CAIIB Paper 1 Module C Quiz 10

Past conduct is useful but does not ensure future repayment. Technological disruption can weaken demand, margins and asset values, so forward-looking business and industry analysis is essential.

An overdraft can address short-term funding gaps within an agreed limit. Its purpose, tenor, security and repayment source must be assessed; persistent use may indicate structural stress.

Liabilities-to-assets = 900 ÷ 1,500 = 0.60, or 60%. The ratio indicates the proportion of assets financed by liabilities, with definitions applied consistently.

Depreciation reduces accounting profit without a current-period cash outflow, so it is added back in the indirect reconciliation. Actual cash payments remain cash outflows.

Cash conversion cycle = inventory days + receivable days − payable days = 60 + 40 − 30 = 70 days.

Unpaid statutory dues may signal cash-flow stress and can lead to penalties, litigation or restrictions. They should be understood alongside other liabilities and cash flows.

DSCR = 180 ÷ 150 = 1.2 times. The lender should also assess the stability of cash flows and how the ratio behaves under stress.

Terminal value represents value beyond the detailed forecast horizon and depends heavily on sustainable cash flows, growth and discount-rate assumptions. It should be tested for sensitivity.

Prior charges affect security priority and recovery prospects. The lender should verify existing encumbrances and obtain required consents or an agreed priority arrangement.

Digital workflow can improve speed and traceability, but access control, data integrity, exception handling and audit logs remain necessary.

Expired insurance can leave charged assets exposed to loss. The bank should obtain renewed cover, verify the required interest/endorsement and apply appropriate controls.

Periodic audited statements provide structured financial information for covenant testing and risk review, though they should be supplemented by interim data and account conduct.

Expected loss is commonly PD × LGD × EAD. If PD and EAD stay constant while LGD increases, expected loss rises.

High leverage and weak interest coverage can indicate vulnerability to earnings declines and rising financing costs, making them important financial-risk factors.

Model validation tests conceptual soundness, data quality, performance and limitations. It supports appropriate use and governance rather than guaranteeing perfect predictions.

A documented rationale provides an audit trail for classification, strategy and approvals, and helps demonstrate compliance with policy and applicable requirements.

Comparing net recoveries, timing, costs, legal risks and probability of success helps determine whether a settlement is commercially reasonable under policy.

Under the stated simplified definition, cash available = operating profit + depreciation = ₹75 lakh + ₹15 lakh = ₹90 lakh. Actual bank methodologies may include additional adjustments.

Connected group exposures can create correlated risk and may be subject to applicable regulatory and internal limits. Separate legal entities do not remove the need for aggregate assessment.

Receivables must be genuine, collectible and eligible under policy. Ageing, buyer strength, disputes, dilution and subsequent receipts help assess their realizable value.