Check: Sound inference: “they move together.” Unsound: “therefore one causes the other.”
Memory tip: Correlation ≠ causation — always ask what else could drive both series.
Answer: C — The two series move together, but correlation alone does not prove that one causes the other.
The idea: A high positive r says two series move together. It does not, by itself, prove that one causes the other.
- Rule: correlation measures linear co-movement, not cause-and-effect.
- Here r ≈ +0.85 only means RM strength and SMA-1 counts tend to rise and fall together.
- A third factor (for example larger business volume in the district) can drive both series, so causation is not established from r alone.
Why the others are wrong:
- A (Posting more RMs causes SMA-1 accounts to rise): Treats correlation as proof that more RMs cause SMA-1 — that overstates what r can show.
- B (Cutting RM strength will necessarily cut SMA-1 accounts): Assumes a causal lever (“cut RMs → cut SMA-1”) that the coefficient does not justify.
- D (r = +0.85 means 85% of SMA-1 accounts are caused by RMs): r = +0.85 is not “85% of accounts are caused by RMs”; r is not a causation percentage.
- E (Positive correlation is impossible for credit risk data): Positive correlation is perfectly possible in credit data; the sign alone is not a problem.
Check: Sound inference: “they move together.” Unsound: “therefore one causes the other.”
Memory tip: Correlation ≠ causation — always ask what else could drive both series.
Show answer
Answer: D — 0.2048.
The idea: Five independent loan proposals; each has probability 0.2 of being high-risk. You want the chance that exactly 2 are high-risk. Each file is success/failure, so this is a binomial problem.
- Formula: P(X = k) = C(n, k) × p^k × (1 − p)^(n − k). Here n = 5, k = 2, p = 0.2, so 1 − p = 0.8.
- Count the ways to choose which 2 of the 5 files are high-risk: C(5, 2) = (5 × 4) ÷ (2 × 1) = 10.
- Chance for one such pattern: 0.2 × 0.2 = 0.04 for the two high-risk files, and 0.8 × 0.8 × 0.8 = 0.512 for the other three. Product: 0.04 × 0.512 = 0.02048.
- Multiply by the number of ways: 10 × 0.02048 = 0.2048.
Why the others are wrong:
- A (0.1024): 0.1024 is exactly half of 0.2048 — an arithmetic slip of dropping a factor of 2.
- B (0.4096): 0.4096 is P(X = 1), not P(X = 2).
- C (0.0819): 0.0819 equals 4 × 0.02048 — it uses 4 ways instead of the correct C(5, 2) = 10.
- E (0.3200): 0.3200 is not a binomial probability for these n, k, p values.
Check:
| High-risk files (k) | P(X = k) |
|---|---|
| 0 | 0.3277 |
| 1 | 0.4096 |
| 2 | 0.2048 |
| 3 | 0.0512 |
| 4 | 0.0064 |
| 5 | 0.0003 |
Total ≈ 1.0000 (rounding to 4 d.p.).
Memory tip: Binomial = (number of ways) × (success)^k × (failure)^(n − k).
Answer: D — 0.2048.
The idea: Five independent loan proposals; each has probability 0.2 of being high-risk. You want the chance that exactly 2 are high-risk. Each file is success/failure, so this is a binomial problem.
- Formula: P(X = k) = C(n, k) × p^k × (1 − p)^(n − k). Here n = 5, k = 2, p = 0.2, so 1 − p = 0.8.
- Count the ways to choose which 2 of the 5 files are high-risk: C(5, 2) = (5 × 4) ÷ (2 × 1) = 10.
- Chance for one such pattern: 0.2 × 0.2 = 0.04 for the two high-risk files, and 0.8 × 0.8 × 0.8 = 0.512 for the other three. Product: 0.04 × 0.512 = 0.02048.
- Multiply by the number of ways: 10 × 0.02048 = 0.2048.
Why the others are wrong:
- A (0.1024): 0.1024 is exactly half of 0.2048 — an arithmetic slip of dropping a factor of 2.
- B (0.4096): 0.4096 is P(X = 1), not P(X = 2).
- C (0.0819): 0.0819 equals 4 × 0.02048 — it uses 4 ways instead of the correct C(5, 2) = 10.
- E (0.3200): 0.3200 is not a binomial probability for these n, k, p values.
Check:
| High-risk files (k) | P(X = k) |
|---|---|
| 0 | 0.3277 |
| 1 | 0.4096 |
| 2 | 0.2048 |
| 3 | 0.0512 |
| 4 | 0.0064 |
| 5 | 0.0003 |
Total ≈ 1.0000 (rounding to 4 d.p.).
Memory tip: Binomial = (number of ways) × (success)^k × (failure)^(n − k).
Show answer
Answer: E — 7.84%.
The idea: Growth rates over years compound. The constant annual rate that matches the whole path is the geometric mean of the growth factors — not the arithmetic average of the % figures.
- Convert each year’s % change to a growth factor: +10% → 1.10, +20% → 1.20, −5% → 0.95.
- Geometric mean of the factors: (1.10 × 1.20 × 0.95)^(1/3).
- Product first: 1.10 × 1.20 = 1.32; 1.32 × 0.95 = 1.254.
- Cube root: 1.254^(1/3) ≈ 1.0784. So the constant annual rate ≈ 7.84%.
Why the others are wrong:
- A (8.33%): 8.33% is the arithmetic mean of +10, +20 and −5 — it overstates the compounded path.
- B (10.00%): 10.00% is only Year 1’s rate, not the three-year geometric mean.
- C (5.00%): 5.00% does not match the geometric mean of these factors.
- D (12.50%): 12.50% does not match the geometric mean of these factors.
Check: Start at 100: after the three years you have 100 × 1.254 = 125.4. Growing at 7.84% a year for 3 years also lands near 125.4 — that confirms E.
Memory tip: For average growth over time, use geometric mean of factors (1 + rᵢ), not the plain average of the % rates.
Answer: E — 7.84%.
The idea: Growth rates over years compound. The constant annual rate that matches the whole path is the geometric mean of the growth factors — not the arithmetic average of the % figures.
- Convert each year’s % change to a growth factor: +10% → 1.10, +20% → 1.20, −5% → 0.95.
- Geometric mean of the factors: (1.10 × 1.20 × 0.95)^(1/3).
- Product first: 1.10 × 1.20 = 1.32; 1.32 × 0.95 = 1.254.
- Cube root: 1.254^(1/3) ≈ 1.0784. So the constant annual rate ≈ 7.84%.
Why the others are wrong:
- A (8.33%): 8.33% is the arithmetic mean of +10, +20 and −5 — it overstates the compounded path.
- B (10.00%): 10.00% is only Year 1’s rate, not the three-year geometric mean.
- C (5.00%): 5.00% does not match the geometric mean of these factors.
- D (12.50%): 12.50% does not match the geometric mean of these factors.
Check: Start at 100: after the three years you have 100 × 1.254 = 125.4. Growing at 7.84% a year for 3 years also lands near 125.4 — that confirms E.
Memory tip: For average growth over time, use geometric mean of factors (1 + rᵢ), not the plain average of the % rates.
Show answer
Answer: A — Job enlargement; job enrichment.
The idea: The role changes in two different ways: more of the same work (horizontal), and more authority/control (vertical). HR labels those differently.
- Rule: job enlargement = more tasks at the same skill/authority level (horizontal loading).
- Rule: job enrichment = adding planning, decision or control authority (vertical loading).
- Here: processing more vouchers of the same type = enlargement; exception authority and end-of-day control reports = enrichment.
- So the pair is: enlargement first, then enrichment.
Why the others are wrong:
- B (Job rotation; job simplification): Job rotation is moving across roles; simplification reduces task complexity — neither matches the redesign.
- C (Job enrichment; job enlargement): Swaps the labels: enrichment is the vertical part, not the extra same-type vouchers.
- D (Job analysis; job specification): Job analysis/specification are documentation steps, not redesign strategies.
- E (Span of control; unity of command): Span of control and unity of command are organisation-structure ideas, not this job redesign pair.
Check: Memory cue: horizontal = wider (more of same); vertical = deeper (more authority).
Memory tip: Enlargement = more of the same level; enrichment = higher-level authority.
Answer: A — Job enlargement; job enrichment.
The idea: The role changes in two different ways: more of the same work (horizontal), and more authority/control (vertical). HR labels those differently.
- Rule: job enlargement = more tasks at the same skill/authority level (horizontal loading).
- Rule: job enrichment = adding planning, decision or control authority (vertical loading).
- Here: processing more vouchers of the same type = enlargement; exception authority and end-of-day control reports = enrichment.
- So the pair is: enlargement first, then enrichment.
Why the others are wrong:
- B (Job rotation; job simplification): Job rotation is moving across roles; simplification reduces task complexity — neither matches the redesign.
- C (Job enrichment; job enlargement): Swaps the labels: enrichment is the vertical part, not the extra same-type vouchers.
- D (Job analysis; job specification): Job analysis/specification are documentation steps, not redesign strategies.
- E (Span of control; unity of command): Span of control and unity of command are organisation-structure ideas, not this job redesign pair.
Check: Memory cue: horizontal = wider (more of same); vertical = deeper (more authority).
Memory tip: Enlargement = more of the same level; enrichment = higher-level authority.
Show answer
Answer: B — Theory X.
The idea: The zonal head assumes staff dislike accountability and must be tightly controlled. That is a Theory X mindset in McGregor’s framework.
- McGregor’s Theory X: people dislike work/responsibility and need coercion or close supervision.
- Theory Y: people can be self-directed when they are committed to goals.
- The quote (“dislike accountability… tight daily targets and close supervision”) matches Theory X assumptions exactly.
Why the others are wrong:
- A (Theory Y): Theory Y is the opposite belief — self-direction and commitment, not distrust of accountability.
- C (Theory Z): Theory Z is Ouchi’s later cultural model, not McGregor’s X/Y pair.
- D (Expectancy theory): Expectancy theory (Vroom) is about effort → performance → reward links, not this assumption set.
- E (Equity theory): Equity theory is about fairness of input/output ratios, not “staff dislike accountability.”
Check: Shortcut: “people must be pushed” → Theory X; “people can own the goal” → Theory Y.
Memory tip: X = external control; Y = self-control when committed.
Answer: B — Theory X.
The idea: The zonal head assumes staff dislike accountability and must be tightly controlled. That is a Theory X mindset in McGregor’s framework.
- McGregor’s Theory X: people dislike work/responsibility and need coercion or close supervision.
- Theory Y: people can be self-directed when they are committed to goals.
- The quote (“dislike accountability… tight daily targets and close supervision”) matches Theory X assumptions exactly.
Why the others are wrong:
- A (Theory Y): Theory Y is the opposite belief — self-direction and commitment, not distrust of accountability.
- C (Theory Z): Theory Z is Ouchi’s later cultural model, not McGregor’s X/Y pair.
- D (Expectancy theory): Expectancy theory (Vroom) is about effort → performance → reward links, not this assumption set.
- E (Equity theory): Equity theory is about fairness of input/output ratios, not “staff dislike accountability.”
Check: Shortcut: “people must be pushed” → Theory X; “people can own the goal” → Theory Y.
Memory tip: X = external control; Y = self-control when committed.
Show answer
Answer: C — It is an ongoing process to identify and develop people for critical future roles.
The idea: Succession planning is about building a ready pipeline for critical roles over time — not a one-off list when someone resigns.
- Definition: an ongoing process to identify critical roles, spot talent, and develop readiness before vacancies arise.
- It works with performance appraisal; it does not replace it.
- It is not limited to one cadre (for example only clerks) and it is not the same as payroll budgeting.
Why the others are wrong:
- A (It is only a one-time replacement list prepared when a GM resigns): Treats it as a one-time replacement list at resignation — succession planning is continuous.
- B (It replaces the need for annual performance appraisal): It complements appraisal; it does not replace annual performance management.
- D (It applies only to clerical cadre promotions): It applies to critical roles across cadres, not only clerical promotions.
- E (It is identical to payroll budgeting): Payroll budgeting is a cost plan; succession planning is a talent-readiness process.
Check: Ask: “Are we developing people for future critical seats before they fall vacant?” If yes, that is succession planning.
Memory tip: Succession = ongoing identify → develop → ready, not a panic list after a resignation.
Answer: C — It is an ongoing process to identify and develop people for critical future roles.
The idea: Succession planning is about building a ready pipeline for critical roles over time — not a one-off list when someone resigns.
- Definition: an ongoing process to identify critical roles, spot talent, and develop readiness before vacancies arise.
- It works with performance appraisal; it does not replace it.
- It is not limited to one cadre (for example only clerks) and it is not the same as payroll budgeting.
Why the others are wrong:
- A (It is only a one-time replacement list prepared when a GM resigns): Treats it as a one-time replacement list at resignation — succession planning is continuous.
- B (It replaces the need for annual performance appraisal): It complements appraisal; it does not replace annual performance management.
- D (It applies only to clerical cadre promotions): It applies to critical roles across cadres, not only clerical promotions.
- E (It is identical to payroll budgeting): Payroll budgeting is a cost plan; succession planning is a talent-readiness process.
Check: Ask: “Are we developing people for future critical seats before they fall vacant?” If yes, that is succession planning.
Memory tip: Succession = ongoing identify → develop → ready, not a panic list after a resignation.
Show answer
Answer: D — 1.70.
The idea: The quick (acid-test) ratio asks how well current liabilities are covered by the most liquid current assets — inventory is left out because it is slower to turn into cash.
- Formula: Quick ratio = (Cash + Marketable securities + Receivables) ÷ Current liabilities.
- Numerator: 22 + 8 + 55 = 85 (₹ lakh). Inventory ₹70 lakh is excluded.
- Denominator: current liabilities = 50.
- 85 ÷ 50 = 1.70.
Why the others are wrong:
- A (1.20): ≈ 85 ÷ 70 — mixes quick assets with inventory instead of current liabilities.
- B (3.10): 3.10 is the current ratio (85 + 70) ÷ 50 — the classic trap of including inventory.
- C (2.00): 2.00 does not match quick assets ÷ CL with these figures.
- E (0.59): ≈ 50 ÷ 85 — that is the reciprocal of the quick ratio, not the quick ratio itself.
Check:
| Ratio | Numerator | Value |
|---|---|---|
| Quick | 22 + 8 + 55 = 85 | 1.70 |
| Current | 85 + 70 = 155 | 3.10 |
Same CL of 50; only inventory changes the story.
Memory tip: Acid-test = drop inventory from the current ratio.
Answer: D — 1.70.
The idea: The quick (acid-test) ratio asks how well current liabilities are covered by the most liquid current assets — inventory is left out because it is slower to turn into cash.
- Formula: Quick ratio = (Cash + Marketable securities + Receivables) ÷ Current liabilities.
- Numerator: 22 + 8 + 55 = 85 (₹ lakh). Inventory ₹70 lakh is excluded.
- Denominator: current liabilities = 50.
- 85 ÷ 50 = 1.70.
Why the others are wrong:
- A (1.20): ≈ 85 ÷ 70 — mixes quick assets with inventory instead of current liabilities.
- B (3.10): 3.10 is the current ratio (85 + 70) ÷ 50 — the classic trap of including inventory.
- C (2.00): 2.00 does not match quick assets ÷ CL with these figures.
- E (0.59): ≈ 50 ÷ 85 — that is the reciprocal of the quick ratio, not the quick ratio itself.
Check:
| Ratio | Numerator | Value |
|---|---|---|
| Quick | 22 + 8 + 55 = 85 | 1.70 |
| Current | 85 + 70 = 155 | 3.10 |
Same CL of 50; only inventory changes the story.
Memory tip: Acid-test = drop inventory from the current ratio.
Show answer
Answer: E — ₹2.40 crore.
The idea: Under the turnover (Nayak) method used for eligible MSE working-capital assessment, bank finance has a simple %-of-turnover floor: 20% of projected annual turnover.
- Projected turnover = ₹12 crore.
- Working-capital need is taken as 25% of turnover: 0.25 × 12 = ₹3.00 crore.
- Borrower’s margin is 5% of turnover: 0.05 × 12 = ₹0.60 crore.
- Minimum bank finance = 20% of turnover: 0.20 × 12 = ₹2.40 crore (need 3.00 − margin 0.60).
Why the others are wrong:
- A (₹1.20 crore): ₹1.20 crore is 10% of turnover — below the 20% bank-finance floor.
- B (₹3.00 crore): ₹3.00 crore is the 25% WC need, not the bank-finance portion.
- C (₹0.60 crore): ₹0.60 crore is the 5% borrower margin, not bank finance.
- D (₹6.00 crore): ₹6.00 crore is 50% of turnover — far above the turnover-method figures.
Check:
| Item | % of turnover | ₹ crore |
|---|---|---|
| WC need | 25% | 3.00 |
| Borrower margin | 5% | 0.60 |
| Min bank finance | 20% | 2.40 |
3.00 − 0.60 = 2.40.
Memory tip: Nayak/turnover shorthand: 25% need − 5% margin = 20% minimum bank finance.
Answer: E — ₹2.40 crore.
The idea: Under the turnover (Nayak) method used for eligible MSE working-capital assessment, bank finance has a simple %-of-turnover floor: 20% of projected annual turnover.
- Projected turnover = ₹12 crore.
- Working-capital need is taken as 25% of turnover: 0.25 × 12 = ₹3.00 crore.
- Borrower’s margin is 5% of turnover: 0.05 × 12 = ₹0.60 crore.
- Minimum bank finance = 20% of turnover: 0.20 × 12 = ₹2.40 crore (need 3.00 − margin 0.60).
Why the others are wrong:
- A (₹1.20 crore): ₹1.20 crore is 10% of turnover — below the 20% bank-finance floor.
- B (₹3.00 crore): ₹3.00 crore is the 25% WC need, not the bank-finance portion.
- C (₹0.60 crore): ₹0.60 crore is the 5% borrower margin, not bank finance.
- D (₹6.00 crore): ₹6.00 crore is 50% of turnover — far above the turnover-method figures.
Check:
| Item | % of turnover | ₹ crore |
|---|---|---|
| WC need | 25% | 3.00 |
| Borrower margin | 5% | 0.60 |
| Min bank finance | 20% | 2.40 |
3.00 − 0.60 = 2.40.
Memory tip: Nayak/turnover shorthand: 25% need − 5% margin = 20% minimum bank finance.
Show answer
Answer: A — 1.69.
The idea: DSCR asks whether cash-generation for the year comfortably covers that year’s interest plus principal instalment on the term loan.
- Formula: DSCR = (PAT + Depreciation + Interest on term loan) ÷ (Interest + Principal instalment).
- Numerator: 48 + 18 + 22 = 88 (₹ lakh).
- Denominator: 22 + 30 = 52.
- 88 ÷ 52 ≈ 1.6923, which rounds to 1.69.
Why the others are wrong:
- B (1.20): 1.20 does not match (PAT + Dep + Int) ÷ (Int + Principal) with these inputs.
- C (1.45): 1.45 does not match the DSCR formula with these inputs.
- D (2.00): 2.00 equals 88 ÷ 44 — that happens if principal is dropped and interest is effectively double-counted in the denominator.
- E (2.40): 2.40 does not match DSCR with these inputs (it is higher than 88 ÷ 52).
Check: Numerator adds back non-cash depreciation and the interest that sits in the denominator, so like-for-like coverage of debt service is measured. Values near or above bank policy minima support comfort; cut-offs are policy-driven.
Memory tip: DSCR = earnings available for debt service ÷ (interest + principal for the year).
Answer: A — 1.69.
The idea: DSCR asks whether cash-generation for the year comfortably covers that year’s interest plus principal instalment on the term loan.
- Formula: DSCR = (PAT + Depreciation + Interest on term loan) ÷ (Interest + Principal instalment).
- Numerator: 48 + 18 + 22 = 88 (₹ lakh).
- Denominator: 22 + 30 = 52.
- 88 ÷ 52 ≈ 1.6923, which rounds to 1.69.
Why the others are wrong:
- B (1.20): 1.20 does not match (PAT + Dep + Int) ÷ (Int + Principal) with these inputs.
- C (1.45): 1.45 does not match the DSCR formula with these inputs.
- D (2.00): 2.00 equals 88 ÷ 44 — that happens if principal is dropped and interest is effectively double-counted in the denominator.
- E (2.40): 2.40 does not match DSCR with these inputs (it is higher than 88 ÷ 52).
Check: Numerator adds back non-cash depreciation and the interest that sits in the denominator, so like-for-like coverage of debt service is measured. Values near or above bank policy minima support comfort; cut-offs are policy-driven.
Memory tip: DSCR = earnings available for debt service ÷ (interest + principal for the year).
Show answer
Answer: B — 66%.
The idea: Under IBC’s Corporate Insolvency Resolution Process, the Committee of Creditors (financial creditors) votes on a resolution plan. After the voting-threshold amendment reflected in standard ABM teaching, the bar is 66%.
- Rule (post-amendment position tested in ABM): a resolution plan needs approval by financial creditors holding at least 66% voting share of the CoC.
- Older material used 75%; that pre-amendment figure is the usual distractor.
- 51%, 60% and 90% are not the CoC resolution-plan threshold in this framework.
Why the others are wrong:
- A (51%): 51% is a simple majority idea — not the IBC CoC threshold for a resolution plan.
- C (60%): 60% is not the prescribed CoC voting share for plan approval.
- D (75%): 75% is the pre-amendment threshold — the classic trap.
- E (90%): 90% is far above the statutory CoC threshold for a resolution plan.
Check: Exam cue: if you see both 66% and 75%, prefer 66% for resolution-plan approval under the amended IBC position taught in ABM.
Memory tip: CoC resolution plan vote = 66% (remember: 75% is the old figure).
Answer: B — 66%.
The idea: Under IBC’s Corporate Insolvency Resolution Process, the Committee of Creditors (financial creditors) votes on a resolution plan. After the voting-threshold amendment reflected in standard ABM teaching, the bar is 66%.
- Rule (post-amendment position tested in ABM): a resolution plan needs approval by financial creditors holding at least 66% voting share of the CoC.
- Older material used 75%; that pre-amendment figure is the usual distractor.
- 51%, 60% and 90% are not the CoC resolution-plan threshold in this framework.
Why the others are wrong:
- A (51%): 51% is a simple majority idea — not the IBC CoC threshold for a resolution plan.
- C (60%): 60% is not the prescribed CoC voting share for plan approval.
- D (75%): 75% is the pre-amendment threshold — the classic trap.
- E (90%): 90% is far above the statutory CoC threshold for a resolution plan.
Check: Exam cue: if you see both 66% and 75%, prefer 66% for resolution-plan approval under the amended IBC position taught in ABM.
Memory tip: CoC resolution plan vote = 66% (remember: 75% is the old figure).
Show answer
Answer: C — In hypothecation, possession usually stays with the borrower; in pledge, possession is with the creditor/bailee.
The idea: Both hypothecation and pledge create a security interest over movables, but possession is the key difference.
- Pledge: goods are delivered to the creditor (bailee) — possession moves to the bank/pledgee.
- Hypothecation: a charge is created on movables while possession usually stays with the borrower (typical for stock and book-debt working-capital limits).
- Mortgage, by contrast, concerns immovable property — not the distinction asked here.
Why the others are wrong:
- A (Both always require the bank to hold physical possession of goods): False — hypothecation typically leaves possession with the borrower.
- B (Pledge can be created only over immovable property): Pledge is over goods (movables), not immovable property.
- D (Hypothecation is used only for term loans against land): Hypothecation is classic for WC against stock/receivables, not “only term loans against land.”
- E (Neither creates a charge enforceable against the asset): Both can create an enforceable charge; the statement is simply wrong.
Check:
| Charge | Typical asset | Possession |
|---|---|---|
| Pledge | Goods | With creditor/bailee |
| Hypothecation | Stock / book debts | Usually with borrower |
| Mortgage | Immovable property | Depends on form; not this MCQ |
Memory tip: Pledge = bank holds goods; hypothecation = borrower keeps goods, bank holds the charge.
Answer: C — In hypothecation, possession usually stays with the borrower; in pledge, possession is with the creditor/bailee.
The idea: Both hypothecation and pledge create a security interest over movables, but possession is the key difference.
- Pledge: goods are delivered to the creditor (bailee) — possession moves to the bank/pledgee.
- Hypothecation: a charge is created on movables while possession usually stays with the borrower (typical for stock and book-debt working-capital limits).
- Mortgage, by contrast, concerns immovable property — not the distinction asked here.
Why the others are wrong:
- A (Both always require the bank to hold physical possession of goods): False — hypothecation typically leaves possession with the borrower.
- B (Pledge can be created only over immovable property): Pledge is over goods (movables), not immovable property.
- D (Hypothecation is used only for term loans against land): Hypothecation is classic for WC against stock/receivables, not “only term loans against land.”
- E (Neither creates a charge enforceable against the asset): Both can create an enforceable charge; the statement is simply wrong.
Check:
| Charge | Typical asset | Possession |
|---|---|---|
| Pledge | Goods | With creditor/bailee |
| Hypothecation | Stock / book debts | Usually with borrower |
| Mortgage | Immovable property | Depends on form; not this MCQ |
Memory tip: Pledge = bank holds goods; hypothecation = borrower keeps goods, bank holds the charge.
Show answer
Answer: D — Three years.
The idea: RBI’s compliance-function framework protects the CCO’s independence partly through a minimum fixed tenure.
- Rule: the Chief Compliance Officer should be appointed for a minimum fixed tenure of not less than three years.
- Purpose: reduce the risk of short, pressure-driven transfers and reinforce independence of the compliance function.
- Early transfer or removal is only for exceptional cases, with Board process (and supervisory intimation as applicable).
Why the others are wrong:
- A (One year): One year is shorter than RBI’s minimum fixed tenure.
- B (Two years): Two years is still below the prescribed minimum of three years.
- C (Five years): Five years is longer than the stated minimum; the prescribed floor is three years.
- E (No minimum tenure is prescribed): A minimum tenure is prescribed — it is three years.
Check: Independence toolkit: stature of the CCO + reporting line + minimum tenure (3 years) + controlled removal process.
Memory tip: CCO minimum fixed tenure = 3 years (RBI compliance-function framework).
Answer: D — Three years.
The idea: RBI’s compliance-function framework protects the CCO’s independence partly through a minimum fixed tenure.
- Rule: the Chief Compliance Officer should be appointed for a minimum fixed tenure of not less than three years.
- Purpose: reduce the risk of short, pressure-driven transfers and reinforce independence of the compliance function.
- Early transfer or removal is only for exceptional cases, with Board process (and supervisory intimation as applicable).
Why the others are wrong:
- A (One year): One year is shorter than RBI’s minimum fixed tenure.
- B (Two years): Two years is still below the prescribed minimum of three years.
- C (Five years): Five years is longer than the stated minimum; the prescribed floor is three years.
- E (No minimum tenure is prescribed): A minimum tenure is prescribed — it is three years.
Check: Independence toolkit: stature of the CCO + reporting line + minimum tenure (3 years) + controlled removal process.
Memory tip: CCO minimum fixed tenure = 3 years (RBI compliance-function framework).
Show answer
Answer: E — Provide a protected channel to report unethical or illegal conduct without fear of retaliation.
The idea: A whistle-blower policy exists so people can report unethical or illegal conduct safely. Protection from retaliation is the heart of it.
- Primary purpose: a confidential/protected channel for good-faith reporting of wrongdoing.
- It shields reporters from victimisation so issues surface early.
- It supports — and does not replace — statutory audit, Board oversight and the compliance function.
Why the others are wrong:
- A (Replace statutory audit with anonymous complaints): It does not replace statutory audit; audit and whistle-blowing work in parallel.
- B (Publish every staff grievance on the bank’s website): Publishing every staff grievance on the website is not the policy’s purpose (and would break confidentiality).
- C (Fix interest rates for whistle-blowers’ deposits): Deposit interest rates have nothing to do with whistle-blower protection.
- D (Transfer compliance ownership entirely to the business units): Compliance ownership is not transferred away by a whistle-blower policy.
Check: If the option stresses “protected reporting without fear of retaliation,” it is describing the whistle-blower policy correctly.
Memory tip: Whistle-blower = protected channel to report wrongdoing, not a substitute for audit.
Answer: E — Provide a protected channel to report unethical or illegal conduct without fear of retaliation.
The idea: A whistle-blower policy exists so people can report unethical or illegal conduct safely. Protection from retaliation is the heart of it.
- Primary purpose: a confidential/protected channel for good-faith reporting of wrongdoing.
- It shields reporters from victimisation so issues surface early.
- It supports — and does not replace — statutory audit, Board oversight and the compliance function.
Why the others are wrong:
- A (Replace statutory audit with anonymous complaints): It does not replace statutory audit; audit and whistle-blowing work in parallel.
- B (Publish every staff grievance on the bank’s website): Publishing every staff grievance on the website is not the policy’s purpose (and would break confidentiality).
- C (Fix interest rates for whistle-blowers’ deposits): Deposit interest rates have nothing to do with whistle-blower protection.
- D (Transfer compliance ownership entirely to the business units): Compliance ownership is not transferred away by a whistle-blower policy.
Check: If the option stresses “protected reporting without fear of retaliation,” it is describing the whistle-blower policy correctly.
Memory tip: Whistle-blower = protected channel to report wrongdoing, not a substitute for audit.
Topics covered today
- Module A — Statistics: Measures of Central Tendency; Measures of Dispersion; Correlation and Regression; Theory of Probability
- Module B — Human Resource Management: Development of Human Resources; Human Implications of Organisations
- Module C — Credit Management: Analysis of Financial Statements; Working Capital Finance; Term Loans; Resolution of Stressed Assets under IBC 2016; Credit Delivery and Straight Through Processing
- Module D — Compliance in Banks & Corporate Governance: Compliance Function in Banks; Compliance Culture and GRC Framework
Tomorrow’s post continues the series with another fresh set of 15 CAIIB Advanced Bank Management practice questions. Bookmark SimplifyingFin and revise one set a day.
Disclaimer: This quiz is an independent practice aid for educational purposes. It is not affiliated with, endorsed by, or published by IIBF. Always cross-check regulations and circulars from official RBI/IIBF sources before relying on any figure in an exam or at work.