Liabilities of Banks: JAIIB AFM Case Study Guide 2026 (Concepts + Solved

The liabilities of banks are one of the highest-scoring yet most misunderstood topics in the JAIIB Accounting. Financial Management (AFM) module. Get the concept right once, and the case-study questions almost solve themselves. Get it wrong, and you lose easy marks that toppers never miss.

This 2026 guide breaks down the liabilities of banks from first principles - what they are. How they are classified. Where they sit on a bank's balance sheet. And exactly how examiners frame them in AFM case studies. Every concept is paired with a plain-English explanation and a worked example.

What Are the Liabilities of Banks?

In accounting. A liability is anything a business owes to an outside party. For a bank, this idea has a special twist.

When you deposit money in your savings account. The bank does not "hold" your cash in a locker. It owes that money back to you on demand. So your deposit - your asset - is the bank's liability.

That single insight unlocks the whole topic. A bank's core business is to borrow money cheaply (deposits). Lend it at a higher rate (loans and advances). The borrowed side becomes its liabilities; the lent side becomes its assets.

So the liabilities of banks represent the sources of funds a bank uses to run its operations. Grow its loan book.

Why This Topic Matters for JAIIB AFM

The AFM paper expects you to read. Interpret a bank's balance sheet. Liabilities are one half of that statement. And they appear again in topics like capital adequacy. Liquidity management and the CRR/SLR framework.

Examiners love this area. It lets them test three skills at once:

• Classification - can you slot an item under the correct head?
• Totalling - can you add up sub-items to get the right balance-sheet figure?
• Reasoning - do you understand the liquidity. Risk impact of each liability?

Sharpen all three with regular mock tests, and you turn liabilities into guaranteed marks. You can also revise allied concepts through our free guides.

The Main Types of Bank Liabilities

Indian banks present their balance sheet in Form A under the Banking Regulation Act. 1949. On the liabilities side you will find four broad heads. Let us take them one by one.

1. Capital and Reserves & Surplus (Owners' Funds)

This is the money brought in by shareholders. Plus profits the bank has retained over the years.

• Capital - the paid-up equity (and any preference) share capital.
• Reserves & Surplus - statutory reserves. Share premium. Revenue reserves and the balance in the profit & loss account.

Together these form the bank's net worth or owners' funds. They act as a cushion that absorbs losses and supports capital adequacy. Confirm the latest minimum capital. Capital-adequacy norms on the most recent official RBI/IIBF notification.

2. Deposits (The Largest Liability)

Deposits are the lifeblood of a bank. Usually its single biggest liability. They are split into three families.

• Demand Deposits - repayable on demand. These include current accounts and the demand portion of savings accounts. They typically earn low or no interest.
• Savings Deposits - interest-bearing accounts for individuals, with some withdrawal flexibility.
• Time (Term) Deposits - fixed. Recurring deposits locked in for a set period. They carry the highest interest cost but are the most stable.

Together, low-cost current and savings balances are called CASA deposits. A high CASA ratio lowers a bank's cost of funds - a favourite examiner talking point.

3. Borrowings

When deposits are not enough, a bank borrows. These borrowings are a liability. The bank must repay them with interest.

• Borrowings in India - from the RBI (for example. Under the repo window), from other banks, and from institutions.
• Borrowings outside India - funds raised in overseas or international markets.

Borrowings help a bank manage short-term liquidity and fund growth. But they are usually costlier and less stable than deposits.

4. Other Liabilities and Provisions

This is the catch-all head for everything that does not fit above:

• Bills payable and inter-office adjustments.
• Interest accrued but not yet paid.
• Provisions - for example against standard or non-performing assets, and for taxation.
• Subordinated bonds and debentures raised to shore up funds.

Bank Liabilities at a Glance (Comparison Table)

Use this quick-reference table to fix the four heads in memory before the exam.

JAIIB AFM Case Study: Liabilities of Banks (Solved)

Here is a worked example in the exact style the AFM paper uses. Note the illustrative figures are for practice only.

Q1. What is the total Deposits figure?

Add the three deposit types: 1,500 + 3,000 + 7,000 = ₹11,500 crore.

Q2. What is the CASA amount?

CASA = Current + Savings = 1,500 + 3,000 = ₹4,500 crore.

Q3. What are the total owners' funds (net worth)?

Capital + Reserves = 500 + 2,000 = ₹2,500 crore.

Q4. What is the total of the liabilities side of the balance sheet?

Owners' funds 2,500 + Deposits 11,500 + Borrowings 800 + Other liabilities 1,200 = ₹16,000 crore.

Notice the pattern: every question is just correct classification followed by simple addition. That is the entire skill the case study tests.

How to Study Liabilities of Banks for JAIIB

Follow this simple, high-yield study routine.

1. Memorise the four heads in order: Capital & Reserves. Deposits, Borrowings, Other Liabilities & Provisions.
2. Learn the sub-items under each head so you never misclassify an entry.
3. Practise totalling - the case study almost always asks you to add a group of items.
4. Link to ratios - connect deposits to CASA. Capital to capital adequacy.
5. Solve PYQs and mocks - speed and accuracy come only from repetition. Time yourself with our mock tests.

Common Mistakes to Avoid

These errors cost candidates easy marks every session. Watch out for them.

• Putting deposits on the assets side. Deposits are a liability - the bank owes them back.
• Confusing reserves with the RBI's CRR. "Reserves & Surplus" on the balance sheet is owners' funds. Not the cash reserve kept with the RBI.
• Forgetting recurring deposits. They are time deposits and belong with fixed deposits.
• Mixing borrowings with deposits. A bank borrowing from the RBI is not a deposit - it is a separate head.
• Ignoring provisions. Provisions sit under "Other Liabilities and Provisions," not assets.

Frequently Asked Questions

What are the liabilities of banks in simple terms?

They are the funds a bank owes to others - chiefly depositors. Lenders and shareholders. In short. They are the bank's sources of funds on the liabilities side of its balance sheet.

Why are deposits treated as a liability and not income?

Because the bank must repay deposits to customers on demand or on maturity. The money belongs to the depositor. So it is an obligation - a liability - for the bank.

Which is the largest liability of a typical Indian bank?

Deposits are normally the largest liability. With term and savings deposits forming the bulk. The exact mix varies by bank - confirm specific ratios from the latest published balance sheet.

What is the difference between borrowings and deposits?

Deposits come from the public and are the bank's core, low-cost funding. Borrowings are funds raised from the RBI. Other banks or markets. Usually for short-term liquidity and at a higher cost.

How are bank liabilities tested in the JAIIB AFM exam?

Mostly through case studies that ask you to classify items under the correct head. Add them up - for example. Computing total deposits, CASA or net worth. The math is simple; accurate classification is the key.

Conclusion: Turn Liabilities Into Easy Marks

The liabilities of banks are not just textbook obligations - they are the strategic engine of a bank's funding. Liquidity and profitability. Master the four heads. Understand why deposits dominate. And the AFM case study becomes one of your most reliable scoring areas.

Revise the balance-sheet format. Drill the classification, and back it with timed practice. Do that consistently. And you will walk into the exam treating liabilities as guaranteed marks rather than guesswork.

Related Guides

For more on liabilities of banks. See the official IIBF circulars. Our chapter-wise free notes on iibf.store.