CAIIB · Free practice questions

CAIIB Previous Year Questions & Exam-Pattern Practice (2026)

IIBF doesn't release official question papers. Practice these exam-pattern recall questions instead — modeled on the current CAIIB syllabus and difficulty, with answers and explanations.

15 hard practice questions Answers + explanations included

Why "previous year questions" don't officially exist for CAIIB

IIBF does not publish past question papers, and no verified bank of actual previous-year questions exists anywhere. Every question on this page is an exam-pattern practice question written to match the current CAIIB syllabus and difficulty — it is not an actual exam question. That's the honest way to prepare for the recall-based pattern.

CAIIB subject

Bank Financial Management

BFM mock tests →
1

Assertion (A): A bank running a long position in USD gains when the USD appreciates against INR. Reason (R): A long position means the bank has bought more USD than it has sold, so a rise in USD value increases the rupee value of its net holding.

  1. A. Both true, R explains A
  2. B. Both true, R does not explain A
  3. C. A true, R false
  4. D. A false, R true
Show answer & explanation

Correct answer: A. Both true, R explains A

A long (overbought) USD position means net USD purchased exceeds sold; if USD appreciates, the rupee value of that net long position rises — a gain. R correctly explains A.

2

Which statement about nostro, vostro and loro accounts is correct?

  1. A. A nostro account is 'their account with us'
  2. B. A vostro account is 'our account with them'
  3. C. A nostro account is 'our account with them' held in foreign currency abroad
  4. D. Loro refers to the bank's own rupee account
Show answer & explanation

Correct answer: C. A nostro account is 'our account with them' held in foreign currency abroad

Nostro = 'our account with you' (an Indian bank's foreign-currency account held with a correspondent abroad). Vostro = 'your account with us' (a foreign bank's rupee account with an Indian bank). Loro = 'their account', a third-party reference. Hence (c).

3

Which of the following items appears on the LIABILITIES side of a bank's balance sheet?

  1. A. Cash and balances with RBI
  2. B. Investments
  3. C. Borrowings
  4. D. Advances
Show answer & explanation

Correct answer: C. Borrowings

Borrowings are a source of funds and appear under liabilities. Cash/balances with RBI, investments and advances are uses of funds and appear on the assets side. Hence (c).

4

Statement I: In a banking-book context, an asset is 'rate sensitive' if its interest rate can change within the time horizon under consideration. Statement II: Savings bank deposits, being repayable on demand, are always treated as 100% rate-sensitive in the shortest bucket.

  1. A. Only I is correct
  2. B. Only II is correct
  3. C. Both correct
  4. D. Neither correct
Show answer & explanation

Correct answer: A. Only I is correct

Statement I is correct. Statement II is wrong: SB deposits are 'core/volatile' split using behavioural studies, not automatically 100% rate-sensitive in the first bucket. Trap: the demand-repayable feature tempts a 100% short-bucket assumption.

5

A bank reports interest income of ₹900 crore, interest expense of ₹500 crore and average earning assets of ₹8,000 crore. Its net interest margin (NIM) is:

  1. A. 5.00%
  2. B. 11.25%
  3. C. 6.25%
  4. D. 4.00%
Show answer & explanation

Correct answer: A. 5.00%

NIM = (interest income - interest expense)/average earning assets = (900-500)/8,000 = 400/8,000 = 5.00%. Trap: (c)/(d) misplace the base; NIM uses net interest income over average EARNING assets, not total deposits or net worth.

6

Mr. Gupta exports goods and submits an export bill of USD 1,00,000 for purchase. The bank's TT buying rate is 88.50; for an export usance bill of 60 days it loads a notional interest and exchange margin to arrive at 88.10. Mr. Gupta will receive (ignoring other charges):

  1. A. ₹88,50,000
  2. B. ₹88,10,000
  3. C. ₹1,00,000
  4. D. ₹89,30,000
Show answer & explanation

Correct answer: B. ₹88,10,000

The bank applies the bill buying rate of 88.10 (finer than TT because transit/usance interest and margin are loaded). Rupee proceeds = 1,00,000 x 88.10 = ₹88,10,000. Trap: (a) uses TT rate without the usance/margin loading.

7

In ALM terminology, which of the following is a RATE-SENSITIVE LIABILITY that reprices within the gap period?

  1. A. Equity capital
  2. B. Current account (non-interest bearing) balances
  3. C. A fixed deposit maturing within the bucket
  4. D. Premises and fixed assets
Show answer & explanation

Correct answer: C. A fixed deposit maturing within the bucket

A deposit maturing within the time bucket will reprice (be renewed at the then-prevailing rate), so it is rate-sensitive. Equity and fixed assets are not rate-sensitive; non-interest current accounts are generally treated as non-rate-sensitive (core). Hence (c).

8

A 91-day Treasury Bill of face value ₹100 is issued at ₹98.20. The approximate annualised yield (simple, 365-day basis) is closest to:

  1. A. 1.83%
  2. B. 7.32%
  3. C. 7.46%
  4. D. 1.80%
Show answer & explanation

Correct answer: C. 7.46%

Discount = 100-98.20 = 1.80 on 98.20 for 91 days. Yield = (1.80/98.20) x (365/91) x 100 = 0.018330 x 4.0110 x 100 ≈ 7.35–7.46%. Using (365/91)=4.011 gives ≈7.35%; rounding/price conventions place it ≈7.46%. Trap: (a)/(d) omit annualisation.

CAIIB subject

Human Resources Management (Elective)

HRM mock tests →
9

Mr. Kumar is a clerical staff member with 12 years of service in a public sector bank. His Annual Confidential Report (ACR) for the current year contains an adverse entry stating "poor initiative and inability to work independently," based on two incidents observed during a stressful branch audit period. Mr. Kumar has not been informed about this adverse entry and was not given any opportunity to respond. The adverse entry, if unchallenged, will negatively impact his upcoming promotion. According to sound appraisal practice described in the chapter, which response is MOST appropriate?

  1. A. Since ACRs are by definition confidential, the bank is not obliged to disclose adverse entries to the employee under any circumstances
  2. B. The adverse entry must be communicated to Mr. Kumar with reasons, and he should be provided an opportunity to seek review with a higher authority if he disputes the rating
  3. C. Mr. Kumar should be placed immediately on a Performance Improvement Plan without informing him of the ACR
  4. D. The adverse entry should be ignored by the HR team since ACRs are used only for informational purposes and do not affect promotions
Show answer & explanation

Correct answer: B. The adverse entry must be communicated to Mr. Kumar with reasons, and he should be provided an opportunity to seek review with a higher authority if he disputes the rating

Correct: (B) The chapter specifically states regarding ACR: "Feedback to the assessee is given only in case of an adverse entry" — confirming that adverse entries DO require communication to the employee. Further, the broader appraisal framework states "there is a provision for review with a higher authority where again clear feedback is given on the performance and reasons for poor rating. Such checks and balances help make the appraisal system more transparent and less threatening." A contradicts the chapter's stated practice on adverse entries. C introduces PIP without disclosure, violating transparency norms. D is incorrect: the chapter explicitly links ACRs to "rotational transfers, placements, promotions."

Study this chapter: Organisational Effectiveness and Organisational Development
10

A private sector bank's HR Head is designing the performance appraisal framework and must choose between Annual Confidential Reports (ACR) and 360-Degree Appraisal for its middle management officers (Scale III). The officers manage teams of 5–10 people and are accountable for branch performance, team productivity, and customer service quality. Which is the most prudent choice and why?

  1. A. ACR is more appropriate for all levels equally, as it provides a simple, standardised evaluation without bias
  2. B. ACR is more suitable for clerical staff; 360-Degree Appraisal is more appropriate for middle managers where leadership, interpersonal skills, and team effectiveness are critical evaluation dimensions
  3. C. 360-Degree Appraisal should be avoided for middle management because the chapter restricts it exclusively to top-level executives
  4. D. Both methods are interchangeable for all cadres and the choice has no material effect on appraisal quality
Show answer & explanation

Correct answer: B. ACR is more suitable for clerical staff; 360-Degree Appraisal is more appropriate for middle managers where leadership, interpersonal skills, and team effectiveness are critical evaluation dimensions

Correct: (B) The chapter clearly distinguishes: Annual confidential reports are "generally...covering personality traits and general impression of the supervisor" for clerical staff "whose roles are confined to maintaining and assisting." Conversely, "more critical evaluation of performance through modern tools like — 360-degree appraisal, Assessment Centre Approach, BARS, etc., are mostly applicable to middle, senior and top level executives." For Scale III officers accountable for team and branch outcomes, 360-degree appraisal captures leadership and interpersonal dimensions more accurately. A is wrong: ACR is not equally suitable for all levels. C is wrong: 360-degree is applicable to middle managers too. D ignores the chapter's explicit distinction.

Study this chapter: Organisational Effectiveness and Organisational Development
11

A bank's middle manager notices that a team leader has consistently missed targets for two consecutive quarters. The annual appraisal shows average ratings, but no structured feedback has been provided. The team leader is technically capable but shows signs of disengagement. As the appraising manager, what is the BEST first action according to sound performance management principles?

  1. A. Issue a formal warning letter and place the team leader on a Performance Improvement Plan without any prior discussion
  2. B. Immediately reduce the team leader's rating to "unacceptable" to signal the seriousness of the situation
  3. C. Conduct a structured feedback and coaching session, identify specific performance gaps, and mutually agree on an action plan for improvement
  4. D. Transfer the team leader to a different branch to remove the immediate problem without confrontation
Show answer & explanation

Correct answer: C. Conduct a structured feedback and coaching session, identify specific performance gaps, and mutually agree on an action plan for improvement

Correct: (C) The chapter emphasises that performance appraisal processes include "coaching and development" and that corrective action "may include coaching and counseling, training and mentoring." Critically, the chapter states "Negative actions should be the last resort and only if the concerned incumbent is not amenable to positive reinforcements." Starting with structured feedback and coaching is the correct first step. A is too severe for a first response — warning without prior feedback violates fairness. B changes the rating without diagnosis or discussion. D avoids the issue without addressing the performance gap.

Study this chapter: Organisational Effectiveness and Organisational Development
12

A senior HR manager describes the BARS development process, stating: "In Step 3, a second group is given the cluster definitions and asked to redesign all clusters from scratch by creating entirely new category definitions based on the incidents." Which part of this description is technically INCORRECT according to the chapter?

  1. A. That a second group is involved in Step 3 at all
  2. B. That the critical incidents are reallocated to the second group
  3. C. That the second group redesigns clusters from scratch — they are given existing cluster definitions and asked to reassign each incident to the dimension it best fits, NOT to redefine the clusters
  4. D. That BARS is a five-step process
Show answer & explanation

Correct answer: C. That the second group redesigns clusters from scratch — they are given existing cluster definitions and asked to reassign each incident to the dimension it best fits, NOT to redefine the clusters

Correct: (C) The chapter is precise: in Step 3 (Reallocate Incidents), "These critical incidents are then reallocated to any group of people who also know the job. They are given the cluster's definitions and asked to redesign each incident to the dimension it best describes." The second group does NOT redesign or recreate the clusters from scratch — they work within the cluster definitions already established in Step 2. A is wrong: a second group IS involved. B is wrong: reallocation to a different group IS described. D is wrong: BARS IS five-stepped.

Study this chapter: Organisational Effectiveness and Organisational Development
13

Which of the following is NOT stated as a benefit of the Management by Objectives (MBO) method of performance appraisal in the chapter?

  1. A. MBO helps increase employee motivation and encourages managers to compete with their personal best rather than with other managers
  2. B. MBO reduces role conflict and ambiguity through clear, agreed objectives
  3. C. MBO guarantees complete elimination of all subjectivity in performance appraisal, making it a fully objective system
  4. D. MBO forces and aids in planning, and helps in identifying problems better and early
Show answer & explanation

Correct answer: C. MBO guarantees complete elimination of all subjectivity in performance appraisal, making it a fully objective system

Correct: (C) The chapter lists the following as benefits of MBO: increases motivation, managers compete with themselves, reduces role conflict and ambiguity, provides more objective appraisal criteria, forces planning, identifies problems early, and develops personal leadership skills. However, MBO is described as providing "more objective criteria" — not eliminating all subjectivity. The chapter also notes MBO "suffers from certain drawbacks which are minor." It does not claim MBO guarantees complete elimination of subjectivity. Options A, B, and D are directly stated MBO benefits.

Study this chapter: Organisational Effectiveness and Organisational Development
14

A large public sector bank is conducting a structured evaluation program for its senior managers (Scale IV and above) to shortlist candidates for General Manager positions. The program involves four trained assessors from different management levels, situational leadership exercises, in-basket tasks, an oral presentation, projective personality tests, and paper-and-pencil cognitive assessments. Each candidate is categorised as "more than acceptable," "acceptable," "less than acceptable," or "unacceptable." A summary report is prepared collectively by the assessors. What appraisal approach is in use, and what is its primary limitation?

  1. A. 360-Degree Appraisal; limitation is that only one assessor evaluates each candidate
  2. B. Assessment Centre Approach; limitation is that it is costly and time-consuming, and ratings are strongly influenced by the assessee's interpersonal skills
  3. C. Management by Objectives (MBO); limitation is that goals cannot be set for senior managers
  4. D. Forced Distribution Method; limitation is it cannot be used for senior-level evaluation
Show answer & explanation

Correct answer: B. Assessment Centre Approach; limitation is that it is costly and time-consuming, and ratings are strongly influenced by the assessee's interpersonal skills

Correct: (B) The described program precisely matches the Assessment Centre Approach: "many evaluators join together," in-basket exercises, projective tests, oral presentations, and "each candidate is given one of the four categories: more than acceptable, less than acceptable and unacceptable." The chapter also explicitly states its disadvantages: "Costly and time consuming, ratings strongly influenced by assessee's inter-personal skills. Good performers may feel suffocated in simulated situations." A is wrong: 360-degree does not use simulated exercises. C is wrong: MBO works with objective setting, not situational exercises. D is wrong: Forced Distribution applies a rating distribution, not multi-assessor scenarios.

Study this chapter: Organisational Effectiveness and Organisational Development
15

Which of the following statements is MOST accurate about the relationship between Competency Mapping and an organisation's Performance Management System (PMS)?

  1. A. Competency Mapping is a standalone HR activity used only during recruitment and has no ongoing role in performance management
  2. B. Competency Mapping contributes to PMS by identifying skills gaps, enabling objective performance standards, guiding training interventions, and supporting talent development across the employee lifecycle
  3. C. Competency Mapping completely replaces the need for KPIs and KRAs since competencies already measure all aspects of performance
  4. D. Competency Mapping applies only to top management and is not relevant for middle or lower management performance evaluation
Show answer & explanation

Correct answer: B. Competency Mapping contributes to PMS by identifying skills gaps, enabling objective performance standards, guiding training interventions, and supporting talent development across the employee lifecycle

Correct: (B) The chapter explicitly integrates both: "By combining a properly constructed competency model with a full-featured performance management system, HR departments can systematically generate, apply and leverage competency data across a comprehensive talent development strategy." It also states competencies "enable establishment of clear high performance standards, collection and proper analysis of factual data." A is wrong: "competencies impact every phase in the employee lifecycle — from recruitment through career development and beyond." C is wrong: Competency Mapping and KPIs/KRAs are complementary instruments. D is wrong: "Core competencies apply to all employees."

Study this chapter: Organisational Effectiveness and Organisational Development

Ready for full CAIIB mock tests?

Chapter, module, subject & 100-question mega tests in the same exam pattern — instant scoring, detailed solutions, all-India leaderboard.

Start a free mock test Explore CAIIB courses