Banking Interview Questions & Answers

Banking Interview Questions & Answers

Banking Interview Questions

Banking Interview Questions
    1. Question 1. What Is Rtgs And Neft?

      Answer :

      RTGS: Real Time Gross Settlement.

      NEFT: National Electronic Fund Transfer.

      These two are the two methods through which funds can be transferred from one bank to another bank.

    2. Question 2. What Is The ‘cost Of Debt’?

      Answer :

      When any company borrows funds, from a financial institution (bank) or other resources the interest paid on that amount is known as ‘cost of debt’.

    3. Question 3. Types Of Accounts In Banks?

      Answer :

      Saving bank account [SB a/c]: The main purpose of SB a/c is to encourage small savings from the public. Interest paid on SB a/c is 3 percent. Any individual can open SB a/c. An Indian residing at abroad can open a NRI a/c. NRI represents non-resident Indians.

      Current account: It’s a running and active account. No interest is paid on current a/c.

      Current accounts can be opened on firm names. Even individuals can also open current a/cs. But on firm names you cannot open SB a/c.

      Fixed Deposit account: Amount is kept for a fixed period. Higher rate of interest will be paid on this a/c.

      Recurring deposit [RD a/c]: A fixed amount can be deposited in monthly installments.

      Interest rate is same as fixed deposits.

    4. Question 4. What Is ‘prime Rate’?

      Answer :

      Basically, ‘prime rate’ is the rate of interest that is decided by nations (U.S.A) largest banks for their preferred customers, having a good credit score. Much ‘variable’ interest depends on the ‘prime rates’. For example, the ‘APR’ (Annual Percentage Rate) on a credit card is 10% plus prime rate, and if the prime rate is 3%, the current ‘APR’ on that credit card would be 13%.

    5. Question 5. What Are Industrial Banks?

      Answer :

      The main purpose of industrial banks is to provide big loans to large scale industries.

      Examples: IDBI bank, Industrial bank of India etc.

    6. Question 6. What’s The Treasury Stock Method?

      Answer :

      The treasury stock method is used to calculate the net increase in shares outstanding if in-the-money options and warrants were to be exercised.

    7. Question 7. How Do You Boost Returns In An Lbo?

      Answer :

      The key levers are:

      a lower purchase price, a higher exit price (when the company is sold on), increased leverage. improving the way the company operations, or getting cheap financing.

    8. Question 8. Why Should A Company Prefer Equity Finance To Debt Finance?

      Answer :

      Equity financing is less risky (you won’t have to pay it back). You’ll have more cash on hand. You won’t have to channel profits into loan repayment. Your equity investors will have a longer term view. Your company will have more credibility. And you might get to tap your investors’ network to help you develop the business.

    9. Question 9. What Is Accretion And Dilution?

      Answer :

      Accretion is asset growth through addition or expansion. Accretion can occur through a company’s internal development or by way of mergers and acquisitions. Dilution is a reduction in earnings per share of stock that occurs when additional shares are issued or the stock changes into convertible securities.

    10. Question 10. Define Capm?

      Answer :

      CAPM is the capital asset pricing model, and it is a model designed to find the expected return on an investment and therefore the appropriate discount rate for a company’s cash flows. It provides the required rate of return given the riskiness of the asset.

    11. Question 11. Name A Few Poverty Eradication Schemes Of Govt. Of India?

      Answer :

      Food Security bill, MNREGA, Sarva Shiksha Abhiyan, Antyodaya Yojana, JNNURM, Swavalamban Yojana, Nirmal Gram Yojana, Rajiv Awas Yojana, Indira Gandhi Pension plan etc.

    12. Question 12. What Is Capital Adequacy Ratio? What Is Demat Account?

      Answer :

      CAR is the proportion of capital to the banks’ risk. DEMAT accounts are those in which shares, securities and insurance policies are kept in electronic form.

    13. Question 13. What Is Inflation And Deflation?

      Answer :

      Inflation: is the increase in the price of goods and services due to more demand and less supply. In inflation, there is more liquidity in market which has to be controlled to reduce the purchasing power of customers.

      Deflation: is the decrease in prices of goods and services due to more supply and very less demand. In deflation, there is lack of liquidity in market which results in very weak purchasing power of people.

    14. Question 14. What Is The Cad? What Is Fiscal Deficit?

      Answer :

      CAD or current account deficit is the difference between the imports and exports of a nation in one financial year whereas fiscal deficit is the difference between total revenue and expenditure of a nation.

    15. Question 15. What Is The Difference Between Fii And Fdi?

      Answer :

      FDI or foreign direct investment is an investment that a parent company makes in a foreign country. FII or Foreign Institutional Investor is an investment made by an investor in the markets of a foreign nation. FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and exit that easily as FDI only targets a specific sector.

    16. Question 16. What Is Banking Ombudsman Scheme?

      Answer :

       The banking ombudsman scheme is a scheme to listen to customer’s grievances and complaints regarding certain services provided by the bank. It was introduced under the Section 35 A of banking regulation act, 1949 by RBI with effect from 1995 which was later amended and became the banking ombudsman scheme, 2006.

      Customer can appeal against the decision of ombudsman to deputy governor of RBI. He is the highest authority of appeal. All banks in India are covered under the scheme.

    17. Question 17. Tell Us Something About Nabard And Its Functions?

      Answer :

      NABARD was established by an act of Parliament on 12 July 1976 as National Bank for Agricultural and Rural Development. It is the apex bank to provide rural credit and monitor the RRBs.

      The main functions of NABARD are:-

      • Provide refinance to RRBs and other banks in rural areas for lending.
      • Acts as a subsidiary for RRBs and co-operative banks.

    18. Question 18. What Is Brown Label Atm?

      Answer :

      It refers to the ATMs where investment, installation and maintenance is by a private operator but the license and branding is by a commercial bank.

    19. Question 19. What Is White Label Atm?

      Answer :

      It refers to ATMs owned by corporate or private operators seeking to earn a commission by banks for transactions performed by their customers.

      For ex:- INDICASH by TATA group.

    20. Question 20. What Is Term Repo?

      Answer :

      Under term repo, RBI lends to banks through auction of funds. The minimum interest charged has to be above the repo rate and there is no limit for maximum interest rate because auction is made on the rate of interest.

    21. Question 21. What Is Marginal Standing Facility (msf)?

      Answer :

      In MSF, banks borrow money from RBI for upto 24 hours. MSF is always 1% above the repo rate and banks can draw only upto 25 of their NDTL from RBI.

    22. Question 22. What Is Statutory Liquidity Ratio (slr)?

      Answer :

      SLR is the amount of NDTL which a bank needs to maintain in the form of cash, gold or govt. securities before providing credit to its customers. Through SLR, RBI makes sure that bank always have a reserve amount out of their deposits to meet any future contingencies

    23. Question 23. What Is Cash Reserve Ratio (crr)?

      Answer :

      CRR is the part of Net Demand and Time Liabilities (NDTL) or cash of the bank deposited with the RBI. A higher CRR makes loans expensive as liquidity is controlled by RBI. NDTL is the deposits of the customers with the bank.

    24. Question 24. What Is Bank Rate?

      Answer :

      It is same as repo rate but here the time period is for more than 90 days.

    25. Question 25. What Is Repo Rate And Reverse Repo Rate?

      Answer :

      Repo rate is the rate :at which banks borrow from RBI during shortage of funds. This is a short term loan provided for upto 90 days by selling securities to RBI and receiving money in lieu of it.

      Reverse repo rate :is the rate at which banks deposit their excess liquidity with the RBI. In other words, the rate at which RBI borrows from banks by selling securities in order to control excess liquidity in the market is reverse repo rate.

    26. Question 26. What Are The Steps Taken By Banks To Promote Financial Inclusion?

      Answer :

      1. Publicity of banks so that more and more people open the accounts.
      2. BSBDA so that poor people can also open their account.
      3. People with agriculture land are being provided with Kisan Credit Card.
      4. General Purpose Credit card provided to people with no agricultural land where maximum limit of withdrawal is Rs.15,000 and rate of interest is 4%.
      5. Ultra small banking and banking correspondents.

      CRISIL has made an index to calculate financial inclusion named as “CRISIL INCLUSIX” and in June 2013, there was 40% financial inclusion as per the index.

    27. Question 27. What Is Financial Inclusion?

      Answer :

      Financial inclusion is the availability of banking services at a affordable cost in order to include the weaker section of the society in the banking system.

    28. Question 28. What Is The Difference Between Micro Finance And Micro Credit?

      Answer :

      Micro credit is giving a small amount of loan to the customers whereas MicroFinance is a wide term. It includes small loan + training on financial matters. In other words, Microfinance= Microcredit + Financial Literacy.

    29. Question 29. What Is Priority Sector Credit?

      Answer :

      All Indian banks and foreign banks (which have more than 20 branches in India) are required give 40% of their credit to priority sector out of which 18% is for agriculture. In case of Regional Rural Banks, 60% credit is to be given to priority sector.

    30. Question 30. What Are The Components Of The Monetary Policy Of Rbi?

      Answer :

      The components of monetary policy include CRR, Repo rate, reverse repo rate, SLR, MSF and Bank Rate.

    31. Question 31. What Is Para Banking?

      Answer :

      Para Banking includes all the services provided by banks apart from day to day banking.

      For example:  Debit cards, Credit cards, Life Insurance products, Cash Management services etc.

    32. Question 32. We Hear Regularly That All Bank Branches Are Turning Cbs. What Is Cbs?

      Answer :

      CBS stands for CORE banking solutions under which the branches of the banks are interconnected with each other through intranet with a central database server. The CORE word in CBS stands for Centralized Online Realtime Exchange.

    33. Question 33. In The Changing Banking Scenario, What Are The Most Important Needs Of The Banking Industry?

      Answer :

      We are living in a digital age, where everyday technological innovations our style of living, doing the business and even the way we do a commercial transaction. The banks will have to catch up and offer (a) Multi Channel Optimization (b) Digital Distribution and most importantly (c) Effective Sales Efforts.

    34. Question 34. What Is The Meaning Of “base Rate”?

      Answer :

      Base Rate is the minimum rate of interest which a bank has to charge from its customers and a bank can’t sanction loan on a rate below the base rate. Banks may choose any benchmark to decide on the base rate.

      The exceptions of base rate are:-

      • Agriculture loans
      • sponsored schemes
      • Staff loans
      • Only under the above cases, bank can lend below base rate.
      • Only under the above cases, bank can lend below base rate.

    35. Question 35. Please Discuss Your Views About The Changes In Banking Scenario?

      Answer :

      Banking sector has successfully been adding new products and innovative services to its basket of products being offered to retail customer and institutional customers. I think the banking sector will keep its goal to accelerate the growth. Secondly each bank would like to optimize its costs of marketing and distribution so as to keep its overheads low without affecting its reach or quality of services.

      With regards to changes, I feel that there would be marketing strategy which would be “socially engaging”. The leading banks would adopt “Intelligent Multichannel” approach over their brick and mortar branch banking

    36. Question 36. Tell Us Something About Bsbda.?

      Answer :

      BSBDA stands for Basic Savings Bank deposit account. BSBDA is the new name for “no-frill accounts” under which anyone can open a bank account with even zero balance in it or “zero balance account”. This BSBDA is aimed at providing banking facilities to weaker section of the society and improve financial inclusion.

    37. Question 37. What Are Cooperative Banks?

      Answer :

      The main purpose of cooperative banks is to co-operate small scale industries, and to provide small loans.

      Example: karimnagar dist co-op bank etc.

    38. Question 38. What Are The Parts Of Banks’ Capital?

      Answer :

      Bank has following parts of capital:-

      Tier 1 capital:  Paid up capital (core capital) + Reserves (owners or promoters’ fund)

      Tier 2 capital:  Secondary Capital (borrowed funds) + general loss reserves + subordinated term debts + undisclosed reserves (can’t be maintained in India)

      Tier 3 capital:  Same as tier 2 capital but with a higher amount in order to face the market risks of the bank.

    39. Question 39. What Is Rbi [reserve Bank Of India], When It Is Established And What Are Its Functions?

      Answer :

      RBI established in 1935, its head office in Mumbai. Present Governor of RBI “ D. SubbaRao”.

      Its functions:

      1. Issues currency notes
      2. Acts as bankers bank
      3. Maintains foreign exchange reserves
      4. Maintains CRR and SLR

      RBI is also called as “bankers bank”, because all banks will have a/c’s with RBI. It provides funds to all banks hence it is called as BANKERS BANK.

    40. Question 40. What Is The Difference Between Cheque And Demand Draft?

      Answer :

      Cheque is a negotiable instrument which is paid to the bearer but a demand draft is a negotiable instrument always payable on order.

    41. Question 41. What Is Rrb’s (regional Rural Banks)?

      Answer :

      Main purpose of RRBs is to improve banking habit in rural areas and save formers from money lenders.

      RRBs works under supervision of NABARD (National Bank for Agriculture and Rural Development).

      NABARD head office is at MUMBAI.

      Example of RRB’S: Pragathi grameena bank, Rayalaseema grameena bank etc.

      Every grameena bank is soponsered by a nationalised bank.

      Example: Pragathi grameena bank is sponsored by “Canara bank”.

      Share capital in RRB’s: Central government: 50%

      Sponsored bank: 35%

      State government: 15%

    42. Question 42. What Do You Mean By Term “casa” Related To Bank?

      Answer :

      CASA stands for Current Account Savings Account. The CASA ratio shows how much deposit a bank has in the form of current and saving account deposits in the total deposit. A higher CASA ratio means better operating efficiency of the bank because on current account there is no interest payable whereas on savings account a tiny 3.5% interest is payable by the bank. CASA ratio shows how much of the deposit of the bank comes from the current and savings deposit.

    43. Question 43. What Are Foreign Banks?

      Answer :

      Banks which are foreign originated [based] are called foreign banks

      Example: Citi bank, YES bank etc.

    44. Question 44. What Is A Private Bank?

      Answer :

      Banks which are owned and run by individuals are called private banks.

      Example: karnataka bank, karur vysya bank, lakshmi vilas bank etc.

    45. Question 45. What Are The Various Risks That Banks Face?

      Answer :

      There are mainly three types of risks faced by banks:-

      Credit Risk:  loan or NPA.

      Market Risk:  Money invested in the market.

      Operational risk:  Day-to-Day working risks.

    46. Question 46. When Banks Are Nationalized?

      Answer :

      In 1969 : 14 banks were nationalized.

      In 1980: 6 banks were nationalized.

    47. Question 47. What Are The Non Performing Assets Of A Company?

      Answer :

      A NPA is an obligation payable to the bank which has not been made or the interest and principal amount has not been paid on the due time. NPA is the loan or credit provided by the bank to its customers which could not be recovered in due time. NPA is also known as “bad debts”.

    48. Question 48. What Is A Nationalized Bank?

      Answer :

      Banks which are owned and run by government of India are called as nationalized banks.

      Example: Canara bank, syndicate bank, Vijaya bank, etc..,

      There are total 20 nationalized banks.

      State bank of India has got 7 subsidiaries they are State bank of Hyderabad, State bank of Mysore, State bank of Travancore, State bank of Indore, State bank of Saurashtra, State bank of Bikaner, state bank of Jaipur.

    49. Question 49. What Is The Difference Between Nationalized Banks And Private Banks?

      Answer :

      A nationalized bank is owned by the govt. of that country and is also known as Public Sector Bank whereas a private sector bank is owned by an independent individual or company.

    50. Question 50. Types Of Banks?

      Answer :

      • Nationalized banks
      • Private Banks
      • Foreign banks
      • Regional rural banks
      • Co-operative banks
      • Industrial banks etc.

    51. Question 51. What Is A Non -banking Financial Company (nbfc)?

      Answer :

      A NBFC is a company registered under the companies act, 1956 which is involved in the business of loans, shares/stocks, etc. Non-banking financial companies are financial institutions that provide banking services, but do not hold a banking license.

      These institutions are not allowed to take deposits from the public. NBFCs do offer all sorts of banking services, such as loans and credit facilities, retirement planning, money markets, underwriting, and merger activities.

    52. Question 52. What Is Bank?

      Answer :

      Bank is financial institution which accepts deposits from the public for the purpose of lending.

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