JAIIB · Principles & Practices of Banking · Module B — Functions of Banks
JAIIB PPB Unit 38 — Finance to MFIs & Co-Lending with NBFCs: Free MCQs with Explanations
By Swarnakshi Jha (ex-banker) · Updated 20 September 2026 · Paper 2 of the November 2026 cycle (22 November 2026)
This page is a free slice of our JAIIB PPB question bank for Unit 38 — Finance to MFIs & Co-Lending with NBFCs (Module B — Functions of Banks). The Mock Centre holds 36 questions on this unit alone, every one with a why-right / why-wrong explanation; below are the facts examiners keep returning to, five of those questions to try, and the traps that cost marks.
PPB · Module B36 MCQs in the Mock Centre5 free belowPaper on 22 November 2026
Key facts examiners test from this unit
NBFC = Companies Act company doing NBFI business; banks give WC + term loans (incl. second-hand assets); registration-exempt: microfinance cos., ARCs, nidhis, mutual benefit, chit, merchant banking — HFCs NOT exempt.
Ineligible for bank finance: NBFC-discounted bills (vehicle-bill rediscount exception), NBFC share/ debenture investments (stock-broker stock-in-trade exception), unsecured loans/ICDs, subsidiary loans, IPO/secondary-market lending; no leases with leasing NBFCs, no bridge loans, no shares as collateral, no deposit-refund guarantees (PCE on bonds allowed).
Factoring cos. financeable: Factoring Act 2011 + ≥50% income + ≥50% receivables + no bill discounting + secured.
Law update, September 2026. Current law: RBI Co-Lending Arrangements Directions 2025, effective 1 January 2026, replaced the 2020 CLM circular. Current law (1 January 2026): each co-lender must retain at least 10% of the loan — the 20/80 split belongs to the 2020 CLM. 'As per CLM 2020' → 20%; 'under the 2025 directions' → 10%. Under the 2025 Directions (from 1 January 2026) the scope is all commercial banks except SFBs, LABs and RRBs, plus AIFIs and NBFCs/HFCs — and all loans, not only PSL.
5 free practice questions — tap an option
Five basic questions from this unit. Answers lock on the first tap, exactly as in the exam, and a short explanation opens underneath. The Mock Centre adds the moderate and tough questions, why every other option is wrong, the concept capsule and the exam tip — with your score and revision dates tracked.
Question 1 of 5
Banks may extend to NBFCs:
Why (d): Banks may extend BOTH WORKING CAPITAL AND TERM LOANS to NBFCs — but guarantees to help NBFCs raise deposits are barred.
Question 2 of 5
Banks CAN finance an NBFC's:
Why (c): Banks CAN finance an NBFC's SECOND-HAND ASSET financing — while bridge loans, share investments, unsecured loans and IPO finance sit on the restricted list.
Question 3 of 5
RBI's revised Co-Lending Model (CLM) circular came in:
Why (a): RBI's revised Co-Lending Model circular came on 5 NOVEMBER 2020 — revising the 2018 co-origination scheme.
Law update, Sep 2026: Current law: RBI Co-Lending Arrangements Directions 2025, effective 1 January 2026, replaced the 2020 CLM circular.
Question 4 of 5
Banks may NOT co-lend with:
Why (b): Banks may NOT co-lend with an NBFC OF THE BANK'S OWN PROMOTER GROUP — the conflict-of-interest bar.
Question 5 of 5
For secured loans to NBFCs, banks may accept shares and debentures as collateral:
Why (b): A flat bar — alongside the bans on bridge finance and deposit-refund guarantees.
0 of 5 answered.
Traps in this unit
Confusable A
Confusable B
The difference
20% Tier I
25% Tier I
Single NBFC vs connected group
7.5% (Tier I+II)
12.5%
Gold-loan NBFC base vs infra on-lending extension
Practise all 36 questions on Unit 38. The free demo opens a slice of every subject with the same explanations; the PPB Online-only pass unlocks all 3,280 PPB questions, the full and module mocks, Smart Revision and the Readiness Score for one year (₹1,299). Not sure where you stand? Take the free 10-question test first.
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. Regulatory figures verified as of September 2026; verify from official sources before relying on them in practice.
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