CAIIB · Bank Financial Management · Module D — Balance Sheet Management
CAIIB BFM Unit 27 — Capital Adequacy – Basel Norms: 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 27 — Capital Adequacy – Basel Norms (Module D — Balance Sheet Management). The CAIIB Mock Centre holds 348 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 D348 MCQs in the Mock Centre5 free belowPaper on 12 December
Key facts examiners test from this unit
The Basel framework and its three pillars — Pillar 1 calculates the minimum, Pillar 2 checks whether the bank needs more, and Pillar 3 lets the market judge.
Scope of application and India's choice of approaches — every commercial bank, solo and consolidated, using the simplest option in each risk area.
The Pillar 1 menu of approaches — the further right on the menu, the more the bank's own estimates drive its capital.
Changed since the textbook
Financial Stability Report, June 2026 (30 Jun 2026). For SCBs in March 2026: CRAR 17.7%, CET1 ratio 15.3%, leverage ratio 8.2%. Under the severe stress scenario the system CET1 ratio stays around 11.4%, above the minimum. Source: OneFin summary
Investment Fluctuation Reserve (IFR) discontinued (18 May 2026). IFR balances as on 17 May 2026 go to statutory reserves, general reserves or the P&L account, and count as Tier 1. Source: KNN India report
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 348 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
What does "solo level (global position)" cover for a bank?
Why (c): The solo level is the bank's global position: domestic and overseas branches of the one legal entity. Subsidiaries come in at the consolidated level. (a) is wrong: "global position" brings in the foreign branches as well. (b) is wrong: Branches are part of the bank's solo position. (d) is wrong: That is the consolidated level.
Question 2 of 5
Which statement about core capital is FALSE?
Why (d): Subordinated debt over five years is supplementary (Tier II) capital, not core capital. (a) is wrong: This is true; paid-up capital is core. (b) is wrong: This is true; free reserves are core. (c) is wrong: This is true; deductions are made from core capital.
Question 3 of 5
Which statement about Principle 4 is wrong?
Why (b): Principle 4 is preventive: intervene early, before capital falls below the levels needed. (a) is wrong: This is what Principle 4 says. (c) is wrong: This is part of Principle 4. (d) is wrong: This is the purpose of early intervention.
Question 4 of 5
A mid-sized bank's ICAAP assesses capital only for credit, market and operational risk, calculated as under Pillar 1. What is the main gap?
Why (b): The ICAAP is the bank's own assessment of all its material risks and the capital they need, including risks outside the Pillar 1 calculation such as credit concentration, interest rate risk in the banking book, liquidity, reputational and strategic risk. RBI reviews it under the SREP, and the Board approves it. (a) is wrong: The bank prepares its ICAAP; RBI reviews it. (c) is wrong: The Board, not the auditors, approves the ICAAP. (d) is wrong: The ICAAP must cover all material risks, not just Pillar 1.
Question 5 of 5
Which BCBS principle requires that a bank's Pillar 3 report can be set against other banks' reports?
Why (d): Principle 5: comparable across banks. Principle 4 (consistent over time) concerns the same bank from period to period. (a) is wrong: Consistency is about the same bank across periods. (b) is wrong: Clarity is about understandability. (c) is wrong: Comprehensiveness is about covering all key areas.
0 of 5 answered.
Traps in this unit
Pillar 2 is review; Pillar 3 is disclosure. Do not swap them.
Basel is a set of standards adopted by national regulators, not a global law.
RRBs, LABs and co-operative banks are outside these norms.
Practise all 348 questions on Unit 27. 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.