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IBPS PO-V INTERVIEW CAPSULE

Dear PaGaLGuY readers,
This Interview Capsule is a comprehensive document of general questions that can be
expected in the upcoming IBPS PO-V 2015 interviews.
We have also presented a few points in question-answer format in order to help you
prepare your answers for the actual interview.
(Please Note: The following answers are only hints. You need not directly copy these
answers in your interview. You should always add a personal touch in your answers.)
Onkar Dichwalkar
(http://www.pagalguy.com/@omidichwalkar)
Mahalakshmi Subramanian
(http://www.pagalguy.com/@mahalakshmi.s)
The Institute of Banking Personnel Selection (IBPS) conducts Common Written Examination and
Common Interviews for the recruitment of POs/MTs in Public Sector Banks (PSBs) every year. The IBPS
PO V common interviews are expected to start from 18 January 2016.
IBPS calls candidates in a ratio of 3:1 for each post, which means that there will be three candidates
interviewed for each vacant post. So, in order to be successful, you need to try to score very well in your
interview. This can be achieved by proper planning and preparation.
Panel of Interviewers:
i) Your interview will be conducted by a panel comprising 5-6 IBPS officials.
ii) The panel will consist of a main interviewer, who will ask questions based on your personality and aspirations.
She/he will be the judge of your personality.
iii) One of the panel members with technical expertise will ask questions about banking and your decision to
pursue a career in this field.
iv) Another member will analyse your profile/CV and ask questions based on facts mentioned in the same.

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The questions asked in the interview can be grouped into some of the following major categories:
1. Personal Questions
Questions based on your hobbies, interests & activities.
Family background
Strengths & weaknesses
2. Profile-based Questions
Questions based on your academic background and qualifications, job role and work experience
Basic definitions & concepts related to your field of education
Recent developments related to your field of your education/job
3. Personality Test & Decision-making Questions
Questions to check your EQ & IQ
Situation & behavior-based questions to assess your managerial skills and decision-making ability.
4. Questions based on Banking Awareness, Current Affairs and Computer Awareness.
5. Questions like Why do you want to join the Banking Sector? or Why do you want a government job?
may also be asked.
Interview Preparation:
First of all, list out all the possible questions that may be asked based on the major categories we have
enumerated above.
Prepare standard and comprehensive answers to each of the questions.
Then, critically analyse these answers and note down questions that may arise from the answers. Prepare
answers for these questions also. You can take help from your friends, parents or seniors for this exercise.
Also, try to modify your original answers to eliminate inaccuracies.
Make a flow chart of all the questions & sub-questions in order to clearly understand the direction of the
interview. A flow chart will also help to cover all the areas that you may have missed.
Before appearing for the real interview, practice by giving mock interviews to your friends or parents. It will
help you analyse your performance and boost your confidence.
Banking questions which can be expected in the interview:
1. Tell me about yourself
This is a very typical question in any interview. It allows you to present various salient aspects of your personality
including your personality traits, achievements, aspirations, motivations and ambitions. You should focus on
your strengths while answering this question and you should have a very well prepared answer for this question.
While preparing this answer, keep your introduction simple and brief, else you risk making it boring. After all,
an interview is a two-way conversation and you are not there to give a speech. Use your time wisely as
interviewers are not interested in irrelevant details.
2. Why do you want to join the Banking sector?
i. Banking is one of the most rapidly growing and important sectors of the Indian economy.
ii. It will serve as a great beginning for a long-term career and will also provide opportunities for learning and
growth.
iii. It includes various job profiles and since many roles demand direct interaction with customers, it is an
excellent platform to implement and develop ones interpersonal skills, salesmanship skills, etc.
iv. Many roles in the banking sector demand analytical, mathematical, or financial skills. Thus, it is a great option
for those with expertise in these areas.

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3. Why do you want to join the government sector?

i. Government sector employs the biggest number of people, offering diverse roles and
profiles.
ii. Candidates have a wide range of alternatives to choose from depending upon their
fields of interest and capabilities.
iii. Government jobs call for greater responsibilities compared to the private sector. Hence, it allows candidates
to significantly contribute to society and derive considerable amount of satisfaction by discharging duties to the
best of their abilities.
iv. Government jobs provide security and even today has a good reputation in the society.
4. What is a central bank?
A central bank is the apex organisation which controls, regulates and monitors financial institutions in a country.
It is
also responsible for formulating and implementing the monetary policy.
Examples: The Federal Reserve Bank (US), the European Central Bank (EU), Bank of Japan (Japan), etc.
Reserve Bank of India (RBI) is Indias central bank.
The RBI was set up on the basis of the recommendations of the Hilton Young Commission.
It was established in 1935 as per the provisions of the RBI Act of 1934 and was nationalised
in 1949.
It was established in order to ensure monetary stability, regulate the issue of currency and
operate Indias credit system to its advantage.
All commercial banks in India have accounts with the RBI and it provides funds to all the
banks. The RBI is thus also called the bankers bank and lender of last resort.
Following are the functions of the RBI:
a. Control the monetary policy of India.
b. Regulate and supervise banking and non-banking financial institutions.
c. Regulate money, foreign exchange (forex) and government securities markets.
d. Issue currency notes and control the volume of credit created by banks.
e. Provide loans to commercial banks in order to maintain or grow the Gross National Product
(GNP)
f. Carry out the governments banking needs.
5. Who is the present Governor of RBI?
Dr Raghuram G Rajan is the 23rd Governor of the RBI, who replaced Dr D. Subbarao.
6. How many Deputy Governors are there in RBI?
There are 4 deputy governors:
1. Subhash Sheoratan Mundra is a former Chairman of Bank of Baroda. He replaced K.C. Chakrabarty.
2. Rama Subramaniam Gandhi was Executive Director of the RBI before being promoted to the rank of
Deputy Governor. He replaced Anand Sinha.
3. Urjit Patel was Chief Policy Officer at IDFC Ltd. and has held several important roles in his 17 years in
the industry. He succeeded Subir Gokarn.
4. Harun Rashid Khan served as the Executive Director of the RBI and was later elevated to the role of
Deputy Governor.
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7. RBI has now shifted to bi-monthly policy review. What do you mean
by bi-monthly policy review?
Previously, RBI released the monetary policy review every quarter (once
every three months). Now, the apex bank has shifted to a bi-monthly policy
review, which means that it will announce the monetary policy review after
every two months. The first bi-monthly policy review was announced on
April 1, 2014. This was started after Deputy Governor Urjit Patel suggested
that RBIs monetary policy committee should convene every two months to
review rates.
8. What is monetary policy? Who controls Indias monetary policy?
The RBI determines Indias monetary policy. It is a method by which the
central bank maintains sufficient money supply in the economy by
controlling interest rates and other instruments in order to ensure price
stability and high economic growth.
9. What are Open Market Operations?
Open Market Operations refer to the purchase or sale of government
securities in the open market by the RBI.
o When the RBI sells securities in the market, money gets transferred
from commercial banks to the RBI. This decreases money supply in the
system. Shortage of money in the economy helps to control spending by individuals/corporates and
keep inflation in check.
o When the RBI purchases securities from the market, money gets transferred from RBI to the
commercial banks, thereby increasing the money supply. This is done if economic growth is sluggish.
10. What is Repo rate?
Repo rate is the rate at which the RBI lends money to commercial banks in case of any shortage of funds. It is
the rate of interest charged on short-term (3-90 days) loans. It is used by monetary authorities to control
inflation.
11. What happens when the RBI increases or reduces the Repo rate?
When the repo rate increases, borrowing from the RBI becomes more expensive. In other words, the RBI
would charge a higher rate of interest for money provided to various commercial banks. The banks would
thus be forced to charge their customers a higher rate of interest on home and auto loans in order to balance
the impact of the rate hike. Thus, while on the one hand, inflation is under control as there is less money to
spend, growth suffers as companies avoid taking loans at high rates. This leads to a drop in production and
expansion.
When the repo rate is reduced banks get money from the RBI at a cheaper rate of interest. Banks thus
charge their customers a low rate of interest on home, auto and other types of loans.
12. What is Bank rate?
It is the rate of interest implemented by the RBI when it lends money to a public sector bank on a
long-term basis, i.e. from a period ranging from 90 days to 1 year. By this definition, bank rate and repo rate
seem to be similar terms as both are interest rates at which RBI lends money to banks. However, repo rate is

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a short-term measure and refers to short-term loans used for controlling money supply in the market,
whereas bank rate is a long-term measure.
Bank rate is also referred to as the discount rate and is the rate of interest which a central bank charges
on the loans and advances to a commercial bank.
13. What is Marginal Standing Facility (MSF)?
It is the rate at which banks borrow funds overnight from the RBI against approved government securities.
MSF was implemented in May 2011. Under MSF, banks can avail funds from the RBI on overnight basis
against their excess statutory liquidity ratio (SLR) holdings.
14. What is Cash Reserve Ratio (CRR)?
It is the reserve of funds that banks have to mandatorily keep with the RBI, and is a percentage of the deposits
held by the bank. The RBI uses CRR to remove excessive money from the system. If the central bank decides
to increase the CRR, the amount available with the banks reduces.
Example: If a bank account holder deposits Rs. 1,000 in his account, the bank can use it to lend money to
others, but has to deposit a percentage of that amount with the RBI. If the CRR is 4%, the bank will deposit
Rs.40 with RBI and will have Rs.960 left at its disposal.
15. What is Statutory Liquidity Ratio (SLR)?
It is the amount a commercial bank needs to maintain in the form of cash, gold, or government-approved
securities (bonds) before lending credit to its customers. SLR is determined by the RBI in order to control the
expansion of bank credit.
16. How is SLR determined?
SLR is calculated as the percentage of total demand and time liabilities, which a commercial bank is liable to
pay to customers on their demand.
17. Why is SLR needed?
With SLR, the RBI can ensure solvency (creditworthiness) of a commercial bank. It also helps to control
expansion of bank credits. By altering SLR rates, the RBI can increase or decrease bank credit expansion.
18. What is liquidity adjustment facility (LAF)?
LAF is a monetary policy tool which allows banks to borrow money through repurchase agreements. LAF aids
banks to address liquidity pressures i.e. cash shortages and is used by the government to ensure stability in
financial markets. LAF comprises repo and reverse repo transactions.
19. What are the present policy rates and reserve ratios?
(As on January 12, 2016)
1. Repo Rate
6.75%
2. Reverse Repo 5.75%
3. CRR
4%
4. SLR
21.5%
5. MSF
7.75%
6. Bank Rate 7.75%
The RBI Monetary Policy Committee is set to meet on February 2, 2016 for its next monetary policy review.

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20. What is the history of banking in India? What services do banks provide?
Banking in India in the modern sense originated in the last decades of the 18th century. Among the first banks
were Bank of Hindustan, which was established in 1770 and liquidated in 1829-32; and General Bank of India,
which was established 1786 but failed in 1791.
Following are the valuable services banks provide:
a. Safekeeping of our money and valuables.
b. Financial help by way of personal loans, housing loans, vehicle loans, etc. A loan is a sum of money
borrowed at a rate of interest for a set time period. The borrower has to pay back the money with
interest. For example: If a student wishes to study abroad, but does not have sufficient money to
incur the expenses for the course, s/he can take an educational loan from a bank.
c. Banks deal with foreign exchange and provide customers local currency in lieu of foreign notes.
d. Banks also facilitate faster fund remittance facilities, including NEFT and RTGS.
21. What do you understand by nationalisation?
Nationalisation is the process the government/state takes ownership of a private industry/asset.
22. Why were banks nationalised?
a. Commercial banks operated in the private sector and were more business-friendly.
b. They lacked the resolve to serve the poor sections of the society, mainly those in the agro and
agro-allied occupations.
c. Agriculture was the backbone of the Indian economy and the lack of financial empathy towards
farmers and small-time entrepreneurs was deemed reckless. Banks were nationalised to enable
poor sections of the society to take advantage of their services.
23. When were Indian banks nationalised?
Nationalisation of banks took place in two phases during former Prime Minister Indira Gandhis rule.
Following are the 14 commercial banks that were nationalised in the first phase on July 19, 1969.
Central Bank of India
Bank of India
Punjab National Bank
Bank of Baroda
United Commercial Bank
Canara Bank
Dena Bank
United Bank
Syndicate Bank
Allahabad Bank
Indian Bank
Union Bank
Bank of Maharashtra
Indian Overseas Bank
Six commercial banks were nationalised in the second phase on April 15, 1980, namely:
Andhra Bank
Corporation Bank
New Bank of India
Oriental Bank of Commerce
Punjab & Sindh Bank Vijaya Bank

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24. How were State Bank of India and its associate banks formed?
State Bank of India is Indias largest public sector lender. It originated as the Bank of
Calcutta in June 1806. In 1809, it was renamed as the Bank of Bengal. This was one
of the three banks funded by a presidency government; the other two were the Bank
of Bombay and the Bank of Madras. The three banks were merged in 1921 to form the Imperial Bank of India,
which after Indias independence came to be known as the State Bank of India in 1955.
Under the State Bank of India (Subsidiary Bank) Act 1959, SBI acquired 7 associate banks earlier belonging
to princely states prior to nationalisation. These were:
State Bank of Bikaner & Jaipur
State Bank of Hyderabad
State Bank of Mysore
State Bank of Patiala
State Bank of Travancore
State Bank of Saurashtra
State Bank of Indore
A proposal to merge all associate banks into SBI to create a mega bank was mooted, under which State Bank
of Saurashtra and State Bank of Indore were merged into SBI in August 2008 and June 2009 respectively.
25. What are commercial banks?
The term commercial bank refers to both scheduled and non-scheduled banks that are regulated under the
Banking Regulation Act, 1949.
26. What are scheduled banks?
The Indian banking industry is broadly classified into scheduled banks and non-scheduled banks. Scheduled
banks are defined under the 2nd Schedule (2E) of the RBI Act, 1934. When the RBI confirms that a bank
satisfies criteria listed in section 42 (6) (a) of the Act, it lists the bank as a scheduled bank. For this, the bank
has to satisfy two conditions:
1. It should have paid-up capital and reserves of an aggregate value of at least Rs. 5 lakhs
2. Day-to-day banking activities of the bank should not adversely impact the interests of its depositors.
Scheduled banks enjoy the following facilities:
1. They become eligible for debts/loans on the prevailing bank rate from the RBI
2. They automatically acquire clearing house membership.
Scheduled banks are further classified into:
State Bank of India and its associate banks
Nationalised banks
Regional rural banks (RRBs)
Private banks
Foreign banks
27. What are non-scheduled banks?
These are the banks that are not included in the 2nd schedule of RBI Act, 1934. They also have to maintain a
statutory cash reserve, but not with the RBI. Their banking activities are also limited. For example, they
cannot deal in foreign exchange. These banks are not listed on the stock exchange and their shares are not
traded publicly.
For Example: All Co-operative banks come under non-scheduled banks. Following are some of the nonscheduled banks in India:
Akhand Anand Co-Op Bank Ltd.
Alavi Co-Op Bank Ltd.
Amarnath Co-Op Bank Ltd.
Amod Nagrik Sahakari Bank Ltd.
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28. What are public sector banks?

These are banks wherein the government holds a majority stake. At least
51% ownership is vested with the government. The remaining 49% shares
of these banks are listed on stock exchanges. There are a total of 27 public
sector banks in India (21 nationalised banks and 6 SBI group banks).
29. What are regional rural banks (RRBs)?
On the recommendation of the Narasimham committee, RRBs have been
established with sponsorship by individual nationalised commercial banks.
They have been created in order to principally cater to masses in Indias
rural areas with basic banking and financial services. However, RRBs may
have branches for urban operations as their area of operation may include
urban areas too. These banks grant loans only to marginal farmers, people
operating in the rural agriculture sector and to small
entrepreneurs/labourers. Currently, there are 56 RRBs operating in India.
30. What are foreign banks?
Banks that have originated from outside India or are headquartered
overseas are known as foreign banks. As of September 30, 2015, there are
46 foreign banks with operations in India. Some examples include: Royal
Bank of Scotland, Bank of America, HSBC Ltd., Barclays Bank Plc., Citibank
NA, etc.
31. What are private sector banks?
Banks wherein the majority shareholding is held by private individuals/organisations are called private
sector banks. At least 51% ownership is vested with businessmen/private organisations. The shares of these
banks may be listed on stock exchanges. Currently, there over 20 private sector banks in India. Some
examples include, HDFC Bank, ICICI Bank, Axis Bank, Yes Bank, Kotak Mahindra Bank, etc.
32. What are co-operative banks?
A bank that holds deposits, makes loans and provides other financial services to cooperatives and memberowned organisations is termed a co-operative bank.
33. What are the capital requirements for new banks/NBFCs/foreign banks in the private sector?
The key requirements are:
a. Minimum capital requirement will be Rs. 500 crore.
b. Aggregate foreign shareholding in the new bank should not exceed 49% for the first five years.
c. The new bank should open at least 25% of its branches in unbanked rural centres.
34. Which companies were granted payments bank licences?
The idea of payments banks and small finance banks was mooted by the Nachiket Mor Committee on
Financial Inclusion. Subsequently, the RBI decided to allow these two categories of banks to enhance financial
inclusion. The minimum paid-up capital required for both categories is Rs. 100 crore.
Small finance banks can accept deposits and offer loans to mainly unbanked and underbanked sections. At
least 50% of their loan portfolio should include loans and advances of up to Rs. 25 lakh.

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Payments banks can accept demand deposits, but cannot extend loans. They can issue debit cards but not
credit cards. They can distribute non-risk sharing simple financial products like mutual fund units and
insurance products, etc.
List of entities that have been granted in-principle payments bank licences:
Aditya Birla Nuvo, Airtel M Commerce Services, Cholamandalam Distribution Services, Department of Posts,
Fino PayTech, National Securities Depository Ltd, Reliance Industries, Dilip Shantilal Shanghvi, Vijay Shekhar
Sharma, Tech Mahindra, and Vodafone M-Pesa.
List of entities that have been granted in-principle small finance bank licences:
Au Financiers, Capital Local Area Bank, Disha Microfin, Equitas Holdings, ESAF Microfinance and
Investments, Janalakshmi Financial Services, RGVN (North East) Microfinance, Suryoday Micro Finance,
Ujjivan Financial Services and Utkarsh Micro Finance.
35. How many types of bank accounts are offered by banks in India?
Generally, banks in India offer 4 types of bank accounts:
1. Saving Bank Account: Any individual can open saving bank deposit account and can deposit and
withdraw money as and when required. Interest on such accounts is calculated on a daily basis. An
account holders PAN details are required for cash transactions exceeding Rs. 50,000/-. Usually, interest
rates are around 4%.
2. Current Account: Current Accounts are meant for businessmen and are not used for investment or
saving purposes. There are no restrictions on the number of times deposits in cash/cheque can be made,
or the amount of such deposits. Banks do not pay any interest on current accounts.
3. Recurring Deposit (RD): Recurring deposit refers to placement of fixed amount of funds at regular
intervals into a special term account. It helps people with regular incomes to deposit a fixed amount
every month and earn interest at the rate applicable to fixed/term deposits. RD accounts are normally
allowed for maturities ranging from 6-12 months. Interest is compounded on quarterly basis in
recurring deposits.
4. Fixed Deposit (FD): An account opened for a fixed period of time by depositing a particular amount of
money is known as fixed/term deposit. The term fixed deposit means that the amount of money placed
is fixed and is repayable only after the specific period is complete. The main purpose of fixed deposit
accounts is to enable people to earn a higher rate of interest on their surplus funds. Fixed deposit
accounts may be opened for a minimum period of 7 days and maximum period of 10 years. The
minimum amount required to open a fixed deposit varies with banks but is usually around Rs. 10,000.
36. What is Basic Saving Bank Deposit Account (BSBDA)?
Banks have converted the existing no-frills accounts into Basic Savings Bank Deposit Accounts. An
individual is eligible to have only one Basic Savings Bank Deposit Account in one bank, and will not be
eligible for opening any other savings account in that bank. Total credits in such accounts should not exceed
Rs. 1 lakh in a year. Maximum balance in the account should not exceed fifty thousand rupees at any time.
The total of debits by way of cash withdrawals and transfers will not exceed ten thousand rupees in a month.
The banks are required to provide a minimum of 4 withdrawals through ATMs free of charge. Interest rates
on BSBDA are the same as saving bank accounts.
37. What are the measures being taken for financial inclusion in India?
Financial Inclusion means providing financial services at affordable costs to every citizen of the country. The
focus is on rural, semi urban areas where financial/banking services are not available or affordable. The
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Pradhan Mantri Jan Dhan Yojana scheme for financial inclusion was launched by Prime Minister Narendra
Modi on August 28, 2014 to help poor people open bank accounts.
Key Facts about Pradhan Mantri Jan Dhan Yojana:
The slogan of the scheme is Mera Khata Bhagya Vidhaata
The scheme aimed to open a minimum of 15 crore bank accounts by August 15, 2015. As on December
15, 2015, banks opened 19.21 crore accounts under this scheme.
Rupay cards were issued to 16.51 crore customers and Finance Ministry stated that two lakh accounts
are opened every day.
PMJDY, which includes a life insurance cover of Rs 30,000 and an accident insurance cover of Rs 1 lakh
has also benefited subscribers as 1,336 claims of life cover and 333 claims of accident insurance cover
were paid as of November 2015.
Zero balance accounts in PMJDY declined from 76% in September 2014 to 36.50% in November 2015.
As of September 2015, nearly 1.65 lakh account holders availed the overdraft facility.
38. What is CBS?
CBS is short for CORE Banking Solution. CORE is short for Centralized Online Real-time Exchange. CBS is the
networking of branches that enables customers to operate their accounts and avail banking services from
any bank branch on the CBS network, irrespective of wherever their account is located. It is a step towards
enhancing customer convenience through anywhere and anytime banking.
39. How does CBS help customers?
All CBS branches are interconnected with each other. Therefore, customers of CBS branches can avail various
banking facilities from any other CBS branch of that bank located anywhere in the world. These services are:
To make enquiries about the balance, debit or credit entries in the account.
To obtain cash payment out of his account by tendering a cheque.
To deposit a cheque for credit into his account.
To deposit cash into the account.
To transfer funds from his account to some other account, his own or of any third party, provided both
accounts are in CBS branches.
To obtain Demand Drafts or Bankers Cheques, the amount shall be debited from his account online.
Customers can continue to use ATMs and other Delivery Channels, which are also interfaced with CBS
platform. Similarly, facilities like Bill Payment, I-BOB, M-BOB etc. shall also continue to be available.
40. What is Indian Financial System Code (IFSC)?
IFSC is an alphanumeric code that uniquely identifies a banks branch participating in the NEFT system. It is
used by the NEFT system to identify the originating / destination banks / branches and also to route the
messages appropriately to the concerned banks / branches. It is an 11 digit code with the first 4 letters
representing the bank, the 5th character being 0 (zero), and the last 6 digits representing the bank branch.
For e.g.: UBIN0559652
The first 4 characters UBIN refers to Union Bank of India; fifth character 0 is a control number; last six digits
(559652) represent the Union Bank branch at Sindhaura Road, Bhojubeer, Varanasi, Uttar Pradesh.
41. What is NEFT?
The National Electronic Funds Transfer (NEFT) is a nation-wide payment system facilitating one-to-one
funds transfer. Under this, individuals can electronically transfer funds from any bank branch to an individual
having an account with any other bank branch in the country. There are no limits, minimum

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or maximum, for NEFT transactions, in general. However, the maximum amount per transaction is limited
to Rs. 50,000/- for cash-based remittances and for remittances to Nepal.
42. What is RTGS?
The Real-Time Gross Settlement (RTGS) system is a funds transfer system wherein transfer of money or
securities takes place from one bank to another on a real-time and gross basis. The settlement in real-time
means that the payment transaction is not subjected to any waiting period and is settled as soon as it is
processed. It is primarily meant for large value transactions and the minimum amount to be remitted is Rs. 2
lakhs. There is no upper limit for RTGS transactions.
43. What is IMPS?
Immediate Payment Service (IMPS) is an interbank electronic instant money transfer service through mobile
phones in India. IMPS facilitates customers in using mobile instruments as a channel for accessing their bank
accounts and executing interbank fund transfers in a safe manner with immediate confirmation. This facility
is provided by NPCI (National Payment Corporation of India) through its existing NFS switch.
44. What is Plastic money?
Plastic money is a term that is used in reference to the hard plastic cards used every day in place of actual
bank notes. They can come in many different forms, some of which are detailed below:
Cash Cards: A card that will allow you to withdraw money directly from your bank via an Automated
Teller Machine (ATM) but will not allow the holder to purchase anything directly by using it.
Credit Cards: A card that allows the user to purchase goods and services directly, the transaction
basically being a high interest loan to the card holder, although the card holder can avoid any interest
charges by paying the balance off in full each month.
Debit Cards: This type of card can be used to purchase goods and services, and the money to be paid
for the same will be directly debited from your bank account.
Prepaid Cash Cards: Similar in concept to the debit card, the customer adds money into the card and
uses it for shopping.
Store Cards: These are similar in concept to the Credit Card model, in that the idea is to purchase
something in a store and be billed for it at the end of the month. These cards charge a very high interest
rate and have strict limitations about where they can be used, sometimes only in the store that issued
the card.

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45. What is KYC?

The abbreviation KYC stands for Know Your Customer. It is the process through which a bank obtains
information about the identity and address of its customers. The Reserve Bank of India issues KYC guidelines
under Section 35A of the Banking Regulation Act, 1949. KYC guidelines aim to prevent banks from suffering
losses due to money laundering or terrorist financing activities. As per the guidelines, for the purpose of
proof of identity, customers have to produce one/two of the Officially Valid Documents (OVDs), which
include:
1. Passport
2. Driving License
3. Voters identity card
4. PAN Card
5. Aadhar Card
6. NREGA Card
46. Define Online/Internet Banking?
Online banking enables customers to access the banks information to manage their account and perform
transactions through its website on the Internet. This is known as internet/online banking or e-banking.
Routing banking tasks like operating the account, requesting cheque books, transferring funds, etc. can be
done through secure connections via online banking. Whenever you want to transfer funds to another
persons account through Internet banking, the IFSC code of the receiving bank is required.
47. What is Capital to Risk Weighted Assets Ratio (CRAR)?
Capital to Risk (Weighted) Assets Ratio (CRAR) is also known as Capital Adequacy Ratio (CAR). It is the ratio
of a bank's capital to its risk. CRAR is arrived at by dividing the capital of the bank with the aggregated riskweighted assets for credit risk, market risk and operational risk.
48. Define Non-Performing Assets (NPAs)?
An asset (loan) becomes non-performing when it no longer generates income for the bank. Once the
borrower fails to make interest or principal payments for 90 days, the loan is considered to be NPA.
NPAs can broadly be classified into three categories:
1. Sub-standard Assets: A sub-standard asset is classified as NPA for a period less than or equal to 12
months. This category came into effect from March 31, 2005.
2. Doubtful Assets: A doubtful asset is classified as NPA for a period exceeding 12 months. This category
came into effect from March 31, 2005.
3. Loss Assets: A loss asset is one where loss has been identified by the bank or internal/external auditors
or after RBI inspection, but the amount has not been written-off wholly. In other words, it is an asset which
is considered uncollectible and of such a little value that its prolongation as a bankable asset is not justified,
although there may be some rescue or recovery value.
49. Why do NPAs occur? What is the impact of NPAs?
NPAs are also termed as bad loans or defaults. NPAs occur due to the failure to meet financial obligations,
non-payment of a loan instalment. These loans can get executed due to the following reasons:
i. Normal banking operations.
ii. Bad lending practices.
iii. Incremental components due to internal bank management, like credit policy, terms of credit, etc.
iv. Competition as banks are selling unsecured loans to increase their own business.
NPAs do not just reflect badly in a banks account books, they badly impact the nations economy. Some of
the direct impacts of NPAs are:
i. Depositors do not get their rightful returns, and may lose uninsured deposits. Banks may begin charging
higher interest rates on some products to compensate for NPA losses.
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ii. Bank shareholders are adversely affected.

iii. Bad loans imply redirecting of funds from good projects to bad ones.
Hence, the economy suffers due to loss of good projects and failure of
bad investments.
iv. When banks do not get loan repayment or interest payments,
liquidity problems may occur.
Result of NPAs in an organization:
i. Decrease in profitability.
ii. Increased loan loss reserves
iii. Reduced capital assets and lending limits

50. How can NPAs be reduced?

NPAs can be reduced through some major steps that need to be taken
by the banks. Some of these steps are:
SARFAESI ACT
The Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI) empowers
Banks and Financial Institutions to recover their NPAs without the
intervention of the Courts. The Act provides three alternative methods for recovery of non-performing
assets, which are:
i. Securitization
ii. Asset Reconstruction
iii. Enforcement of Security
The provisions of this Act are applicable only for NPA loans with outstanding amounts above Rs. 1.00 lac.
NPA loans where the amount is less than 20% of the principal and interest are not eligible to be dealt with
under this Act. NPAs should be backed by securities charged to the Bank by way of hypothecation, mortgage
or assignment. Security Interest by way of lien, pledge, hire purchase and lease not liable for attachment
under sec. 60 of CPC, are not covered under this Act. Any Security Interest created over Agricultural Land
cannot be proceeded with.
The Act empowers the Bank:
a. To issue demand notice to the defaulting borrower and guarantor, calling upon them to discharge their
dues in full within 60 days from the date of the notice.
b. To give notice to any person who has acquired any of the secured assets from the borrower to surrender
the same to the Bank.
c. To ask any debtor of the borrower to pay any sum due or becoming due to the borrower.
If the borrower fails to comply with the notice, the Bank may take recourse to one or more of the following
measures:
i. Take possession of the security
ii. Sell, lease or assign the right over the security to others
iii. Manage the security themselves or appoint any person to manage it

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Lok Adalats
The Lok Adalat is meant for recovery of small loans. According to RBI guidelines issued in 2001, they cover
NPAs up to Rs. 5 lakhs, where both suit filed and non-suit filed cases are covered.
Compromise Settlement
A scheme which provides a simple mechanism for recovery of NPAs, it is applied to advances below
Rs. 10 Crores.
Credit Information Bureau
A Credit Information Bureau maintains a database of individual defaulters and provides this information to
all banks so that they may avoid lending to these individuals and organizations.
Debt Recovery Tribunals
The Debt Recovery Tribunal Act was passed by Indian Parliament in 1993 with the objective of facilitating
the banks and financial institutions for speedy recovery of dues in cases where the loan amount is Rs. 10
lakhs and above.
51. What is GDP?
The Gross Domestic Product (GDP) is an estimated value of the total worth of a countrys production and
services, within its boundary, by its nationals and foreigners, calculated over the course of one year.
Hence, GDP = Consumption + Investment + Government Spending + Exports - Imports
52. Define GNP.
The Gross National Product (GNP) is an estimated value of the total worth of production and services, by
citizens of a country, on its land or on foreign land, calculated over the course of one year.
Hence, GNP = GDP + NR (Net income inflow from assets abroad or Net income Receipts) - NP (Net Payment
outflow to foreign assets)
53. Explain Inflation
Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. Due
to a rise in general price level in the country, each unit of currency buys fewer goods and services. Inflation
causes a reduction in the purchasing power per unit of money, which is a real value in the medium of
exchange and unit of account within the economy.
Two major indices are used to calculate inflation:
Wholesale Price Index (WPI): The wholesale price index (WPI) is the price of a representative basket of
wholesale goods i.e. goods that are sold in bulk and traded between organisations instead of consumers.
Consumer Price Index (CPI): The consumer price index (CPI) measures changes in the price level of a market
basket of consumer goods and services purchased by households.
Previously, the RBI gave more weightage to WPI than CPI as the key measure of inflation. However, now the
central bank has adopted CPI (Combined) to measure inflation after accepting some recommendations of
the Urjit Patel Committee report.
54. What are Negotiable Instruments?
A negotiable instrument is a written order or unconditional promise assuring the payment of a specific
amount of money, either on demand, or at a pre-decided date, with the payer named on the document. Some
examples of negotiable instruments are promissory notes, bills of exchange, cheques, drafts, certificates of
deposit, etc.
Negotiable instruments can be transferred from one person to another, who is known as a holder, in due
course. Transferring a negotiable instrument is called negotiating of the instrument. After the transfer, a new
holder obtains full legal title to the instrument.

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55. What are Cheques?

A cheque is a document which guarantees payment of a specific amount of money on demand to a certain
person or to the bearer of the instrument. It is a negotiable instrument which can be transferred from one
bank to another. It can be issued by any individual/company/institution with a bank account.
Given below are certain terms related to cheques:
1. Bearer Cheque
It is a cheque which is payable to the person who bears it or presents it for encashment at the bank. Such
cheques are risky because if they are lost, the finder of the cheque can easily collect the payment from the
bank.
2. Order Cheque
An order cheque is one which is payable to a particular person. The payee can transfer an order cheque to
someone else by signing his or her name on the back of the cheque.
3. Uncrossed/Open Cheque
When a cheque is not crossed, it is known as an Open Cheque or an Uncrossed Cheque. These cheques may
be cashed at any bank and the payment of these cheques can be obtained at the bank counter or transferred
to the bearers bank account. An open cheque may be a bearer cheque or an order cheque.
4. Crossed Cheque
A cheque is a crossed cheque when two parallel lines are drawn on the left corner of the cheque, with or
without additional words like Account Payee Only or Not Negotiable. Such cheques cannot be cashed at
the bank counter but can only be credited to the payees account. This is a safer way of transferring money
vis--vis uncrossed/open cheques or bearer cheque.
5. Cheque Validity
A cheque is considered to be valid if the date entered on it is within 3 months of the actual date on which it
is presented. For example, a cheque with the date January 10, 2015 will be valid if it is presented to the bank
on or before April 10, 2015.
6. Antedated Cheque
Cheques in which the drawer mentions a date earlier than the date on which it is presented to the bank, are
called antedated cheques. Such a cheque is valid up to three months from the written date on the cheque.
For example, a cheque may be issued on January 10, 2015 but bear a date of December 20, 2014 and will be
valid up to March 20, 2015.
7. Post-dated Cheque
Cheques on which the drawer mentions a future date from the date on which it is presented are called postdated cheques. Banks will take action on the cheques only after the date which is written on the cheque. For
example, if a cheque issued on January 10, 2015 bearing the date January 25, 2015 is presented, the bank
will credit the payment only on or after January 25, 2015. The cheque will remain valid until April 25, 2015.
8. Stale Cheque
If a cheque is presented for payment after completion of three months from the date of issuance, it is called
a stale cheque. After the expiry of three months, no payment will be made by the bank against the cheque.
9. Mutilated Cheque
When a cheque is torn or otherwise disfigured and not in good form, it is called a mutilated cheque. The bank
will not make payment against such a cheque without getting the drawers confirmation.
10. Honour of Cheque
When the bank processes the cheque and pays the amount mentioned on the cheque to the payee, by debiting
the payers account, the cheque is said to be honoured.
11. Dishonour of Cheque
If the bank refuses to pay the amount written on the cheque to the payee, then the cheque is said to be
dishonoured. There may be many reasons for dishonouring the cheque, but it is mostly because the drawer
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has not followed all the rules of issuing cheques or has drawn the cheque for an amount higher than the
balance in their account.
12. Bounced Cheque
The term bounced is used when a cheque is presented for clearance, but the amount mentioned in the
cheque exceeds the balance available in the account, causing the bank to dishonour that cheque. Some other
terms for bounced cheques are bad/hot cheques.
13. Bankers Cheque
A cheque that is drawn on the account of the bank itself, instead of the account of the individual that has
drawn the cheque, is called bankers cheque.
14. Stop Payment
The drawer of the cheque can stop the payment of the cheque before it is presented to the bank for
processing. This is done by instructing the payee bank to not honour the cheque once it is received for
processing. This is useful if the cheque is stolen during transfer from payer to payee or any such reason.
15. MICR
MICR stands for Magnetic Ink Character Recognition. The MICR Code is a 9-digit code which uniquely
identifies a bank branch participating in the ECS Credit scheme. The first 3 digits represent the city, next 3
digits represent the bank, and the last 3 digits represent the branch. The MICR Code allotted to a bank branch
is printed on the MICR band on the cheque leaves issued by that branch.
56. What is a Demand Draft (DD)?
A demand draft is a negotiable instrument similar to a bill of exchange. A person making the order is known
as the drawer and the person specified in the order is called the drawee. A bank issues a DD to a client
directing another bank or one of its own branches to pay a certain sum to the specified party (Payee) directly
without involving the drawing bank after presenting.
Some of the differences between a cheque and a DD are:
i. A cheque is issued by an individual, whereas a DD is issued by a bank.
ii. The amount mentioned on the DD is collected by the bank from the drawer prior to drawing the DD,
whereas the amount mentioned on the cheque is debited only when the cheque is presented for payment.
iii. The payment of a cheque can be stopped by the drawer of the cheque, whereas the payment of a DD
cannot be stopped.
iv. A cheque can bounce or be dishonoured, but a DD cannot bounce or be dishonoured because it is already
paid for. A DD will bounce only when the drawee bank does not have enough funds to honour the cheque.
v. A cheque can be made payable either to a bearer or to order. But a DD is always payable to order to a
certain person or organization; it cannot be a bearer draft.
57. What is Cheque Truncation System (CTS)?
CTS is the process of stopping of flow of cheques from the presentee bank to the drawee bank for processing
through clearing houses.
Instead, an electronic image of the cheque is transmitted to the drawee branch through the clearing house
along with relevant information like data on the MICR band, date of presentation, presenting bank, etc.
The RBI launched CTS as a pilot project in February 2008, following which CTS-2010 Standard Compliant
Cheques were made mandatory from December 2013.

The major benefits of CTS are summarized as below:

Shorter clearing cycles
Superior verification and reconciliation processes
No geographical restrictions as to jurisdiction and transfer of cheques for processing
Operational efficiency for banks and customers
Reduction in operational risk and risks associated with paper clearing
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58. What is the Banking Ombudsman Scheme?

Introduced under Section 35A of the Banking Regulation Act, 1949 by the RBI with effect from 1995, it is a
scheme which enables bank customers to get their complaints/grievances related to banking services
resolved to their satisfaction. A senior official is appointed by the RBI to look into the customers complaints
against deficiency of various banks, which includes all Scheduled Commercial Banks, RRBs & Scheduled
Primary Co-operative Banks.
Some aspects related to the Scheme:
i. There is no fee/charge for filing and resolving customers complaints.
ii. In case of any compensation for loss suffered by the complainant, the amount paid by the bank is limited
to the amount arising directly out of the act or omission of the bank or Rs. 10 lakhs, whichever is lower.
iii. For complaints regarding credit card operations for mental harassment and agony, the compensation will
not exceed 1 lakh rupees.
iv. If a complaint is not settled by an agreement within a period of one month, the Banking Ombudsman
proceeds further to pass an award.
v. If dissatisfied with the decision passed by the Banking Ombudsman, one can approach the appellate
authority (within 30 days of the date of receipt of the award) which is vested with the Deputy Governor of
the RBI.
59. What are NBFCs?
NBFCs are financial institutions that provide services similar to banks without bearing a banking license.
These institutions typically are restricted from taking deposits from the public depending on the jurisdiction;
however, the operations of these institutions are still covered under a countrys banking regulations.
Services provided by the NBFCs include loans and credit facilities, private education funding, retirement
planning, trading in money market and underwriting stocks and shares, TFCs (Term Finance Certificate) and
other obligations.
60. What is difference between banks & NBFCs?
Differences between banks & NBFCs are listed below:
i. NBFCs cannot demand or accept deposits
ii. NBFCs do not participate in payment and settlement system and hence, cannot issue cheques on
themselves.
iii. NBFCs cannot issue demand drafts
iv. The deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is unavailable to
depositors of NBFCs, unlike in case of banks.
61. What are White Label ATMs (WLAs)?
WLAs are non-bank ATMs/cash-dispensing machines owned and operated by NBFCs (non-banking financial
companies). Customers of any bank can use these machines to access their accounts for a fee.
RBI has granted permissions to 4 NBFCs and issued certificates of authorisation to 3 more NBFCs to operate
WLAs. These are as follows:
Permission granted to:
i. Tata Communications Payment Solutions Ltd
ii. Muthoot Finance Ltd.
iii. Prizm Payment Services
iv. Vakrangee
Certificate of authorisation issued to:
i. BTI Payments
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ii. SREI Infrastructure Finance

iii. Riddhi Siddhi Bullions.
The first WLA was launched by Tata Communications Payment Solutions Ltd. in
June 2013 at Chandrapada, a village in the Vasai-Virar belt in Maharashtra.
62. What are the various types of financial markets?
Financial markets can broadly be divided into money markets and capital markets.
A. Money market: It is a short-term investment avenue. These transactions are generally used for the
purpose of funding other transactions like government securities and meeting short term liquidity
mismatches. The term for money markets is typically up to one year. Depending upon the duration of the
term, money markets are classified into:
i. Overnight market or Call money: The tenure for it is one working day
ii. Notice money market: The tenure for these varies between 2 to 14 days
iii. Term money market: The tenure for these varies between 15 days to one year
B. Capital market: Capital market is a market for long term debt and equity shares. Buyers and sellers
engage in trade of financial securities like bonds, stocks, etc. It also includes private placement sources of
debt and equity as well as organized markets like stock exchanges.
63. What is Commercial Paper (CP)?
It is a promissory note issued by financial institutions that have a very short maturity period. The Reserve
Bank of India sets an umbrella limit for corporates, private dealers (PDs) and all-India financial institutions
to raise short-term resources and issue CPs in denominations of Rs 5 lakh and multiples thereafter. CPs can
be issued for maturities ranging from a minimum of 7 days to a maximum of up to one year from the date of
issue.
64. What is Certificate of Deposit (CD)?
It is a money market instrument equivalent to a promissory note which is issued by a bank. The smallest
amount for which a CD can be issued is Rs. 1 Lakh and its multiples. Banks can issue CDs for maturities from
7 days to one year whereas eligible FIs (All India Financial Institutions) can issue for maturities from 1 to 3
years.
65. What is Islamic banking?
Islamic banking is the term used to describe banking and its related activities based on the Shariah (Islamic
law) and its practical applications throughout the development of Islamic economics. According to the
Shariah, fixed or floating payment or acceptance of specific interest or fee for loan of money is completely
prohibited. The RBI norms are at odds with the concept of Islamic banking. Banking operations in India
implement interest since the banks borrow money on which it also pays interest. Since Islamic banking does
not permit charging or taking of interest, it is incompatible with our current laws.

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