Rehabilitation and Recovery CAIIB ABM Module C: Complete 2026 Guide with MCQs

Rehabilitation and Recovery CAIIB — this guide gives you the latest 2026 information. Key dates, eligibility, fees and study tips for the IIBF exam.

Rehabilitation. Recovery CAIIB ABM Module C is where banking theory meets the real war room. This is the chapter that decides whether a bank revives a struggling business or recovers its money the hard way.

Master it well. And you unlock some of the easiest. Highest-scoring marks in the entire Advanced Bank Management (ABM) paper.

In this 2026 guide. We break down every concept a senior banker actually uses on the job. You also get a quick-facts table.

18 exam-style MCQs with reasoning, common mistakes to avoid, and a focused FAQ. By the end. You will read a stressed-asset question.

Know the answer before you finish reading the options.

What Is Rehabilitation and Recovery in CAIIB ABM?

Rehabilitation. Recovery is the structured process banks follow when a loan account turns stressed. It sits inside Module C - Credit Management of the CAIIB ABM syllabus. One of the most application-heavy parts of the exam.

The idea is simple. When a borrower stops repaying. The bank must decide its next move quickly.

Either help a fundamentally sound business recover. Or move firmly to recover the money. Every tool in this chapter serves one of those two goals.

Why Rehabilitation and Recovery Matters for Banks

Every loan carries credit risk. When a borrower defaults or delays payments. The account becomes stressed and the bank faces a potential loss. A systematic rehabilitation. Recovery framework minimises that loss and maximises what comes back.

Done well, this discipline delivers four clear benefits:

• It protects the financial stability of the bank.
• It reduces the provisioning burden and improves profitability.
• It builds a strong credit culture across the institution.
• It ensures compliance with RBI prudential norms on stressed assets.

This is also why examiners love the topic. It tests judgement, not just memory. You can sharpen that judgement with regular mock tests built on real exam patterns.

Rehabilitation vs Recovery: The Core Distinction

Confusing these two terms is the single biggest mistake aspirants make. The table below settles it for good. Read it once, then read it again before the exam.

Aspect	Rehabilitation	Recovery
Goal	Revive and continue the unit	Recoup the bank's dues
Applies when	Unit is viable	Unit is non-viable
Typical tools	Restructuring, rectification, fresh terms	SARFAESI, IBC, ARC sale, compromise
Borrower role	Cooperative and willing	Often non-cooperative or wilful
Outcome	Account upgraded over time	Exposure exited or settled

Quick-Facts Table: High-Yield Numbers

Examiners reward sharp recall of thresholds. Use this table for fast revision. Then verify each figure on the latest official IIBF notification. RBI circular. Since norms are updated periodically.

Concept	Key Benchmark
Viability test (DSCR)	DSCR generally at or above 1.25
Inter-Creditor Agreement (ICA)	75% by value and 60% by number to approve
Non-cooperative borrower notice	Reasonable response time, usually 30 days
MSME rectification window	Regularise within about 30 days
IBC admitted account provision	50% on admission, up to 100% on liquidation
Resolution Plan delay penalty	Extra provision beyond 180 and 365 days

Key Concepts under Rehabilitation and Recovery

Now let us walk through the major topics that appear again. Again in CAIIB ABM. Each concept below pairs with a high-probability exam question. So you learn the theory and the test-day application together.

1. Non-Cooperative Borrower Procedure

A non-cooperative borrower deliberately avoids communication, withholds information, or obstructs recovery. RBI directs banks to flag such borrowers early.

The standard procedure runs as follows:

• Send a written notice highlighting the non-cooperative behaviour.
• Give reasonable time, normally 30 days, to respond.
• If no cooperation follows, classify the borrower as non-cooperative.
• Report them to credit information companies and bar fresh facilities.

Exam tip: This links closely to wilful defaulter and MSME viability concepts.

2. MSME Wilful Defaulter and Viability

For MSMEs, rehabilitation is preferred over recovery when the unit is viable. A wilful defaulter, by contrast, can pay but chooses not to.

• Assess viability using projected cash flows and repayment capacity.
• If the MSME is non-viable. Pursue recovery via SARFAESI or the legal route.
• If viable, restructure the account with revised terms.

Answer concept: Viability means the unit can become profitable after restructuring without continuous extra support. It is judged through a DSCR of about 1.25 or higher. A positive IRR, and realistic assumptions.

3. ICA Approval Criteria

ICA stands for Inter-Creditor Agreement. When multiple lenders finance one borrower. They must act as one on rehabilitation or recovery.

• Approval needs 75% by value and 60% by number of creditors.
• Once approved, the decision binds all lenders.
• Proper documentation and viability assessment must precede approval.

Answer concept: ICA avoids delays and forces a collective strategy. Dissenting creditors can sell their exposure or exit at an agreed value.

4. Standard Asset Sale to ARC

Banks may sell even standard-but-stressed assets to Asset Reconstruction Companies (ARCs) to clean the balance sheet.

• The asset typically should be more than 60 days overdue.
• Sale should be at fair value per independent valuation.
• Proceeds are booked as cash inflow and the exposure is removed.
• The ARC issues Security Receipts (SRs) backed by the asset.

Answer concept: The aim is to shift recovery to specialists so the bank focuses on core operations.

5. DCCO Delay for Infrastructure Projects

DCCO is the Date of Commencement of Commercial Operations. Delays here can change an infrastructure asset's classification.

• A delay up to 2 years is generally allowed for infrastructure projects.
• Beyond that, the account may be downgraded unless reasons are beyond control.
• Banks must re-evaluate viability and may reschedule repayments.

Answer concept: DCCO extensions count as restructuring. So provisioning applies as per norms.

6. Siphoning vs Diversion of Funds

Diversion means using funds for purposes other than sanctioned. Siphoning means funds leave the business entirely. Cannot be traced in its assets or operations.

• Using working capital to buy property = diversion.
• Routing loan money to a related party abroad = siphoning.

Answer concept: Both are red flags of fraudulent intent. RBI requires prompt reporting to CRILC and the internal fraud monitoring system.

7. Compromise Settlement Evaluation

A compromise settlement lets a bank recover part of its dues by accepting a reduced payment.

• Evaluate each case on the NPV of expected recovery.
• Approval from the higher credit committee or board is mandatory.
• Any sacrifice must be justified with cost-benefit analysis.

Answer concept: When the legal route is costlier or slower. A compromise may deliver better value.

8. Technical Write-Off Explained

A technical write-off removes a loan from the books. Recovery efforts continue.

• Useful for accounting and tax adjustment.
• Recovery continues through legal or compromise methods.
• It does not waive the borrower's liability.

Answer concept: It improves the balance sheet's appearance without surrendering recovery rights.

9. COVID Restructuring Ratio Breach

Under the COVID restructuring framework. Certain ratios such as DSCR. Current Ratio and Total Debt/EBITDA were mandatory conditions.

Answer concept: A breach can cost the account its standard classification. Attract provisioning. Banks must monitor annually and file deviation reports.

10. MSME Rectification Plan Deadline

For MSME accounts showing early stress, the first step is rectification. The borrower must regularise the account within about 30 days of identification.

Answer concept: If rectification fails. The bank moves to restructuring or recovery without delay.

11. Loan to Related Entity of a Defaulter

Lending to entities linked with defaulters carries serious risk. RBI restricts facilities to companies sharing common directors or ownership with defaulters.

Answer concept: Banks must run group-level due diligence. Disclose connected exposures at sanction.

12. Delay in RP Implementation and Penalty

RP stands for Resolution Plan. If lenders fail to implement an approved plan on time. Additional provisioning kicks in.

• Delay beyond 180 days attracts a further provision.
• Delay beyond 365 days attracts more provision on top.

Answer concept: This penal structure pushes both lenders. Borrowers to act fast. Confirm the exact percentages on the latest official RBI circular.

13. MSME Committee Composition

RBI mandates a committee approach for MSME rehabilitation cases.

• Chairperson: Regional Head of the bank.
• Members: Senior Credit Officer. A State Government representative, and an Industry Association representative.

Answer concept: The committee ensures a fair. Unbiased viability judgement for MSME revival.

14. Reversal of Additional Provisions

When an NPA upgrades to standard after successful restructuring or recovery. The bank can reverse the extra provisions.

Answer concept: Reversal is allowed only after one year of satisfactory performance under the new repayment schedule.

15. Early Exit Strategy under Rectification

Early exit means upgrading an account to standard before the monitoring period ends. Thanks to strong performance.

Answer concept: It reflects borrower discipline. Cuts the NPA ratio, and improves the bank's asset quality.

16. Unsecured Loan Converted to Equity: A Red Flag

When promoters convert unsecured loans into equity. It may look positive but can mask capital erosion or fund diversion.

Answer concept: Banks must check whether the infusion is genuine or mere balance-sheet window dressing.

17. Provisioning in an IBC-Admitted Account

Once a case is admitted under the Insolvency and Bankruptcy Code (IBC). Lenders make a 50% provision immediately. If resolution fails and liquidation is ordered, the provision rises to 100%.

Answer concept: This enforces conservative accounting and realistic recovery estimates in insolvency.

18. CIC Membership for Cooperative Banks

Cooperative banks must join at least one Credit Information Company (CIC) to share borrower data. The membership fee is a mandatory compliance cost that strengthens credit discipline.

Answer concept: Information sharing reduces repeat defaults. Improves transparency across the lending ecosystem.

How to Study Rehabilitation and Recovery for CAIIB

Knowing the concepts is half the battle. Scoring well needs a smart method. Follow this five-step plan in the weeks before your exam.

1. Build the framework first. Fix the rehabilitation-versus-recovery logic in your mind before touching details.
2. Memorise the numbers. Use the quick-facts table daily. Numbers like 75%, 60% and DSCR 1.25 are easy marks.
3. Learn through MCQs. Practise application questions, not just theory. Solve targeted mock tests after each topic.
4. Map the linkages. Connect viability to restructuring, ICA to resolution, and provisioning to IBC.
5. Revise in cycles. Revisit weak areas every few days. Spaced revision beats last-minute cramming.

For structured topic-wise notes, explore our library of free guides covering the full CAIIB ABM syllabus.

Common Mistakes to Avoid

Most marks in this chapter are lost to avoidable errors. Watch out for these traps that catch aspirants every cycle.

• Mixing up rehabilitation and recovery. Always anchor your answer to viability first.
• Confusing siphoning with diversion. Diversion stays misused inside the business; siphoning leaves it untraceably.
• Forgetting the ICA double threshold. It needs both 75% by value and 60% by number, not one of them.
• Treating a technical write-off as a waiver. The borrower's liability and recovery rights remain intact.
• Memorising outdated figures. Norms change. Cross-check on the latest official IIBF notification and RBI circular.

Frequently Asked Questions (FAQ)

What is the difference between rehabilitation and recovery in CAIIB ABM?

Rehabilitation revives a viable business through restructuring and fresh terms. Recovery recoups dues from a non-viable one through SARFAESI. IBC, ARC sale or compromise. The deciding factor is always the unit's viability.

How important is Rehabilitation and Recovery for the CAIIB ABM exam?

It is very important. The topic sits in Module C - Credit Management. Is highly application-oriented. It regularly produces direct. Numbers-based MCQs that are easy to score if your concepts are clear.

What is the ICA approval threshold I must remember?

An Inter-Creditor Agreement needs approval by lenders holding 75% by value. Forming 60% by number. Both conditions must be met. And the approved plan then binds all lenders.

How is the viability of an MSME assessed?

Viability is judged on projected cash flows and repayment capacity. A common benchmark is a DSCR of about 1.25 or higher with a positive IRR. Realistic assumptions. Always verify current norms on the latest official IIBF notification.

Does a technical write-off cancel the borrower's liability?

No. A technical write-off only removes the loan from the books for accounting. Tax purposes. The borrower still owes the money. And the bank continues recovery through legal or compromise routes.

Conclusion: Turn This Chapter into Guaranteed Marks

Rehabilitation and Recovery is the backbone of credit management in banking. It teaches you to handle stressed assets with judgement: reviving viable units. Recovering dues from the rest.

For a CAIIB aspirant. That means understanding every step. From early warning signals to restructuring, ICA, provisioning and recovery channels.

Lock in the concepts. Drill the numbers, and practise application MCQs until the answers feel automatic. Do that, and this chapter shifts from tricky to dependable. Consistent revision here will lift your ABM score. Sharpen the skills you will actually use in your banking career.

Best of luck with your CAIIB ABM preparation. Go win those marks!

Related Guides

For more on Rehabilitation and Recovery CAIIB. See the official IIBF circulars. Our chapter-wise free notes on iibf.store.

For more on “Rehabilitation and Recovery CAIIB”, explore our free mock tests and chapter notes on iibf.store.

Bookmark this page — we keep our “Rehabilitation and Recovery CAIIB” guidance current as IIBF revises its rules.

Still researching “Rehabilitation and Recovery CAIIB”? Always confirm the latest position on the official IIBF site first.

Practise exam-style questions on “Rehabilitation and Recovery CAIIB” free on iibf.store to lock in the concept.

Save this “Rehabilitation and Recovery CAIIB” guide and revisit it during your revision week.

Our free notes cover “Rehabilitation and Recovery CAIIB” alongside the wider syllabus in one place on iibf.store.