CAIIB · Advanced Bank Management · Module C — Credit Management
CAIIB ABM Unit 19 — Working Capital Finance: 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 19 — Working Capital Finance (Module C — Credit Management). The CAIIB Mock Centre holds 167 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 C167 MCQs in the Mock Centre5 free belowPaper on 6 December
Key facts examiners test from this unit
Working capital: concept, cycle and liquidity — working capital is money locked in current assets; the cycle sets its size; NWC and the current ratio set the bank's share.
Assessing working capital finance — project turnover, size the current assets, fix the borrower's NWC, and lend the gap: by holdings, cash budget or turnover.
IT units, receivables finance and RBI's bills guidelines — finance genuine trade bills of constituents, with recourse, and count discounted bills in the assessment.
Changed since the textbook
RBI (Non-Fund Based Credit Facilities) Directions, 2025, in force from 1 April 2026 (6 August 2025). RBI consolidated its rules on guarantees, letters of credit, co-acceptances and partial credit enhancement into one set of directions, effective 1 April 2026 (or earlier at a lender's option), repealing 78 earlier circulars for commercial banks. Guarantees must be irrevocable and unconditional, with a clear mechanism to honour them without demur, and must be honoured when invoked unless a court restrains payment. Source: Reserve Bank of India (Non-Fund Based Credit Facilities) Directions, 2025
TReDS registration made mandatory for companies with turnover above ₹250 crore (7 November 2024). The Ministry of MSME required all companies with annual turnover above ₹250 crore, and all Central Public Sector Enterprises, to register on a TReDS platform by 31 March 2025. The earlier requirement (November 2018) applied to companies with turnover above ₹500 crore. Source: Ministry of MSME order of 7 November 2024 (summary by Singhania & Co.)
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 167 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
A borrower has current assets of ₹120 lakh, including inventory of ₹50 lakh, and current liabilities of ₹80 lakh. What is its quick ratio, and what does it show?
Why (c): Quick ratio = (current assets − inventory) ÷ current liabilities = (120 − 50) ÷ 80 = 0.875, about 0.88 : 1. Below 1, the borrower could not meet current liabilities from quick assets without selling stock, even though the current ratio (120 ÷ 80 = 1.5) looks comfortable. (a) is wrong: 1.5 is the current ratio, which includes inventory. (b) is wrong: 0.63 divides inventory, not quick assets, by current liabilities. (d) is wrong: 1.14 inverts the ratio (current liabilities ÷ quick assets).
Question 2 of 5
An MSE needing a working capital limit below ₹5 crore projects annual turnover of ₹4 crore. Under the turnover (Nayak Committee) method, what are the minimum bank limit and the borrower's margin?
Why (c): The turnover method takes the working capital need as 25% of projected turnover (₹1 crore); the borrower brings 5% of turnover as margin (₹20 lakh) and the bank finances at least 20% of turnover (₹80 lakh). The bank must grant the higher of this and the operating cycle requirement. (a) is wrong: The borrower must bring a margin of 5% of turnover. (b) is wrong: It splits the need 75:25 instead of 20% and 5% of turnover. (d) is wrong: ₹1 crore is the whole need; the bank finances 20% of turnover, not 25%.
Question 3 of 5
What must a bank's bills discounting policy include?
Why (d): The policy must be Board-approved, consistent with the working capital policy and cover the process from tender to realisation. (a) is wrong: Appraisal is required. (b) is wrong: Rates are only one element. (c) is wrong: RBI does not prescribe buyers.
Question 4 of 5
How is credit insurance on TReDS treated for prudential purposes, as of now?
Why (b): The guidelines state that credit insurance shall not, as of now, be treated as a credit risk mitigant. (a) is wrong: No capital relief is given. (c) is wrong: No risk weight relief is given. (d) is wrong: Insurers are not sovereigns.
Question 5 of 5
Why is CP a useful tool in working capital management?
Why (a): CP is unsecured short-term paper (7 days to one year) that highly rated companies issue directly to investors, so it usually costs less than bank finance, which is why it suits working capital. It carries no charge on current assets and needs a credit rating. (b) is wrong: CP is unsecured. (c) is wrong: CP tenor runs from 7 days to one year. (d) is wrong: A minimum credit rating applies.
0 of 5 answered.
Traps in this unit
NWC is not total current assets.
25% is the total need, not the bank's share.
Services bills treated as secured.
Practise all 167 questions on Unit 19. 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.