Preparing for the CAIIB Risk Management elective paper requires more than just reading theory it demands clarity of Basel norms, RBI capital adequacy rules, liquidity ratios, and strong case-study solving ability. This paper is known for its numerical depth and concept linkage, especially around Basel 3, LCR, NSFR, and market risk tools.
Download CAIIB Risk Management Previous Year Papers
Boost your CAIIB Risk Management 2026 preparation by practising questions from Previous Year Papers (PYPs). Each question includes the correct answer and a simple explanation to help you revise key topics such as Basel 3, LCR, NSFR, VaR, and capital adequacy norms. The direct download link for the CAIIB Risk Management PYPs is provided below.
| Particulars | Details |
| CAIIB HRM Previous Year Paper | Download Free PDF |
Attempt CAIIB Risk Management Previous Year Paper Quiz
Check your preparation level with our CAIIB Risk Management Previous Year Paper Quiz designed to improve accuracy, speed, and exam readiness.
1) A bank has sanctioned a working capital revolving credit facility with a total limit of ₹100 crore. The borrower has currently drawn ₹60 crore. Under Basel III internal ratings-based (IRB) norms, the applicable Credit Conversion Factor (CCF) for the undrawn portion is determined to be 40%. If the assigned Probability of Default (PD) for the rating grade is 2.5% and the Downturn Loss Given Default (LGD) is 45%, what is the Expected Loss (EL) on this exposure?
2) Under the Basel III regulatory framework for credit risk, which of the following statements precisely contrasts the supervisory parameter inputs between the Foundation IRB (F-IRB) and Advanced IRB (A-IRB) approaches for corporate exposures?
3) A term loan defaults at an outstanding balance of ₹10 crore. The legal and workout process takes 2 years. At the end of Year 1, the bank recovers ₹3 crore, incurring administrative recovery expenses of ₹30 lakh. At the end of Year 2, the collateral is liquidated for ₹4.5 crore with legal fees of ₹20 lakh. Assuming the contractual pre-default effective interest rate (EIR) is 10% per annum, what is the Economic/Workout LGD percentage (rounded to two decimal places)?
4) When migrating credit rating architectures between regulatory capital (Basel III) and accounting provisions (IFRS 9 / Ind AS 109), banks reconcile Point-in-Time (PIT) and Through-the-Cycle (TTC) ratings. Which of the following statements is correct?
5) A manufacturing firm’s financial analysis yields an Altman Z-score of 1.55. Based on Edward Altman’s standard cutoff scores for publicly traded manufacturing companies, what does this indicate regarding the firm’s credit profile?
6) In the classic Merton (1974) structural model of credit risk, a firm’s equity is mathematically treated as:
7) Under the Moody’s KMV implementation of the structural model, the “Default Point” (DPT) is defined as:
8) Which of the following statements correctly identifies the core modeling paradigm of J.P. Morgan’s CreditMetrics?
9) The CreditRisk+ model developed by Credit Suisse Financial Products differs fundamentally from CreditMetrics because:
10) Which statement most accurately describes the concept of a sovereign rating ceiling in credit-risk analysis?
11) A bank’s credit portfolio consists of loans to 4 corporate groups with portfolio shares of 40%, 30%, 20%, and 10%. What is the normalized Herfindahl-Hirschman Index (HHI) for this portfolio, and what does it reflect regarding concentration risk?
12) Bank A purchases a single-name Credit Default Swap (CDS) from Protection Seller B to hedge its exposure of ₹100 crore in 8.50% Senior Unsecured Bonds of XYZ Ltd. Which of the following scenarios represents Basis Risk for Bank A?
13) A credit portfolio manager purchases protection via a First-to-Default (FTD) Basket swap referencing 5 distinct corporate obligors, each having an individual 1-year default probability of 3%. Assume defaults are mutually independent. What is the approximate probability that the protection will be triggered within the first year?
14) A loan proposal of ₹100 crore has the following metrics:
● Interest income: ₹10.50 crore
● Cost of funds: ₹6.00 crore
● Operating administrative expenses: ₹0.80 crore
● Expected Loss (EL): ₹0.70 crore
● Economic Capital (EC) allocated: ₹15.00 crore
What is the post-tax RAROC of the loan?
15) A credit portfolio consists of two exposures, Loan 1 and Loan 2:
● Loan 1: Exposure = ₹100 crore,ULL11 = ₹6 crore
● Loan 2: Exposure = ₹100 crore, ULL22 = ₹8 crore
● Correlation coefficient between default events (ρρ11,22)= 0.25
What is the total Unexpected Loss ULLpp of this two-asset portfolio?
16) How does a Total Return Swap (TRS) differ fundamentally from a Credit Default Swap (CDS) from the standpoint of credit risk mitigation?
17) Under the Basel III standardized framework for Credit Risk Mitigation (CRM), a bank holds a corporate loan exposure of ₹50 crore with a residual maturity (T) of 4 years. The loan is backed by an eligible bank financial guarantee (P) of ₹20 crore (with no currency or haircut mismatch). However, the guarantee has a residual maturity (t) of only 2.5 years. According to regulatory maturity mismatch formulas, what is the value of the credit protection adjusted for maturity mismatch (PPAA)?
18) A credit rating agency publishes the following cumulative default rates ($\text{CDR}$) for a specific credit rating category:
● Year 1 Cumulative Default Rate: 2.00%
● Year 2 Cumulative Default Rate: 4.50%
● Year 3 Cumulative Default Rate: 7.50%
What is the marginal probability of default during Year 3, conditional on the borrower having survived up to the end of Year 2?
19) A bank securitizes a diversified loan pool of ₹500 crore into three sequential tranched notes:
● First-Loss / Equity Tranche: 6% of the pool (₹30 crore)
● Mezzanine Tranche: 14% of the pool (₹70 crore)
● Senior Tranche: 80% of the pool (₹400 crore)
Over the life of the structure, cumulative gross defaults in the underlying pool amount to ₹75 crore. The realized weighted-average Loss Given Default (LGD) across the defaulted assets is 60%. What is the remaining principal balance of the Mezzanine Tranche after absorbing pool losses?
20) A bank evaluates a credit facility with an Exposure at Default (EAD) of ₹50 crore. The borrower’s 1-year Probability of Default (PD) is estimated at 4.0%. The Loss Given Default (LGD) is uncertain (stochastic), with an expected mean LGD of 50% and a standard deviation (σσLLLLLL) of 20%. Assuming default follows a standard Bernoulli distribution, what is the Unexpected Loss (UL) for this single credit facility?
21) A bank holds a G-Sec trading book with a market value of ₹100 crore. The daily standard deviation σσ of the portfolio returns is 1.20%. Assuming normal distribution of returns, what is the 10-day Value at Risk (VaR) at a 99% confidence level? (Use ZZ00.9999 = 22. 3333)
22) A bank’s treasury has two standalone sub-portfolios:
● Portfolio A: 1-day 99% VaR = ₹3.00 crore
● Portfolio B: 1-day 99% VaR = ₹5.00 crore
● The correlation coefficient (ρρ) between the returns of Portfolio A and Portfolio B is 0.30.
What is the diversified portfolio VaR and the diversification benefit?
23) A risk manager computes the 1-day VaR of a desk at ₹4.935 crore at a 95% confidence level (ZZ00.9999 = 1.645). Assuming returns are normally distributed with zero mean, what is the corresponding 1-day VaR at a 99% confidence level (ZZ00.9999 = 2.33)?
24) Why does the Basel Committee / RBI market risk framework replace traditional Value at Risk (VaR) with Expected Shortfall (ES) / Conditional VaR for internal models?
25) Which of the following statements regarding VaR estimation methodologies is INCORRECT?
26) Under RBI norms, an internal 1-day 99% VaR model is backtested across a 250-day window. If the bank observes 6 exceptions (days where actual daily losses exceed predicted VaR), which zone does the bank fall into, and what is the regulatory penalty?
27) A 5-year zero-coupon bond has a yield of 7.50%. A second 5-year bond pays an annual coupon of 8.00% and trades at par (YTM = 8.00%). What is the Macaulay duration of each bond?
28) A 10-year sovereign bond is priced at ₹104.50 with a Macaulay duration of 6.30 years. The bond pays semi-annual coupons, and its annualized YTM is 7.00%. If yields increase across the market by 35 basis points, what is the estimated new bond price using Modified Duration?
29) A bank treasury holds an investment portfolio of government securities with a total market value of ₹250 crore and a Modified Duration of 7.20 years. What is the PVBP (Price Value of a Basis Point) of the portfolio?
30) A bank holds a bond portfolio with a market value of ₹150 crore and a total PVBP of ₹10,50,000. To immunize the portfolio against an anticipated rise in interest rates, the chief dealer decides to short a benchmark 10-year G-Sec. The benchmark bond has a face value of ₹100, market price of ₹100, and a PVBP of ₹0.070 per bond. What is the total face value of the benchmark bond that must be shorted?
Quiz Summary
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Why is Basel 3 most important in CAIIB Risk Management exam?
Basel 3 is an important topic in the CAIIB Risk Management paper, with questions often asked through case studies. Candidates should focus on CET1, AT1, Tier 1, Tier 2 capital, capital buffers, and RBI capital adequacy norms to improve their understanding and solve related numerical questions with greater accuracy.
| Component | Requirement (% of RWA) | Key Point |
| CET-1 Capital | 5.5% | Core capital base |
| Additional Tier 1 (AT1) | 1.5% | Hybrid capital |
| Tier 1 Capital | 7% | CET-1 + AT1 combined |
| Tier 2 Capital | 2% | Supplementary capital |
| Minimum Total Capital (MTC) | 9% | Basic requirement |
| Capital Conservation Buffer (CCB) | 2.5% | Safety buffer |
| Total Requirement (MTC + CCB) | 11.5% | Final capital standard |
What should be the exam strategy for CAIIB Risk Management paper?
A well-planned exam strategy is essential for scoring high in the CAIIB Risk Management paper. Since the exam includes numericals and case-study-based questions, effective time management is crucial. Candidates should begin with easier questions to secure quick marks and build confidence, while leaving lengthy or difficult questions for the later part of the exam.
| Section | Key Points |
| Recommended Strategy | • First attempt 30–40 easy questions • Move to moderate questions next • Leave lengthy case studies for later • Avoid starting with calculation-heavy questions • Manage time strictly to avoid unanswered questions |
| Time Management Tips | • Divide time in 3 phases Easy – Moderate – Difficult • Do not spend excessive time on a single case study • Keep last 10–15 minutes for revision |
Which liquidity and regulatory ratios are important for CAIIB Risk Management?
Liquidity ratios such as the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) are important topics in the CAIIB Risk Management paper. Questions are commonly asked on their formulas, concepts, and application under the Basel III framework, based on RBI guidelines. A clear understanding of these ratios helps candidates solve numerical and conceptual questions with confidence.
- LCR (Liquidity Coverage Ratio):
- Formula: HQLA / Net Cash Outflows (30 days)
- Requirement: ≥ 100%
- HQLA Levels:
- Level 1: 0% haircut
- Level 2A: 15% haircut
- Level 2B: 50% haircut
- Limit: 2A + 2B ≤ 40%, 2B ≤ 15%
- NSFR (Net Stable Funding Ratio):
- Formula: Available Stable Funding / Required Stable Funding
- Requirement: ≥ 100%
Which Risk Management topics are frequently asked in exams?
The CAIIB Risk Management paper includes both theoretical and numerical questions. Many topics are repeatedly asked in previous year papers. These topics form the core of the exam and should be revised thoroughly. Case-study based questions are mostly framed from these concepts. Strong preparation in these areas increases scoring potential.
- Basel III capital adequacy framework
- Value at Risk (VaR)
- Duration and interest rate risk
- Gap analysis and NII/NIM
- Credit Default Swap (CDS)
- HHI Index (market concentration)
- MCLR and EBLR benchmarking rates
- Call and Put options
- Credit risk models
- Liquidity ratios (LCR, NSFR)
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FAQs
They help understand exam pattern, difficulty level, and important topics.
Yes, Basel III is one of the most frequently asked topics in the exam.
CET-1, AT1, Tier 1, and Tier 2 capital.
It is 9% of Risk Weighted Assets (RWA).
It ensures banks have enough liquid assets to survive short-term stress.
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