Questions Answers Interview For Bank

Dear Friend,
I had on October 27, 2010 sent you a PDF file listing out 101 interview questions
for bank promotions. I am sure by this time, you must have answered most of the
questions. I too have tried to answer those questions. I am attaching a new file
with answers to those 101 questions.
With regards,
Rama Krishna V
Hyderabad
November 8, 2010
Note: The answers are not in the order in which questions were set on October
27, 2010 in the file named 101 interview questions for bank promotions.
Please read the disclaimer at the end of the answers.

Compiled by: Rama Krishna Vadlamudi, Hyderabad November 8, 2010
Answers to 101 interview questions for bank promotions:
81. What is paripassu charge?
A paripassu charge gives lenders a right to the property on which a charge is

created in proportion to the amount lent to the debtor. Let us assume two banks
X and Y have lent to a company with the outstanding at Rs 70 lakh and Rs 30
lakh respectively and have paripassu charge over the assets hypothecated. In
case of liquidation of that company, the lenders X and Y will share the proceeds
from liquidation in proportion to the outstanding loan amount, that is, 70:30.
71. What are SEZs?
SEZ is an acronym for a Special Economic Zone. SEZs are a big success in
China. Based on the Chinese model, India too has set up several SEZs with a view
to increasing economic activity, attracting foreign and domestic investment,
creating employment opportunities and developing infrastructure in the country.
As of now, there are 122 operational SEZs in India, out of a total 155 which
received in-principle approval from the Government. The advantage with SEZs
is that they can be set up with single-window clearance and simple rules.
Some of the well-known SEZs are SEEPZ SEZ, Kandla SEZ, Madras SEZ and
Visakhapatnam SEZ in the Government Sector; Mahindra City SEZ, Chennai,
Surat SEZ, Mundra Port & SEZ and Infosys Technologies SEZ, Managaore in the
private sector.
61. Do commercial banks have freedom to raise/lower interest rate on Savings

Bank account?
Commercial banks in India do not have freedom to set interest rate on

Savings Bank deposits. Reserve Bank of India decides rates on SB account.
However, RBI is preparing a discussion paper to assess the pros and cons of
deregulating interest rates on Savings Banks account. If RBI decides to
deregulate and give freedom to banks to set rates on SB deposits ultimately, then
savers can expect better interest rate on their SB accounts.
As of now, Savings Bank accounts carry interest rate of 3.5 per cent per annum
with effect from March 1, 2003. From April 1, 2010, banks are giving interest
rates on SB account based on daily product.
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41. What is a no-frill account?
As per the guidelines given by Reserve Bank of India and in line with the
intentions of the Government of India, commercial banks have been opening no-
frills accounts to large sections of underprivileged sections of the society. The no-
frills accounts are an innovative concept to introduce banking to the masses.
This concept is part of financial inclusion drive started by the Government of
India some time back.
Customers can open no-frills accounts with either a zero balance or with
bare minimum balance.
Even collateral-free loans of up to Rs 50,000 can be obtained by the no-
frills accountholder.
Students from minority communities can open such accounts to receive
Government Scholarships
Banks can provide credit cards against no-frills accounts in rural and
semi-urban areas
101. Why are gold prices rising?
This is a most difficult question to answer. However, let me try. Gold is a precious
commodity. From time immemorial, gold has fascinated man (man includes
woman also). It is a malleable material and can be converted easily into any form.
It has no economic value meaning it does not offer any regular return (like a
dividend from a stock or interest from a bond) except capital gains. International
gold price is hovering around USD 1,390 per ounce and in India around Rs
19,700 per 10 gm. The reasons for gold price rise can be attributed to:
Investors around the world are worried about the growth of the world
economy
They consider gold as better compared to the depreciating currencies,
like, US dollar
Due to the global financial crisis of 2007/2008, investors have lost faith in
Governments who have been printing currency notes in thousands of
crores devaluing their currencies
As a result, purchasing power of currencies has come down
The sovereign debt crisis in Dubai and Greece have convinced investors
that Governments are broke; so gold is a safe haven
Even central banks of several countries, including, India and China, have
bought tonnes of gold from the IMF and international market
Rising prices bring in more investors to gold
Gold exchange-traded funds (ETFs) have made it easier for investors to
put their money in gold
The price of any good or service depends on the principle of demand and
supply. However, sentiments matter a lot in markets rather than
fundamentals.
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11. Base Rate was recommended by a working group set up by RBI. Who headed
the working group?
Reserve Bank of India set up a working group to introduce Base Rate. The
group was headed by Deepak Mohanty. As per the recommendations of the
working group, Base Rate was introduced in India from July 1, 2010.
1. RBI has set up a committee to free interest rate on savings bank deposits. Why
has it decided to do so?
Since the 1990s, Reserve Bank of India had been deregulating interest rates on
deposits and advances. As part of the financial sector reforms and with a view to
giving more freedom to banks, Reserve Bank of India is now considering
deregulating interest rates on Savings Bank deposits.
21. Can you tell us something about Agricultural Debt Relief scheme?
Under the Agricultural Debt Waiver & Debt Relief scheme (2008),
farmers having more than two hectares of land were given time up to 31st
December, 2009 to pay 75% of their overdues. In view of the recent drought in
some States and the severe floods in some other parts of the country, it was
proposed to extend this period by six month up to 30th June, 2010';.
In the light of the above said announcement, Government has now decided to
extend the period of payment of 75% of overdue portion by the 'other farmer'
under the 'One Time Settlement' Scheme under ADWDRS, 2008 for another six
months i.e., from 01.01.2010 to 30.06.2010.
The banks/lending institutions are allowed to receive even less than 75% of the
eligible amount under OTS provided the banks/lending institutions bear the
difference themselves and do not claim the same either from the Government or
from the farmer. The government will pay only 25% of the actual eligible amount
under debt relief as has already been intimated
The eligible 'other farmers' may be allowed to deposit this amount in one or more
instalments prior to 30th June, 2010.
31. If you are appointed as Branch Manager of a worst performing branch, what
steps would you initiate to turn around the Branch?
To increase profitability, the Branch Manager shall adopt strategies
depending on the specific problems pertaining to that Branch and the
environment. However, some general strategies could be:
Banks profitability basically depends on the spread between cost of deposits and
yield on advances
CASA deposits should be improved to reduce cost of deposits
To increase high-value advances and improve yield on advances
To improve non-interest income through cross selling and others
To plug income leakage
Reducing overhead costs that can be cut
To concentrate on NPA/AUC recovery and collect un-debited interest and
amounts from interest not collected account
To speed up legal actions under SARFAESI Act and other means
PAGE 4 OF 26
51. What is the rate of interest paid by RBI for cash reserves, in the form of CRR,
maintained by Banks with it?
With effect from March 31, 2007, RBI does not pay any interest on Cash
Reserve Ratio maintained by banks with RBI. With effect from April 1, 2007,
RBI prescribes CRR, depending on monetary policy considerations for banks
without any floor or ceiling rate. With effect from April 24, 2010, CRR is six per
cent of net demand and time liabilities (NDTL).
91. What is G-20?
G-20 is a Group of 20 countries. G-20 consists of most influential countries

financially and economically. G-20 was established in 1999 with a view to
bringing together industrialized nations and developing countries to discuss key
issues in globally economy. The important members of G-20 include: the USA,
Australia, the UK, Germany, China, India, Brazil, Mexico, the European Union,
and Russia. G-20 Summit will be held on November 11 and 12, 2010 in Seoul,
South Korea.
100. What is GST?
Goods and Services Tax (GST) is a unified tax on goods and services aimed at
replacing the multiple tax system currently being followed by the Central
Government and State Governments. GST will subsume multiple taxes, like,
central excise, service tax, surchages, cesses, VAT, sales tax, entertainment tax,
entry tax, etc. GST is a multi-stage consumption tax imposed on a broad range of
goods and services. It is a tax on transactions and end customers who consume
the goods or services bear the final cost of the tax. It was originally proposed to
introduce GST with effect from 1.4.2010. However, the date of implementation is
postponed due to differences between the Centre and States. The Centre and
States are yet to come into an agreement on the framework of GST.
10. What is the rationale behind introducing Base Rate and shifting from BPLR to
Base Rate?
There was a public perception that banks had been offering lower lending rates to
big corporate customers, while charging higher rates from small borrowers in the
retail, small business and agriculture segments. This amounts to cross-
subsidization. RBI had received several complaints to this effect from various
industry bodies and associations. RBI had taken this view into consideration. For
several years especially since the early 2000s, RBI had tried to bring in a
transparent system of lending rates in the banking system. After trying very hard,
RBI has genuinely felt that banks BPLRs are not transparent and there is a large-
scale sub-BPLR lending. So, with effect from July 1, 2010, RBI introduced Base
Rate System for loan pricing.
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90. Why is the US putting pressure on China to allow its currency, the Yuan, to
appreciate?
America criticizes China for keeping its currency, the Yuan,

undervalued. China is basically an exporting country. It has huge trade surplus
running into billions of dollars. Exports are crucial to jobs in China. China wants
to protect the interests of its exporters and citizens. Chinese manufactured
products are sold everywhere in the world. To protect its exports, Chinas keeps
its currency undervalued against major currencies, like, the US dollar.
America has a big trade deficit with China. If China allows Yuan to appreciate, it
will benefit American exports to some extent. As such, America has been putting
pressure on Chine since the early 2000s to allow the Yuan to appreciate.
In 1995, China had pegged its currency to the dollar at 8.27 and it had remained
there at that level till July 2005. Between July 2005 and September 2008, China
had allowed the Yuan to appreciate to 6.85 to the US dollar. Between September
2008 (post Lehman Brothers collapse) and June 2010, China kept the exchange
rate stable at around 6.85. However, from June 2010, the Yuan has started
appreciating again with one dollar fetching 6.65 Yuan as on November 6, 2010.
80. What is cross selling?
Cross-selling is a popular concept in banks. Banks sell insurance and mutual

products to their own customers. By cross-selling, banks earn commission from
insurance companies and mutual funds. Banks enter into agreements with
insurance companies and asset management companies for cross-selling.
Within their own products, banks can cross-sell by the following ways: 1. selling
loan products to depositors, 2. offering SB/current accounts to borrowers, etc.
70. What is CIBIL?
CIBIL stands for Credit Information Bureau (India) Limited. CIBIL was
incorporated in 2000. Its original promoters were State Bank of India, HDFC,
Dun & Bradstreet and TransUnion. Now, the shareholding is more diversified
with several more stakeholders, like ICICI Bank, BOB, IOB, UBI, PNB, Hong
Kong Bank etc, included. CIBIL provides credit information on commercial and
individual borrowers to lenders, like, banks, NBFCs and others. The information
is provided for a fee. In credit markets, data sharing is very important between
lenders and borrowers.
PAGE 6 OF 26
20. What do you know about ASBA?
ASBA means Application Supported by Blocked Amount. It is a term used in

capital markets. ASBA is an application containing an authorization to block the
application money in the bank account, for subscribing to an issue an initial
public offer or follow-on-offer. If an investor is applying through ASBA, his/her
application money shall be debited from the bank account only if his/her
application is selected for allotment after the basis of allotment is finalized. All
investors can apply through ASBA in all public issues.
30. What is Indias GDP for 2009-10?
According to the Central Statistical Organisation (CSO), Indias Gross

Domestic Product at factor cost at constant (2004-05) prices for 2009-10 was
estimated at Rs 44.64 lakh crore, growing at a rate of 7.4 per cent over 2008-09.
In the first quarter of 2010-11, that is, during April-June 2010, Indias GDP grew
by a spectacular 8.8 per cent over April-June 2009 quarter.
50. Does RBI have any powers to set interest rates (either for deposits or
advances)?
RBI has progressively deregulated interest rates during the last two decades.
However, RBI still sets interest rates on Savings Bank deposits and current
accounts. Savings Bank deposits fetch 3.5 per cent per annum while current
accountholders do not get any interest. Banks do not have any freedom with
regard to interest rates on DRI loans. DRI loans are lent at four per cent per
annum.
Till recently, loans up to Rs 2 lakh to small borrowers, under priority sector, were
administered. With the introduction of Base Rate System on July 1, 2010, banks
have the freedom to charge their own rates for such loans.
60. How many public sector banks (PSBs) are there in India?
There are 26 public sectors banks in India. Nationalised Banks are 20

including IDBI Bank. State Bank Group companies are six after the merger of
State Bank of Indore and State Bank of Saurashtra with State Bank of India.
40. Why are yields on Government bonds going up recently?

The yields on Government bonds had gone up recently. The yield on
benchmark 10-year Government bond had gone up to a high of 8.14 per cent on
October 20, 2010 before cooling down. The RBI had started raising policy
interest rates in February 2010. Since then, bond yields have gone up. When
interest rates go up, bond yields also go up while bond prices come down. Bond
prices and bond yields have an inverse relationship.
PAGE 7 OF 26
In its second quarter review of Monetary Policy announced on November 2,

2010, RBI indicated that it might not raise interest rates further for the next three
months. After the RBI announcement, bond prices have rallied with the yield on
benchmark 10-year paper coming down to 7.99 per cent on November 5, 2010.
19. Is there is any change in market hours of stock trading on BSE and NSE?
Before January 4, 2010, stock market trading timings were between 9.55 am
and 3.30 pm. But with effect from January 4, 2010, BSE and NSE changed the
market timings to between 9.00 am and 3.30 pm.
With effect from October 18, 2010, BSE and NSE introduced pre-open session for
call auction. The pre-open session shall be for duration of 15 minutes i.e. from
9:00 am to 9:15 am and is applicable for Nifty and Sensex stocks initially. The
pre-open session is comprised of Order collection period and order matching
period. After completion of order matching there shall be silent period to
facilitate the transition from pre-open session to the normal market. So, normal
market will open for trading after closure of pre-open session, that is, 9.15 am.
99. What are tax-saving infrastructure bonds?
Government of India allowed certain companies to issue long-term

infrastructure bonds which enjoy tax benefits. Resident Individuals and
HUFs (Hindu Undivided Families) are eligible for a deduction of Rs 20,000/-
from ones total income in a financial year under Section 80CCF of the Income
Tax Act. This new section was introduced this year only and is effective from
April 1, 2010. This deduction of Rs 20,000/- from total income is in addition to
Rs 1.00 lakh deduction provided under Section 80C. Companies like, IFCI
Limited, IDFC Limited and L&T Infrastructure Finance Company Limited, issued
such bonds recently.
79. What is the minimum maturity period of a Commercial Paper?
The minimum maturity period of a commercial paper is seven days.
89. Who will benefit the most when rupee is rising?
When rupee is appreciating against major currencies, like, US dollar, Euro

and Pound, importers in India will benefit because importers need to pay lesser
rupees for goods and services.
29. What are the present rates of CRR, SLR, Repo and Reverse Repo?
Cash Reserve Ratio is six per cent wef Apr 24, 2010
Statutory Liquidity Ratio is 25 per cent wef Nov 7, 2009
LAF-Repo rate is 6.25 per cent wef Nov 2, 2010
LAF-Reverse repo rate is 5.25 per cent wef Nov 2, 2010
PAGE 8 OF 26
39. RBI had recently fined two private sector banks for violation of KYC norms.
Which are these banks?
In July 2010, RBI imposed a penalty of Rs 5 lakh each on Standard Chartered

Bank and ICICI Bank for violation of know-your-customer (KYC/AML) norms.
49. Who decides interest rates of Banks?
Banks themselves decide interest rates in India. Banks have Asset-Liability

Committees (ALCOs) to set interest rates on deposits and advances. However, in
a few cases, like, SB deposits and current accounts, the rate is decided by RBI.
69. When will Indian Banks start issuing their financial statements (balance
sheet, profit and loss account, etc) as per IFRS?
As per the available information, banks in India will converge their

accounts with IFRS (International Financial Reporting Standards) with effect
from April 1, 2013.
59. What is an EEFC account?
EEFC is short for Exchange Earners Foreign Currency account. Its salient
features are:
As the name suggests, an EEFC account is an account maintained by an

exchange earner (typically an exporter)
It is maintained in foreign currency
It is maintained with an Authorized Dealer, that is, a bank dealing in
foreign exchange
It does not earn any interest and is in current account form
9. What is Base Rate?
Base Rate is the minimum lending rate below which a bank can not lend to
borrowers except in a few cases. Base Rate was implemented in India with effect
from July 1, 2010. From that date, the existing Benchmark Prime Lending Rate
(BPLR) was replaced by the new Base Rate System. Base Rate differs from bank
to bank depending on individual banks cost of deposits/funds and other criteria.
8. A new exchange in India has started operations in currency futures market.

What is the name of the exchange?
A new exchange has started operations in India. Its name is United Stock
Exchange of India Limited (USE). USE started its operations on September 20,
2010 with the launch of currency futures on its exchange. USE is promoted by 26
domestic banks, BSE, Jaypee Capital, Riddhi Siddhi Bullion, MMTC and India
Potash, among other. The CMD of USE is T.S. Narayanaswami.
PAGE 9 OF 26
98. What is Indias current account deficit?
Indias current account deficit is USD 13.7 billion during the April-June
2010 quarter. Imports have been growing at a greater pace compared to export
growth. As a result, current account deficit has been going up of late.
88. How do you define priority sector advances?
Priority Sector advances have been in existence for the past four decades. As
per RBI guidelines, commercial banks have to lend 40 per cent of their advances
to priority sector like agriculture, small industries and tiny sector.
Categories in the priority sector:
Agriculture direct and indirect finance

Micro and Small Enterprises direct and indirect finance: they include
small and water transport operators, small business, professional and self-
employed persons, retail trade and all other service enterprises
Micro credit provision of credit of small amounts not exceeding Rs
50,000 per borrower
Educational loans to individuals up to Rs 10 lakh for studies in India and
up to Rs 20 lakh for studies abroad
Housing loans up to Rs 20 lakh to individuals
Targets/sub-targets for domestic commercial banks:
Total priority sector advances 40 per cent of ANBC*

Total agricultural loans 18 per cent of ANBC
Micro and Small Enterprises advances (MSE sector) will be reckoned
under the overall priority sector target
Export credit no target
Advances to weaker sectors 10 per cent of ANBC
DRI (Differential Rate of Interest Scheme) loans one per cent of the total
advances outstanding as at the end of the previous year
* The targets/sub-targets are linked to Adjusted Net Bank Credit (ANBC) (net bank credit plus investments
made by banks in non-SLR bonds in HTM category) or Credit Equivalent amount of Off-Balance sheet
Exposure, whichever is higher, as on March 31st of previous year
78. What is the minimum tenor of Domestic Term Deposits?
The Minimum tenor of a domestic term deposits is seven days.
PAGE 10 OF 26
68. What is IFRS?
IFRS stands for International Financial Reporting Standards. IFRS standards

are set by an international body known as IASB. The objectives of IFRS are to
establish a single set of high quality global accounting standards that can be
adopted by several companies across countries and continents. More than 120
countries have already adopted or are at an advanced stage of implementing the
IFRS at their national level. Countries, like, Australia, the UK, countries in the
European Union and several countries in Africa have already moved toward
IFRS. Countries, like, Brazil, Canada and India are shifting their national
standards to IFRS in the next one year. The US has been making a slow progress
from its USGAAP standards to IFRS and it may take several more years for
complete convergence.
India is adopting IFRS in stages. Companies in Nifty and Sensex indices will shift
to IFRS with effect from April 1, 2011. Banks will shift to IFRS with effect from
April 1, 2013.
18. What is a Letter of Credit and what steps shall bankers take before negotiating
LCs?
Letter of Credit: A letter of credit is a document issued by a bank which

provides an irrevocable undertaking to a beneficiary against complying
documents as stated in the LC. It is also known as documentary credit (DC).
Precautions to be taken for LCs:
Banks should not extend any non-fund based facilities to parties who are
not their regular customers
Banks should not discount any bill drawn under LCs for beneficiaries who
are not their regular clients
In the case of LCs for import of goods, banks should be very vigilant while
making payment to the overseas suppliers on the basis of shipping
documents
Payments should be released to the foreign parties only after ensuring that
the document are strictly in conformity with the terms of the LCs
Branch officials should not exceed their discretionary powers while
sanctioning facilities
Banks shall always honour their commitments under LCs and make
payment promptly
PAGE 11 OF 26
28. Who regulates MFIs in India?
Reserve Bank of India regulates only those Micro Finance Institutions

(MFIs) that are set up as Non-Banking Financial Companies, like, SKS
Microfinance Limited. There is no formal regulator for other MFIs in India. Now,
there is a proposal to bring all MFIs under one central legislation.
38. How much entry load shall investors pay while investing in mutual funds in
India?
With effect from August 1, 2009, the capital market regulator SEBI banned
entry load on mutual funds. As such, investors need not pay any entry load for
investing in mutual funds. However, some equity mutual funds usually impose
exit loads after one year from the date of purchase.
48. What is the maximum amount up to which RBI can penalize Banks?
The maximum penalty that be imposed by RBI on banks is Rs 5 lakh in one

instance.
58. As per RBI, what percentage of NPAs shall banks maintain as compulsory
loan provisioning?
RBI has stipulated that banks shall make compulsorily make a loan
provision of 70 per cent of their bad assets, known as Non-Performing Assets
(NPA). This is known as PCR, provisioning coverage ratio.
3. Why have been stock market indices rising continuously for more than a year
in India?
Reasons for the strong rally in Indian stock markets:
Foreign Institutional Investors (FIIs) have put in a total of USD 25 billion

in Indian stock market so far in calendar year 2010
Indias GDP is growing at more than eight per cent. Even in 2010-11,
Indias GDP is expected to grow by 8.5 per cent
Companies are recording strong sales and net profit growth
Indian companies fundamentals are strong
Compare to the economies of the US, Europe and other developed world,
Indian economy is not much affected by the global financial crisis. As such,
international investors have been more optimistic about Indias growth.
53. Whether bank deposits attract any income tax concessions?
Under Section 80 C of the Income Tax Act, bank deposits of five-year tenure
enjoy tax concession up to a maximum of Rs one lakh in a financial year.
PAGE 12 OF 26
63. Are there any restrictions on banks opening new ATMs?

As of now, there are no restrictions on banks opening new Automated Teller
Machines. Recently, RBI has removed all restrictions on opening ATMs.
13. What is Reverse Mortgage and how does it work?
A reverse mortgage is a loan extended to senior citizens against the security of a
house property owned by them. The loan is given in lump sum or in installments and
it provides important cash flow to the senior citizens who require money during their
old age. They continue to be the owners of the house and occupy it. The loan
obligation is deferred till the death of the homeowner. The legal heirs of senior
citizens can repay the loan amount after the death of the borrower and the bank will
release the security on the house property.
23. Who are Business Correspondents (BCs)?

With a view to ensuring greater financial inclusion and increasing the penetration of
banking services to vast sections of the underprivileged sections of the society, RBI a
few years back allowed banks to use the services of well-established NGOs, SHGs,
MFIs, Post Offices, and others as intermediaries. With the help of the intermediaries,
banks can extend their services through the use of Banking Correspondent
model.
In September 2010, RBI allowed banks to appoint companies as Business

Correspondents who can sell banking products to vast sections of rural and semi-
urban population. With this measure, companies like, HUL, ITC and Bharti Airtel,
can be appointed as BCs by banks an in turn these companies will provide banking
services to the people.
73. What is the audit rating of your branch?

The answer differs from branch to branch.
93. Can investors do trading in stocks using their mobiles?

SEBI in August 2010 allowed share trading through mobiles or laptops. Some
brokerage houses have already introduced share trading through mobiles. BSE
launched mobile trading on September 22, 2010, using its proprietary Fastrade
mobile application.
83. What is an ECB?
An ECB is short for External Commercial Borrowing. An External Commercial
Borrowing (ECB) is a commercial loan availed by domestic companies from non-
resident lenders abroad for a minimum maturity of three years. Many Indian
companies and financial institutions raise ECBs as interest rates abroad are much
cheaper compared to India. RBI allows companies to borrow through ECBs in two
routes one is Automatic Route and the other is Approval Route.
Indian firms can borrow up to USD 40 billion in 2010-11 as compared to a limit of

USD 35 billion in 2009-10.
PAGE 13 OF 26
33. What is CDS?
A CDS is short for Credit Default Swap. Its features are:
It is a financial instrument used for hedging

It is an OTC derivative product
Internationally, majority of CDS are cash-settled
It provides insurance to the creditor (or investor in a bond) against credit
default by an issuer/debtor
It is like a guarantee against a default of a loan/bond
As an insurance, it serves a genuine economic purpose
Now, RBI has released a draft for introduction of CDS in India
In 2003 and 2007, RBI proposed introducing CDS but later withdrew the
draft guidelines
Naked CDS transactions may create problems for credit markets as had
happened during the global financial crisis of 2007/2008
43. What is the capital adequacy ratio of our Bank?
As at the end of September 30, 2010, the capital adequacy ratio of State Bank
of Mysore is 11.72 per cent.
94. What is SBIs BPLR?
In October 2010, State Bank of India raised its benchmark PLR by 25

basis points to 12.50 per cent.
84. What is an FCCB?
FCCB is an acronym for Foreign Currency Convertible Bond. Its features are:
It is a financial instrument through which companies raise money

It is a hybrid instrument it has features of both a bond and a stock
It is a bond that can be converted at the option of the bondholder in to an
equity share at a predetermined price and after a specific period. During
the period it provides regular yield to the bondholder.
As the name suggests, it is denominated in a foreign currency
74. What is the minimum maturity period of a Certificate of Deposit (CDs)?
The minimum maturity period of a Certificate of Deposit is seven days.
PAGE 14 OF 26
4. What are Basel III norms?
Basel III norms are an improvement over Basel II norms

They will coming after Basel I and Basel II norms and are third set
They are set by Basel Committee on Banking Supervision (BCSB)
As per Basel III norms, banks have to raise their Tier I capital from the
present two per cent to 4.5 per cent by 2015. In addition, they will have to
set aside another 2.5 per cent as contingency capital, with which the total
capital adequacy ratio would go up to seven per cent.
According to RBI Governor, Indian Banks are not likely to be impacted by
the new Basel III norms
These norms are still evolving and it may take some more time for RBI to
come out with its guidelines on Basel III norms
54. What is meant by the term crystallization?
When an import bill is not paid within 10 days from the due date, banks will
convert it into rupee liability to honour their commitment and make payment.
Such process of conversion is called crystallization.
64. What is the importance of DSCR?
DSCR means debt-service coverage ratio. It indicates whether income generated

out of the business is sufficient to meet term loan installment along with interest.
This ratio is very important for assessing whether a borrower has got the financial
ability to repay the debt obligations.
24. Why is Government increasing thrust on developing MSME Sector in India?
The MSME sector provides employment to a large number of people in

the lower strata of society
It is a nursery of entrepreneurship for several new ideas
The sector contributes eight per cent of Indias GDP
It contributes 40 per cent of Indias exports
It contributes 45 per cent of manufactured output
They provide a lot of value-added products to big industries
34. Banks lend money to long-term projects. But, most of their liabilities are
short-term to medium-term. How do banks balance their assets and liabilities,
that is, Asset- Liability Management (ALM)?
Take-out financing is one of the solutions for setting the banks mismatch in
Asset-Liability Management. Another is to issue to long-term bonds to insurance
companies, pension funds, etc.
PAGE 15 OF 26
44. What is our Banks quarterly profit in September 2010 quarter and why our
net profit has come down?
The net profit of State Bank of Mysore for the September 2010 quarter is Rs
93.36 crore as compared to Rs 98.64 crore in the same quarter last year. The
decline in net profit is due to higher provisioning which has gone up by 150 per
cent as compared to the corresponding quarter last year.
14. Why is Reverse Mortgage product yet to take off in India?
Indians typically tend to pass on their assets to the heirs. They do not like the
idea that they will not be able to pass on their house property to their children. As
such, Reverse Mortgage has not yet taken off here.
55. What is the definition of a sick unit?
"Sick industrial company" means an industrial company which has
(i) the accumulated losses in any financial year equal to fifty per cent, or more of
its average net worth during four years immediately preceding such financial
year; or
(ii) failed to repay its debts within any three consecutive quarters on demand
made in writing for its repayment by a creditor or creditors of such company;
Any one of above two criteria is sufficient to consider such company as a sick
industrial company.
65. What is financial inclusion?
Financial inclusion is a process whereby easy access to banking services is

provided by banks to weaker sections and low-income groups. As part of financial
inclusion, commercial banks have to offer, at affordable cost and in a fair
manner, financial products and services to these underprivileged sections. As per
RBI guidelines, banks have to provide banking services through a banking outlet
in every village having a population of over 2,000. The banking services could be
provided through any of the various forms of models, such as, Business
Correspondents and not necessarily through a brick-and-mortar branch.
75. What is technology risk?
Technology has become an integral part of our day-to-day life. It has penetrated
deeper and deeper into our conscience. For a variety of activities, we depend on
technology. Organizations too depend on technology for variety of functions, be it
providing services to customers, collecting data from clients, studying internal
processes, offering client-based solution or searching for data from around the
world. As we depend more and more on information technology, we need to
PAGE 16 OF 26
understand risks posed by technology. This awareness will enable us to get

prepared for facing technology risks like disruption of computer systems,
natural disasters affecting computer hardware, virus attacks, threats to data
security, hacking of networks, and others. Organizations need to identify such
risks so that management of such risks will become easier and allows smooth
functioning of business functions. If the employees are not skilled enough to face
such risks, it will be chaotic for organizations.
95. What is SBIs Base Rate?
State Bank of India has recently increased its Base Rate from 7.50 per cent to
7.60 per cent per annum.
85. Why do banks lend money to Micro Finance Institutions (MFIs)?
Banks lending to Micro Finance Institutions is reckoned as priority sector

advances by RBI. As such, it is attractive for banks to lend money to MFIs. More
over, several MFIs are making decent profits on their operations. To that extent,
lending to MFIs is less riskier for banks. Some MFIs boast of a recovery rate of 99
per cent on their loans.
25. What is Nuclear Liability Bill and what are the important provisions?
The Bill was passed a few months back by Indian Parliament

The Civil Liability for Nuclear Damage Bill, 2010 fixes liability for nuclear
damage and specifies procedures for compensating victims.
It caps the liability of the operator at Rs 1,500 crore. For damage
exceeding this amount, and up to 300 million SDR, the central
government will be liable.
All operators (except the central government) need to take insurance or
provide financial security to cover their liability.
15. Why is Indian Rupee appreciating against US dollar and other major
currencies?
The reasons for Indian Rupee appreciating against the US dollar:
The dollar-rupee exchange rate depends on the supply and demand

Foreign Institutional Investors (FIIs) have been investing billions of
dollars in Indian stock markets. During this calendar year, they have so far
brought in USD 25 billion. Dollar supply has increased which resulted in
rupee appreciation.
PAGE 17 OF 26
As Indias is showing good economic growth compared to the developed

markets, FIIs have been thronging to our markets for better yields
The US Fed Funds rate is between zero and 0.25 per cent. Such ultra low-
interest rates in the US tempt investors to borrow in dollars and invest in
India. Even foreigners are allowed to invest in Indias debt markets,
including Government bonds. Now, more foreign money is coming to debt
markets also.
5. What is the rationale behind introduction of Basel III norms?
During the global financial crisis, many banks in the US and Europe have been
severely affected due to severe losses made by them in derivative transactions.
Keeping this experience in mind, the Basel Committee wants to improve the
capital adequacy, liquidity levels and solvency levels of banks around the world.
So, to strengthen banks, Basel III norms are being introduced. Basel III norms
are an improvement over Basel II norms.
35. What is take-out financing?
Take-out financing is a method by which commercial banks will be able to

provide long-term loans to infrastructure projects which typically have duration
of 15 years or more. Let us see how it works with a hypothetical example:
Punjab National Bank will sanction a loan to an infrastructure company,

say, LNT, for a period of seven years during November 2010. While
sanctioning the loan itself, PNB will enter into an agreement with IDFC (it
can be another financial institution like IIFCL that caters to the needs of
infrastructure finance) whereby IDFC will take out the loan from the books
of PNB after seven years, that is, in November 2017. In November 2017,
IDFC will become second lender to LNT and the second lending may be for a
period of five to seven years or more. From this example it can be observed
dthat take-out financing is a three-way arrangement between a bank, a long-
term infrastructure financing company and a borrower like an infrastructure
company.
Important features of take-out financing:
Take-out financing helps commercial banks in providing long-term loans

to infrastructure projects without any asset-liability mismatch for banks
Take-out financing will encourage commercial banks to lend more to
infrastructure projects
Take-out financing is available only for infrastructure projects like, roads
and bridges, railways, airports, ports, inland waterways, power sector,
urban transport, water supply and transport, gas pipelines, infrastructure
projects in SEZs and others
Take-out financing is a widely-used international practice for financing
long-gestation infrastructure projects
PAGE 18 OF 26
Has take-out financing taken off in India?
Government-owned India Infrastructure Finance Company Limited (IIFCL)

launched its first-ever take-out financing scheme on October 12, 2010 by issuing
sanction letters to Union Bank of India. As per the sanction letters, IIFCL will
take out over Rs 1,500 crore of UBIs loans in seven different projects. Out of the
committed Rs 1,500 crore with UBI, IIFCL had done a take-out financing deal
involving Rs 450 crore on October 12, 2010.
45. What is our Banks net NPA% as at the end of September 2010?
The gross NPA of State Bank of Mysore as on September 30, 2010 is Rs 970
crore. In percentage terms it is 3.12 per cent. The net NPA is Rs 451 crore and in
percentage terms it is 1.48 per cent.
76. What is doorstep banking?
Doorstep banking is provision of banking services at the premises of

customers by banks. In 2005, RBI had issued guidelines to banks for providing
doorstep banking. Such banking services include, pick-up of cash, delivery of
cash, pick-up of instruments, delivery of demand drafts and others. Doorstep
banking can be provided through banks own employees or through agents.
66. What is fuller capital account convertibility?
Capital account convertibility (CAC) refers to the freedom to convert local

financial assets into foreign financial assets and vice versa at market determined
rates of exchange. It is associated with changes of ownership in foreign/domestic
financial assets and liabilities and embodies the creation and liquidation of
claims on, or by, the rest of the world. Reserve Bank of India appointed two
committees one in 1997 and the other in 2006 to suggest a roadmap for
capital account convertibility. Both committees were headed by SS Tarapore,
former governor of RBI.
Since the 1990s, India has progressively liberalized capital account transactions
through various measures. However, there exist still a plethora of controls on
capital account. Against this backdrop, we can say fuller capital account
convertibility means additional measures that can be taken to move forward on
capital account convertibility. Fuller capital account convertibility would not
necessarily mean zero capital regulation.
56. What is a gold exchange-traded fund (gold ETF)?
Before we define what a gold ETF is, let us see the Exchange-Traded Fund
definition. An ETF is basically an index mutual fund scheme with a difference. An
ETF is always listed and traded on an exchange. An ETF is linked to a benchmark
index. An ETF can be bought and sold through an exchange like any share.
PAGE 19 OF 26
A gold ETF is an ETF where the underlying is gold. The net asset value of a gold
ETF moves in line with the price of gold, the underlying. As on November 8,
2010 gold price is quoting around Rs 1,970 per gram. As such, the price of one
unit of gold ETF will be Rs 1,970. One gram is usually the unit for gold ETFs in
India. Like shares, investors can buy/sell one or more units of gold ETF through a
stock exchange and units will be credited/debited to investors demat account.
6. What is mobile banking? Why is it important now?
Mobile banking is offering banking services to customers through a mobile set.

It is also known as M-banking. With the help of M-banking, customers can check
their account balances, make payments, verify transactions and others. It brings
down transaction costs for customers as well as banks. It is an alternative delivery
channel for banks.
Banks need to encourage customers to use M-banking; otherwise, there is a

threat of telecommunication companies taking away banking business from
banks. Bharti Airtel has become the first mobile operator in the country to get a
licence from the Reserve Bank of India to start mobile payment services. The
service will allow Airtel customers to exchange physical cash to virtual money
which can be stored on mobile phones to pay for goods ands services for
transaction value of less than Rs 5,000. So, Bharti Airtel is now emerged as a big
competitor for banks!
16. Why are Foreign Institutional Investors (FIIs) pouring money into Indian
stock market and debt market?
Foreign Institutional Investors (FIIs) have been investing billions of

dollars in Indian stock markets. During this calendar year, they have so far
brought in USD 25 billion.
As Indias is showing good economic growth compared to the developed
markets, FIIs have been thronging to our markets for better yields
The US Fed Funds rate is between zero and 0.25 per cent. Such ultra low-
interest rates in the US tempt investors to borrow in dollars and invest in
India. Even foreigners are allowed to invest in Indias debt markets,
including Government bonds. Now, more foreign money is coming to debt
markets also.
26. Why have Micro Finance Institutions (MFIs) attracted so much media
attention recently, especially, in Andhra Pradesh?
Micro Finance Institutions have faced lot of criticism from the media,
especially in Andhra Pradesh. Several allegations were leveled against MFIs last
month. The allegations range from high interest rates, harsh measures of
recovery and multiple lending. It is reported in the media that some micro-
finance borrowers in Andhra Pradesh committed suicide due to debt trap.
PAGE 20 OF 26
36. What role does IIFCL play?
India Infrastructure Finance Company Limited (IIFCL) is owned by

Government of India. It was set up in 2006 to provide long-term financing to
infrastructure projects in India. IIFCL has surplus funds of Rs 20,000 crore. In
October 2010, it started a take-out financing scheme.
96. What is a Maharatna company?
ONGC, SAIL, NTPC and IOC have been accorded maharatna status by the
Government of India. The new status empowers the boards of these companies to
make investments up to Rs 5,000 crore with the governments approval. The new
status is higher than navaratna status.
86. What factors affect interest rates?
Government borrowings
Supply of money
Inflation rate
46. Our Bank raised capital recently. What route Bank has chosen to raise it?
SBM has chosen the equity route to raise capital. State Bank of Mysore
raised Rs 583 crore in October 2010 through a rights issue to the existing equity
shareholders in the ratio of three rights equity shares for every 10 equity shares
held. The issue price was Rs 540 per share (including share premium of Rs 530).
77. What is a Cash Management Bill?
A Cash Management Bill is a Government Security through which

Government of India raises money in order to meet its temporary cash shortages.
It is issued for a maturity of less than 91 days. It is a new type of government debt
paper. Reserve Bank of India (RBI) acts as a money manager and issues these
Cash Management Bills on behalf of Government of India. Government of India
(GOI) had, along with RBI, issued guidelines in August 2009 itself for the Cash
Management Bills.
57. When does an agricultural loan become NPA?
Two crop seasons not exceeding two half-years in case of short-term loan and
one crop season not exceeding one year in case of long duration crop from the
due date of installment or interest. In case of miscellaneous agricultural activity
where income is going to be generated daily/monthly like dairy the NPA
classification is once again as similar to P-segment/SBF advances.
PAGE 21 OF 26
67. Why is Indias GDP growing while all over the world growth is weak,
especially, in the US, Europe, etc?
Indias growth is driven by internal consumption

Consumers are buying more cars, mortorcycles, consumer durables, etc
India was not very much affected by the global financial crisis of
2007/2008
Indian companies fundamentals are strong
7. RBI has introduced a new system of loan pricing for Indian Banks. What is that
system called?
With effect from July 1, 2010, RBI introduced a new system of loan
pricing called Base Rate System. All commercial banks have adopted the new
system.
27. Why has the Government of Andhra Pradesh issued ordinance for clipping
the wings of MFIs?
Micro Finance Institutions have faced lot of criticism from the media,
especially in Andhra Pradesh. Several allegations were leveled against MFIs last
month. The allegations range from high interest rates, harsh measures of
recovery and multiple lending. It is reported in the media that some micro-
finance borrowers in Andhra Pradesh committed suicide due to debt trap.
To solve the problems being faced by micro finance borrowers, Government of

Andhra Pradesh had issued an ordinance to control the activities of MFIs and to
protect the interests of small borrowers.
17. What is ULP (universal life plan)?
Salient features of a universal life plan (ULP):
Universal life plans are a combination of investment and insurance similar

to ULIPs
The premium for an ULP consists of two components one component
goes to insurance and the other to investment
The investment portion gets invested either in stocks or bonds
Policy holders have the flexibility to change the premium, sum assured
and the term of the policy during the policy tenure
The risk here is that policy may lapse if the cash values are no longer
sufficient to cover the cost of insurance and other expenses
PAGE 22 OF 26
37. How is RBI controlling inflation in India?
To control inflation, RBI has been raising CRR, repo and reverse repo rates
gradually since February 2010. With such measures, money supply will be
restricted and money will become costlier. In a rising interest rate scenario,
companies will be reluctant to start new projects which may impact overall
growth. As a result, RBI always tries to maintain a balance between growth and
price stability.
87. What is a quick ratio?
Quick ratio simply means current assets excluding inventories divided by

current liabilities. It denotes the ability of a company/firm to meet short-term
liabilities from the available liquid assets.
97. What is an IDR?
Indian Depository Receipts allow foreign companies to raise capital in India.

These are issued by a local depository against the shares of a foreign companys
publicly-traded securities. The salient features of IDRs are:
IDRs are derivative instruments similar to GDRs or ADSs (Global

Depository Receipts and American Depository Receipts are used by Indian
companies to raise capital on foreign shores)
They are negotiable instruments
Foreign Institutional Investors and Mutual Funds are allowed to invest in

them
Standard Chartered Bank was the first such company to raise capital
through an IDR issue.
47. What is a Rights Issue?
In a rights issue, an existing shareholder will have a right to subscribe to

shares as decided by a company. Let us assume a shareholder is holding 100
shares of company X. If that company proposes to raise capital with a rights
issue in the ratio of one share for every two shares held, the shareholder will have
an option to subscribe to 50 new shares at a price predetermined by the
company.
22. Who has created Rupee Symbol?
The new symbol for Indian Rupee was designed by Dr Dharmalingam

Udaya Kumar, a graduate from IIT, Bombay. He is working as a faculty in IIT,
Guwahati.
PAGE 23 OF 26
12. How is Base Rate Calculated?
Banks are given freedom to decide their own Base Rates based on cost of
deposits, adjustment for CRR/SLR maintenance, unallocatable overhead costs
and average return on net worth. Base rate is calculated as follows:
BASE RATE
=
Cost of deposits/funds
+
Negative carry on CRR/SLR
+
Unallocatable overhead cost
+
Average return on net worth
2. Why are interest rates going up in India in the last eight to 10 months?
Inflation has been very high in India for a very long time. As such, RBI has
been raising policy interest rates since February 2010. As such, interest rates
have been on upward trend in the last eight to 10 months.
92. What is money laundering?
Money laundering is a process whereby criminals use banking/financial

system to legitimize their ill-gotten money. Many terrorists and drug traffickers
have been using banking channels as a conduit to transfer money for their
terrorist/illegal activities.
82. What is the definition of a wilful defaulter?
If any one of the following criteria is satisfied, such an occurrence can be termed
as wilful default:
1) The borrower has defaulted even though he/she has the capacity to honour
the payments
2) The borrower has defaulted on the payments and has not utilized the
funds for the purpose they were sanctioned and diverted the funds
3) The borrower has defaulted on the payments and has siphoned off the
funds and the funds are not available in any other asset form
PAGE 24 OF 26
62. Why do banks require introduction while opening SB/CA accounts?
Banks insist on introduction while opening SB/CA accounts in order

to avoid money laundering, opening of benami accounts, to meet requirement as
per KYC norms and to get protection under Section 131 of the Negotiable
Instruments Act.
52. What is investment fluctuation reserve?
Changes in interest rates affect bond prices. Banks hold huge amounts of their
assets in Government Securities and other bonds. When interest rates fall, banks
make huge profits due to rise in bond prices that are held by banks. Likewise,
when interest rates go up, bond prices fall affecting the banks adversely. In the
early 2000s, Indian economy experienced downward trend in interest rates.
During that period, banks made huge profits due to rising bond prices.
With a view to building up adequate reserves to guard against any possible

reversal of interest rates (that is in the event of a rising interest rate scenario),
RBI had in January 2002 advised banks to build up an investment fluctuation
reserve (IFR) of a minimum of five per cent of investment portfolio consisting
of HFT and AFS categories, within a period of five years. Such a reserve is called
investment fluctuation reserve. However, in October 2005, RBI allowed to
transfer the balance in IFR account to Statutory Reserve, General Reserve or
balance in Profit and Loss account.
72. Recently, a private bank was merged with ICICI Bank. Name the Bank.
In August 2010, Bank of Rajasthan merged with another private sector bank
ICICI Bank after its approval by Reserve Bank of India.
32. Which sectors come under Infrastructure in India?
Different agencies give different definitions for Infrastructure in India.
Broadly speaking, the following can be considered as Infrastructure sectors:
Electricity including generation, transmission and distribution
Non-Conventional Energy including wind energy and solar energy
Water supply and sanitation; and street lighting
Telecommunications
Roads & bridges
Ports
Inland waterways
Airports
Railways
Irrigation including watershed development
Oil and gas pipelines
PAGE 25 OF 26
42. What are Indias foreign exchange (forex) reserves?
As on October 29, 2010, Indias foreign exchange reserves are USD 297.96
billion or Rs 13.27 lakh crore. These reserves include USD 21. 67 billion or Rs
0.97 lakh crore of gold bullion.
Sources: various websites, like, RBI, SEBI, newspapers, etc.
Disclaimer: The above is for information purpose. Though every care has been
taken to provide authentic information on the above questions, readers have to
do their own diligence and the author is not responsible for any mistakes.
However, if you find any mistakes, please bring it to my notice.
PAGE 26 OF 26

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Dear Friend,

Please read the disclaimer at the end of the answers.

Answers to 101 interview questions for bank promotions:

81. What is paripassu charge?

A paripassu charge gives lenders a right to the property on which a charge is

71. What are SEZs?

61. Do commercial banks have freedom to raise/lower interest rate on Savings

Commercial banks in India do not have freedom to set interest rate on

41. What is a no-frill account?

101. Why are gold prices rising?

91. What is G-20?

G-20 is a Group of 20 countries. G-20 consists of most influential countries

100. What is GST?

America criticizes China for keeping its currency, the Yuan,

80. What is cross selling?

Cross-selling is a popular concept in banks. Banks sell insurance and mutual

70. What is CIBIL?

20. What do you know about ASBA?

ASBA means Application Supported by Blocked Amount. It is a term used in

30. What is Indias GDP for 2009-10?

According to the Central Statistical Organisation (CSO), Indias Gross

There are 26 public sectors banks in India. Nationalised Banks are 20

40. Why are yields on Government bonds going up recently?

In its second quarter review of Monetary Policy announced on November 2,

99. What are tax-saving infrastructure bonds?

Government of India allowed certain companies to issue long-term

79. What is the minimum maturity period of a Commercial Paper?

The minimum maturity period of a commercial paper is seven days.

89. Who will benefit the most when rupee is rising?

When rupee is appreciating against major currencies, like, US dollar, Euro

In July 2010, RBI imposed a penalty of Rs 5 lakh each on Standard Chartered

49. Who decides interest rates of Banks?

Banks themselves decide interest rates in India. Banks have Asset-Liability

As per the available information, banks in India will converge their

59. What is an EEFC account?

As the name suggests, an EEFC account is an account maintained by an

9. What is Base Rate?

8. A new exchange in India has started operations in currency futures market.

98. What is Indias current account deficit?

88. How do you define priority sector advances?

Categories in the priority sector:

Agriculture direct and indirect finance

Targets/sub-targets for domestic commercial banks:

Total priority sector advances 40 per cent of ANBC*

78. What is the minimum tenor of Domestic Term Deposits?

The Minimum tenor of a domestic term deposits is seven days.

68. What is IFRS?

IFRS stands for International Financial Reporting Standards. IFRS standards

Letter of Credit: A letter of credit is a document issued by a bank which

Precautions to be taken for LCs:

28. Who regulates MFIs in India?

Reserve Bank of India regulates only those Micro Finance Institutions

The maximum penalty that be imposed by RBI on banks is Rs 5 lakh in one

Reasons for the strong rally in Indian stock markets:

Foreign Institutional Investors (FIIs) have put in a total of USD 25 billion

53. Whether bank deposits attract any income tax concessions?

63. Are there any restrictions on banks opening new ATMs?

23. Who are Business Correspondents (BCs)?

In September 2010, RBI allowed banks to appoint companies as Business

73. What is the audit rating of your branch?

93. Can investors do trading in stocks using their mobiles?

Indian firms can borrow up to USD 40 billion in 2010-11 as compared to a limit of

33. What is CDS?