Daily JAIIB Quiz 25 Oct 2026

The traditional principles of lending are safety, liquidity and profitability. Safety means assessing the borrower’s ability and willingness to repay; liquidity means funds should return within a suitable period; profitability means lending should provide a reasonable return after considering risk and costs. Security is important, but collateral alone does not replace sound credit appraisal.

Cash credit is commonly used to finance working-capital needs such as inventory and receivables. The borrower can draw and repay within the sanctioned limit, subject to drawing power, terms and account conduct. A term loan is generally designed for a defined asset or purpose and is repaid over an agreed schedule.

The Debt Service Coverage Ratio (DSCR) compares cash flow available for debt servicing with scheduled principal and interest obligations. A ratio above 1 indicates that projected cash flow exceeds the debt-service requirement, though the acceptable level depends on the lender’s policy, sector and project risk. Collateral value is relevant but does not itself demonstrate repayment capacity.

Credit monitoring continues after disbursement. Banks review account operations, stock and receivable statements, drawing power, financial performance, end-use of funds, insurance and compliance with sanction terms. Monitoring helps detect early warning signals and take timely corrective action. A sanction letter alone does not remove the need for ongoing review.

Under RBI’s external benchmark framework, specified categories of floating-rate loans to individuals and micro and small enterprises are linked to an external benchmark. The applicable spread and reset provisions are governed by RBI directions and the loan agreement. This does not mean every loan product or every borrower category must use the same benchmark; the bank must apply the relevant current directions.

Banks remain responsible for ensuring that recovery agents follow applicable RBI instructions and the bank’s code of conduct. Recovery must be carried out without intimidation, harassment, public humiliation, or intrusion into the privacy of family members and referees. Contact and visits must follow the applicable regulatory requirements and the bank’s approved procedures.

In hypothecation, movable assets are charged as security while possession generally remains with the borrower. In a pledge, possession of the goods is delivered to the lender or its agent, subject to the applicable legal requirements. The distinction is important when identifying the nature of security and the lender’s rights.

Section 77 of the Companies Act, 2013 generally requires a company creating a charge to register the particulars with the Registrar of Companies within the prescribed period, ordinarily 30 days from creation, subject to statutory provisions for delayed registration and applicable extensions or fees. The bank should ensure the charge is properly documented and registered; the exact current statutory procedure and time limits should be checked for the transaction.

A bill of lading is a key transport document in maritime trade and can function as a document of title, depending on its form and the applicable law. It evidences receipt of goods for shipment and the contract of carriage. An invoice records a sale price, while an insurance policy evidences insurance cover rather than title to the goods.

A term-loan account is generally classified as an NPA when interest and/or instalment of principal remains overdue for a period of more than 90 days, subject to the applicable RBI prudential norms and specific product rules. Classification is based on the prescribed objective criteria, not merely on the borrower’s request or the bank’s view of collateral adequacy.

For the commonly applicable SMA framework for relevant loan accounts, SMA-0 generally covers overdue up to 30 days, SMA-1 covers overdue of more than 30 days and up to 60 days, and SMA-2 covers overdue of more than 60 days and up to 90 days. An overdue of 45 days therefore falls in SMA-1. Applicability and account-specific rules should be checked against the current RBI directions.

Section 13(2) of the SARFAESI Act generally requires a secured creditor to issue a written demand notice requiring discharge of the liability in full within 60 days. If the borrower fails to comply, the creditor may consider measures under Section 13(4), subject to the Act’s conditions, exclusions and procedural requirements. SARFAESI is not available for every debt or every type of security.

Section 128 provides that the surety’s liability is co-extensive with that of the principal debtor, unless the contract otherwise provides. This generally means the surety may be liable for the same extent of liability as the principal debtor. The precise claim and enforcement must still follow the guarantee terms and applicable law.

Under Section 124 of the Indian Contract Act, a contract of indemnity is one in which one party promises to save the other from loss caused to that party by the conduct of the promisor or another person. It differs from a guarantee, which involves a surety’s promise to discharge the liability or perform the promise of a third person in case of default.

UCP 600 Article 5 states that banks deal with documents and not with the goods, services or performance to which the documents may relate. Banks examine presentations against the credit’s terms and the applicable documentary rules. A bank does not ordinarily inspect the underlying goods as part of its documentary examination.

Bill discounting allows a bank to provide funds against an eligible bill before its maturity, deducting the applicable discount or charges. The bank then receives payment according to the bill’s terms, subject to the transaction structure and recourse arrangements. Proper scrutiny of the underlying trade, documents, parties and bill is essential.

The general overall priority-sector lending target for domestic scheduled commercial banks is ordinarily 40% of ANBC or the credit equivalent of off-balance-sheet exposures, whichever is higher, under the applicable RBI PSL directions. Category-specific targets and exclusions differ by bank type and category, so candidates should verify the current master directions for the particular institution.

The KCC scheme is designed to provide timely and flexible credit to eligible farmers for cultivation and other eligible agricultural needs, including post-harvest and allied activities as permitted under the applicable guidelines. It helps farmers meet recurring production-credit requirements without having to apply for a completely new loan for every crop cycle, subject to sanction and renewal conditions.

From 1 April 2025, the revised composite limits are: micro—investment up to ₹2.5 crore and turnover up to ₹10 crore; small—investment up to ₹25 crore and turnover up to ₹100 crore; medium—investment up to ₹125 crore and turnover up to ₹500 crore. Both measures must fit the category. ₹20 crore investment and ₹80 crore turnover therefore fall within the small enterprise limits.

The SHG–Bank Linkage Programme promotes access to formal banking through group savings, internal lending, financial discipline and subsequent bank credit based on the group’s performance and applicable norms. Banks assess the group and follow the relevant guidelines; the model is not based on giving every group an unconditional grant or guaranteeing every member an individual loan.

The enhanced PMMY framework introduced the Tarun Plus category for eligible borrowers who have successfully repaid a previous Tarun loan, enabling eligible loans above ₹10 lakh and up to ₹20 lakh, subject to scheme and lender requirements. Tarun Plus is not an automatic entitlement; eligibility and sanction remain subject to the applicable guidelines and bank appraisal.