CAIIB · Advanced Bank Management · Module C — Credit Management
CAIIB ABM Unit 17 — Overview of Credit Management: Free MCQs with Explanations
By Swarnakshi Jha (ex-banker) · Updated 29 October 2026 · Paper I of the December 2026 cycle (Sunday 6 December 2026)
This is the free practice page for CAIIB ABM Unit 17 — Overview of Credit Management (Module C — Credit Management). The CAIIB Mock Centre holds 188 questions on this unit alone, every one with a why-right / why-wrong explanation; below are the facts examiners keep returning to, five practice questions with explanations, and the traps that cost marks.
ABM · Module C188 MCQs in the Mock Centre5 free belowPaper on 6 December
Key facts examiners test from this unit
Credit: importance, history, principles, borrowers and types — credit drives growth but, in excess, fuels inflation; sound lending follows six principles and respects each borrower's law.
Components of credit management — lend within the loan policy, appraise before sanction, deliver and monitor carefully, and resolve defaults in the right order.
RBI guidelines: end use and priority sector lending — no diversion of funds; eight PSL categories with limits; targets on the higher of ANBC or CEOBSE.
Changed since the textbook
Expected credit loss framework to replace incurred-loss provisioning from 1 April 2027 (27 April 2026). RBI issued final directions introducing an expected credit loss (ECL) framework for scheduled commercial banks (excluding small finance banks, regional rural banks and payments banks), effective 1 April 2027. Loans will be placed in three stages: Stage 1 (no significant increase in credit risk; 12-month expected loss), Stage 2 (significant increase in credit risk, presumed when more than 30 days past due; lifetime loss) and Stage 3 (credit-impaired, corresponding to NPAs; lifetime loss). The day-one impact on CET1 capital may be spread over four years, to 2030-31. Source: RBI final ECL directions of 27 April 2026
Collateral-free loans to micro and small enterprises raised to ₹20 lakh (10 February 2026). RBI raised the limit up to which banks must not take collateral for loans to micro and small enterprises from ₹10 lakh to ₹20 lakh, for loans sanctioned or renewed on or after 1 April 2026. Banks may still extend collateral-free loans up to ₹25 lakh to units with a good track record and financial position. Source: RBI announcement of 10 February 2026 (reported by Drishti IAS and Outlook Business)
5 free practice questions — tap an option
Five practice questions from this unit. Answers lock on the first tap, exactly as in the exam, and an explanation opens underneath. The Mock Centre has all 188 questions on this unit, from easy to tough, with caselets and key-in numericals, why every other option is wrong and the exam tip — and tracks your score and revision dates.
Question 1 of 5
To which of these uses must working capital finance NOT be diverted?
Why (c): Working capital must not be diverted to fixed assets, investments in associates or subsidiaries, or shares, debentures, MF units and other capital market investments. (a) is wrong: Wages are a working capital use. (b) is wrong: Raw materials are a working capital use. (d) is wrong: Operating expenses are a working capital use.
Question 2 of 5
If a buyer fails to pay an MSE supplier on time, what interest must it pay under the MSMED Act?
Why (c): The buyer must pay compound interest with monthly rests at three times the bank rate notified by RBI. (a) is wrong: Rests are monthly and the multiple is three times the bank rate. (b) is wrong: It is compound, at three times the bank rate. (d) is wrong: The interest is compound.
Question 3 of 5
Where is a dispute about amounts due to an MSE supplier referred under the MSMED Act?
Why (a): Disputes are referred to the Micro and Small Enterprises Facilitation Council constituted by the State Government. (b) is wrong: The Ombudsman handles complaints against banks. (c) is wrong: NCLT handles insolvency and company matters. (d) is wrong: DRTs handle bank recovery suits.
Question 4 of 5
Which of these is NOT an allowed external benchmark for EBLR?
Why (c): EBLR must be linked to the repo rate, the 3-month or 6-month T-bill yield (FBIL) or another FBIL benchmark; MCLR is an internal benchmark. (a) is wrong: The FBIL 3-month T-bill yield is allowed. (b) is wrong: The repo rate is allowed. (d) is wrong: Other FBIL rates are allowed.
Question 5 of 5
When may an NPA be classified straight away as doubtful, without waiting 12 months in substandard?
Why (a): If the realisable value of the security is less than 50% of the value assessed by the bank or accepted by RBI, the NPA may be classified as doubtful straight away. (b) is wrong: Missed instalments decide NPA status, not this rule. (c) is wrong: Ratings are not the test. (d) is wrong: Size is not the test.
0 of 5 answered.
Traps in this unit
Security is a fallback; safety comes first.
Non-fund-based credit can turn into fund-based credit.
RBI does not write each bank's loan policy.
Practise all 188 questions on Unit 17. The free CAIIB demo opens Units 1–2 of every paper with full explanations; the ABM Online Mock Centre unlocks all 4,600+ ABM questions, the full-length papers with caselets and key-ins, module mocks and Smart Revision for 18 months (₹1,499).
Independent study aid — not affiliated with, endorsed by, or sponsored by the Indian Institute of Banking & Finance (IIBF). Exam pattern, dates, fees and passing criteria are set by IIBF — always confirm the current rules at iibf.org.in. CAIIB content follows rules and developments up to IIBF's cut-off of 30 June 2026 (where a rule changed later, the update box says so); verify from official sources before relying on them in practice.