CAIIB · Bank Financial Management · Module B — Risk Management
CAIIB BFM Unit 18 — Basel III Framework on Liquidity Standards: Free MCQs with Explanations
By Swarnakshi Jha (ex-banker) · Updated 29 October 2026 · Paper II of the December 2026 cycle (Saturday 12 December 2026)
This is the free practice page for CAIIB BFM Unit 18 — Basel III Framework on Liquidity Standards (Module B — Risk Management). The CAIIB Mock Centre holds 184 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.
BFM · Module B184 MCQs in the Mock Centre5 free belowPaper on 12 December
Key facts examiners test from this unit
Why Basel III, and the liquidity framework — Basel II let banks shrink their own risk weights; Basel III added capital with buffers, firmer risk weights, a leverage ratio and two liquidity ratios.
The Liquidity Coverage Ratio — LCR = HQLA ÷ net cash outflows over 30 days, at least 100% from 2019; usable in stress, with an immediate report to RBI.
HQLA and net outflows — HQLA = Level 1 + 85% of Level 2A + 50% of Level 2B, with Level 2 capped at 40% and 2B at 15%; net outflows let inflows cover at most 75% of outflows.
Changed since the textbook
Financial Stability Report, June 2026 (30 Jun 2026). RBI released its Financial Stability Report on 30 June 2026. Banks' LCR was 124.2% and NSFR 122.1% in March 2026; in RBI's liquidity stress test the aggregate LCR falls from 123.7% to 116.7%, and to 110.8% in the harsher scenario, where three banks would fall below 100%. Source: RMA India
Revised LCR run-off rates take effect (1 Apr 2026). RBI's final LCR rules of 21 April 2025 took effect. Retail and small business deposits that customers can move through internet or mobile banking carry an extra 2.5% run-off (stable deposits 7.5%, less stable 12.5%); Level 1 government securities count at market value less haircuts in line with LAF and MSF margins; unsecured funding from non-financial trusts, partnerships and LLPs runs off at 40% instead of 100%. RBI estimated a net gain of about 6 percentage points in the aggregate LCR. Source: Business Standard
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 184 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
In a period of acute liquidity stress, a bank's LCR falls below 100% as it uses its high-quality liquid assets. What does the framework expect?
Why (c): The LCR must be at least 100% in normal times, but the HQLA stock exists to be used: in stress a bank may draw on it and fall below 100%, provided it informs RBI immediately with the reasons and its plan to restore the ratio. Halting lending or forcing loan sales would deepen the stress. (a) is wrong: The buffer may be used; lending need not stop. (b) is wrong: No same-day restoration is required. (d) is wrong: No automatic penalty applies.
Question 2 of 5
What haircut applies to Level 2B assets, which are harder to convert into cash?
Why (b): The textbook applies a 50% haircut to Level 2B assets. (a) is wrong: 15% is the Level 2A haircut. (c) is wrong: 40% is the cap on Level 2 assets, not a haircut. (d) is wrong: A 100% haircut would give them no value at all.
Question 3 of 5
What does the contractual maturity mismatch profile identify?
Why (d): The contractual maturity mismatch profile sets contractual inflows against outflows in defined time bands, showing how much liquidity the bank would have to raise in each band if every contract ran to maturity with no rollover. Large depositors, unencumbered assets and the LCR by currency belong to other monitoring tools. (a) is wrong: Large depositors belong to the concentration of funding metric. (b) is wrong: That is the available unencumbered assets metric. (c) is wrong: That is the LCR by significant currency.
Question 4 of 5
Why does the Net Stable Funding Ratio (NSFR) complement the LCR?
Why (d): The LCR covers a 30-day stress; the NSFR looks at the structure of funding over one year, requiring available stable funding to be at least 100% of required stable funding, so that long-term assets are not financed with short-term wholesale money. The two run side by side. (a) is wrong: That is the LCR. (b) is wrong: The NSFR is a funding ratio, not a capital charge. (c) is wrong: It applies alongside the LCR.
Question 5 of 5
Up to what aggregate funding is a small business customer's funding treated like retail deposits for the LCR and NSFR?
Why (a): RBI raised the limit from ₹5 crore to ₹7.5 crore on 6 January 2022, for both ratios. (b) is wrong: ₹5 crore was the earlier limit. (c) is wrong: ₹3 crore is the bulk deposit threshold. (d) is wrong: The limit is ₹7.5 crore.
0 of 5 answered.
Traps in this unit
The scenario combines bank-specific and market-wide shocks.
The MSF dip is 2% of NDTL today.
LCR monitored in each significant currency.
Practise all 184 questions on Unit 18. The free CAIIB demo opens Units 1–2 of every paper with full explanations; the BFM Online Mock Centre unlocks all 7,600+ BFM 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.