CAIIB · Bank Financial Management · Module D — Balance Sheet Management
CAIIB BFM Unit 28 — Asset Classification and Provisioning 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 28 — Asset Classification and Provisioning 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
Why the norms exist, and when a loan becomes an NPA — no recovery for 90 days (or the facility's own test) means no more income and an NPA.
Income recognition on NPAs — book interest on an NPA only when real cash arrives, and provide for anything else.
Substandard, doubtful and loss — age moves an NPA from substandard to doubtful; a collapse in security or a fraud skips the queue.
Changed since the textbook
IBC (Amendment) Act, 2026 (26 May 2026). A creditor-initiated insolvency resolution process: notified classes of financial institutions holding at least 51% of the debt can start it; the debtor gets 30 days to respond; it must finish within 150 days (one extension of up to 45 days); the tribunal must admit or reject an application within 14 days; the pre-packaged process threshold for unrelated financial creditors falls from 66% to 51%; withdrawal under section 12A needs 90% of the CoC. Source: LiveLaw Business
NARCL progress (30 Apr 2026). 33 borrower entities with aggregate debt of ₹1,65,862 crore acquired (target ₹2 lakh crore); recoveries of ₹4,364 crore in 2025-26 and ₹6,345 crore in all, more than 48% of acquisition cost. Source: PIB
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
Why does booking unpaid interest on an NPA as income harm the bank's accounts?
Why (b): 28.1: income on an NPA is not recognised until received. Booking it earlier would show profits, and capital built from them, that may not exist. (a) is wrong: Deposits are not affected by income recognition. (c) is wrong: CRR depends on liabilities, not on income booked. (d) is wrong: Standard asset provisions depend on the standard book, not on NPA interest.
Question 2 of 5
An account has just been declared a fraud. How is it classified?
Why (c): Where fraud threatens recovery, the account is classified straightaway as doubtful or loss, as appropriate, without passing through the substandard stage; provisioning then follows RBI's separate rules for fraud accounts, and classification does not wait for the criminal case. (a) is wrong: Fraud is serious credit impairment that skips the substandard stage. (b) is wrong: Classification does not wait for criminal proceedings. (d) is wrong: The textbook says doubtful or loss, as appropriate.
Question 3 of 5
How are advances guaranteed by a State Government classified?
Why (a): Advances guaranteed by a State Government, and investments in State Government guaranteed securities, follow the normal 90-day overdue norm; the relaxation of classifying only when the guarantee is repudiated on invocation applies to Central Government guarantees. (b) is wrong: That relaxation is for Central Government guarantees. (c) is wrong: A State guarantee does not exempt the advance from the norms. (d) is wrong: The norm is 90 days.
Question 4 of 5
A bank with branches in India and abroad computes its provision for performing loans. Which amount does it apply the rates to?
Why (d): 28.3: banks make a general provision on standard assets on the funded outstanding, on a global loan portfolio basis, at the prescribed rates. (a) is wrong: The base is the funded outstanding. (b) is wrong: The base is the funded outstanding. (c) is wrong: The provision is on a global loan portfolio basis.
Question 5 of 5
Where are standard asset provisions shown in the balance sheet?
Why (c): 28.3, p. 688: standard asset provisions are not reckoned for net NPAs and are not netted from gross advances; they are shown separately as "Contingent Provisions against Standard Assets" under "Other Liabilities and Provisions – Others" in Schedule 5. (a) is wrong: They are not netted from advances. (b) is wrong: They are not used for net NPAs. (d) is wrong: They are provisions, not reserves.
0 of 5 answered.
Traps in this unit
Crop loans use crop seasons, not 90 days.
Within the limit can still be out of order.
Gold loans are not in the deposits/NSC exception.
Practise all 348 questions on Unit 28. 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.