Placement Training Centre

Bank interview questions and answers

1. Why do you want to make a career in the banking sector?

The banking industry is lucrative (Profitable) and plays an important role in our
economy. It offers challenging roles and opportunities to develop skills and knowledge.

The dynamic nature of the industry and its relevance in the economic scenario is why I
want to pursue a career in the banking sector.

2. Types of bank accounts

The 5 most commonly used bank accounts to save or invest money are:

1. Savings Account- It is a commonly used deposit account that allows the account
holders to save and withdraw money while earning monetary interests.

2.Current Account- Meant for daily transactions, the current account is a type of deposit
account that allows the users to make multiple transactions regularly and withdraw money as
many times as required.

3. Fixed Deposits-Fixed deposits are used for long term savings. It entitles the investors
to the interest earned on deposits, given the money is not withdrawn for a fixed period. The rate
of interest for a fixed deposit is higher than the savings account and may vary from 4 %-7.5%.

4. Recurring Deposit Account- It is a personalized deposit account offered by banks to

help people with regular incomes, save a fixed amount every month while earning interests.

5. Demat Account- Demat Account is used to buy and store shares in an electronic
format. Investors living in India can use the regular Demat account and the NRIs can use the
Repatriable Demat account.
3. New VS Old Tax Regime

The Union Budget 2020-21 brought a major change for all individual taxpayers, with the
announcement of the new tax regime.

With this addition, the taxpayers can now choose between:

1. The old income tax regime with existing income tax deductions and exemptions.

2. The new income tax regime with lower tax rates and fewer exemptions.

Difference between the rates in the two tax regimes

The new income tax regime promises lower tax rates compared to the old tax regime.

NCOME TAX NEW TAX EXISTING TAX

SLABS RATE RATE

0- 2.5 lac Nil Nil

2.5 lac- ₹5 lac 5% 5%

5 lac-₹7.5 lac 10% 20%

7.5 lac- ₹10 lac 15% 20%

10 lac- ₹12.5 lac 20% 30%

12.5 lac- ₹15 lac 25% 30%

15 lac and above 30% 30%

Additionally, taxpayers choosing the new tax regime will have to give up the following
deductions and exemptions:
(i) Leave travel allowance (LTA).

(ii) House rent allowance (HRA).

(iii) Standard deduction of ₹50,000 currently given to salaried taxpayers.

(iv) The deductions available under section 80TTA (Deduction of interest on deposits in the
savings account), and 80TTB ( Deduction of interest on deposits to senior citizens).

(v) Entertainment allowance and employment/professional tax under section 16.

(vi) Housing loan interest.

(vii) Deduction of Rs 15000 allowed from family pension under section 57, clause (iia).

(viii) Common deductions under section 80C, which includes deductions claimed for life
insurance premium, Provident Fund contributions, education allowance, and investments such as
ELSS, NPS, PPF, etc.

(ix) Medical insurance premium under section 80D and Tax benefits for disability under sections
80DD and 80DDB.

(x) Chapter VI-A deduction except section 80 CCD(2) and 80 JJA.

(xi) Interest on education loan under section 80E

4 What do you understand by APR?

APR (Annual Percentage Rate) is the rate of interest charged for services like credit
cards, bank loans, etc.

The interest is calculated annually and is the yearly expense incurred on funds over a loan
term.

APR (Annual Percentage Rate) is of 2 types:

Fixed APR- The rate of interest is the same through-out the mortgage term.

Variable APR- Rate of interest changes based on factors like a prime rate.

5. Can you differentiate between FDI and FII?

FDI (Foreign Direct Investment) is the investment made by a company situated in one
country in a foreign company, making them stakeholders.
 FII (Foreign Institutional Investors) refers to the investment made by foreign companies
in the stock market of a country.

Some of the differences between FDI and FII are:

FDI FII

Investments made by a parent company in a foreign Investment made in a foreign

business market by investors

Flows in primary market Flows in the secondary market

Long-term investment Short-term investment

Entering and exiting the stock market is comparatively Easy entry and exit in the stock
difficult as FDI targets a specific market market

5. Amortization

Amortization is an accounting technique that divides the sum amount of a loan into small
fixed payments to be paid to the lender.

In simpler words, it is the repayment of a loan in installments to write-off its book value
over a period of time.

When the loan payment for a period is lesser than the amount to be paid, it is called
negative amortization.

6. How will you calculate the debt to income ratio?

To calculate the debt to income ratio, I would divide the total debt by the applicant's
gross income.

7. What do you understand by a charge-off?

 A charge off is a type of write-off. It is the amount that is considered a bad-debt when the
borrower fails to pay the creditor.

Traditionally, a charge off is declared when no payment against the loan is made for six-
months.

8. with the banking scenario changing constantly, what do you think are the needs of the
banking sector?

[This is a frequently asked bank interview question. Interviewers ask this question to assess your
understanding of the changing trends and needs of the banking sector.

To answer, research well on the current banking environment and the strategies banks use to
function.

You can also discuss the evolution in terms of technology and business methods that the sector
has witnessed, and what according to you needs improvement.]

Sample Answer:

Given the current economic situation, I think banks need to work towards the adequate
distribution of savings to all sectors for growth.

We also need professional and modern management techniques to make the banking
processes efficient.

Banks must also implement strategies to fulfill the credit needs of all sections of society
and must restrict giving out loans to frequent defaulters that fail to pay the money back.

9. What are the common ways to operate your bank accounts?

Bank accounts can be operated through:

1. Branches of Bank.

2. Mobile Banking.

3. ATM.

4. Internet Banking.
10. What do you understand by loan grading?

Loan grading is a classification system used by banks to grade loans based on borrower's
credit payment history, repayment risks associated with the loan, etc.

It involves assigning a quality score from 1 to 6 to assess the nature and risks associated with the
loan.

11. What is the line of credit?

The line of credit is the amount of loan that a borrower can take from the bank. It is
agreed upon by both the bank and the borrower.

These are readily available funds available for the borrower to withdraw when required.

The borrower can loan the amount needed from the total credit and pay interest only on
the money withdrawn.

12. What do you understand by overdraft protection?

Overdraft protection is a service provided by banks to its account holders.

It allows customers to transfer money across different accounts to avoid check bounce,
payment failures, etc.

Customers may transfer money from the current account to the savings account and vice-
versa.

13. What are the software banking applications available in the industry?

The 8 commonly used software banking applications are:

1. Internet banking system

2. ATM banking

3. Core banking system

4. Loan management system

5. Credit management system

6. Investment management system

7. Stock-market management system

8. Financial management system

14. What is a financial management system?

A financial management system is software used by banks and other organizations to

record and control the income, assets, and expenses.

This is done to maximize profits and manage finances to ensure sustainability.

15. Why do we need a credit management system?

Bank interview questions include an assortment of bank related questions.

Credit management system helps control the monetary transactions credited to the
account holders.

We need a credit management system as it helps the banks to control credit and optimize
profits.

The system controls bad debt and expenses by directly managing credit terms.

An effective credit management system makes the funds sustainable and prevents
bankruptcy.

16. What is the source of income for banks?

Banks make most of their profit by lending loans. All loans are lent at a rate of interest
which acts as an income for banks.

Banks also earn from the additional charges levied on online bill payments, maintaining
accounts and other such services.

17. What do you understand by the term balloon payment?

Balloon payment is a final amount to be paid after the amortization of a loan.

This due balance may be paid off with fixed or variable mortgage, basis the terms of the
loan.

18. What are the different types of loans that banks provide?

Banks give out different types of loans to meet various objectives. The 5 types of loans
provided by banks are:
1. Secured personal loan

2. Unsecured personal loan

3. Small Business loan

4. Mortgage loan

5. Auto loan

19. How is a cheque different from DD (Demand Draft)?

Both cheque and DD are used to transfer money but are very different from each other.
Some of the differences between the two are:

CHEQUE DD (DEMAND DRAFT)

Issued by account holders Issued by banks

Cheques can be dishonored in case of insufficient account Amount for DD is paid before-
balance hand

The drawer and payee are both

The drawer and payee are two different parties banks

CRR and SLR are banking tools used to maintain economic flow. CRR is short for Cash
Reserve Ratio and SLR stands for Statutory Liquidity Ratio.

Both CRR and SLR are used by the RBI (Reserve Bank of India) to manage inflation and
the flow of money by controlling the lending capacity.

Under CRR, commercial banks are required to keep a certain percentage of total deposits
in the current account with the RBI.

It regulates inflation, money supply, and liquidity.

 Similar to CRR, SLR is another method of maintaining liquidity in the economy.

It is the amount of money that a bank must preserve in the form of cash, gold or bonds
before lending money to its customers.

The SLR rate is defined by the RBI to control bank credit.

20. How would you define ACH?

ACH (Automated Clearing House) refers to the electronic transfer of funds.

It allows the user to collect payments electronically by debiting the customer's savings
account.

It is a faster payment method and is an alternative to cash, cheques and credit cards.

21. Can you explain repo rate and reverse repo rate?

Repo rate and reverse repo rate are a part of the liquidity adjustment facility.

Repo rate is the rate of interest at which the RBI lends money to commercial banks when
they are short of funds.

It plays a very important role in controlling inflation as an increase in repo rate reduces
the money supply.

Reverse repo rate is the rate of interest at which the commercial banks deposit excess
money with the RBI.

An increase in reverse repo rate leads to an increase in the cost of borrowing and lending,
discouraging the public to take loans.

22. What are the main functions of the RBI (Reserve Bank of India)?

Interviewers ask this question to evaluate your knowledge about the basics of the banking
sector.

The RBI is the central bank of India. It plays a crucial role in managing the economy.

The 8 most important functions of RBI are:

1. Responsible for the issue and exchange of currency in notes and coins.

2. Regulation and supervision of commercial banks and financial systems.

3. Managing foreign exchange to facilitate external trade and development.

4. Functions to support national banking and financial objectives.

5. Acts as the banker to central and state governments.

6. Central bank to all other banks, maintains records of all banking accounts.

7. Responsible for formulating and implementing the national monetary policy.

8. Maintains economic stability across all sectors to enable growth.

23. Can you elaborate on currency convertibility?

Currency convertibility defines how easily a country's currency can be converted into
gold or any other asset.

It plays an important role in international commerce by enabling the currency to be used

to make payments for globally sourced goods.

Poor currency convertibility means that a country's currency is difficult to exchange with
another currency, making foreign trade transactions difficult.

24. What is a foreign draft?

A foreign draft is used to send money to people in foreign countries. It acts as an

effective alternative to foreign currency and can be easily purchased from commercial banks.

It is a safer and cheaper method of transferring funds internationally and allows the
receiver to use funds quicker than cheque or cash.

25. What is bank? What are the types of banks?

A bank is a financial institution licensed as a receiver of cash deposits. There are two
types of banks, commercial banks and investment banks. In most of the countries, banks are
regulated by the national government or central bank.

26. What is investment banking?

Investment banking manages portfolios of financial assets, commodity and currency,

fixed income, corporate finance, corporate advisory services for mergers and acquisitions, debt
and equity writing etc.
27. What is commercial bank?

Commercial bank is owned by the group of individuals or by a member of Federal

Reserve System. The commercial bank offer services to individuals, they are primarily
concerned with receiving deposits and lending to business. Such bank earns money by imposing
interest on the loan borrowed by the borrower. The money that is deposited by the customer will
be used by the bank to give business loan, auto loan, mortgages and home repair loans.

28. What are the types of Commercial Banks?

a) Retail or consumer banking

It is a small to mid-sized branch that directly deals with consumer’s transaction rather
than corporate or other banks

b) Corporate or business banking

Corporate banking deals with cash management, underwriting, financing and issuing of stocks
and bonds

c) Securities and Investment banking

Investment banking manages portfolios of financial assets, commodity and currency,

fixed income, corporate finance, corporate advisory services for mergers and acquisitions, debt
and equity writing etc.

d) Non-traditional options

There are many non-bank entities that offer financial services like that of the bank. The
entities include credit card companies, credit card report agencies and credit card issuers

29. What is consumer bank?

Consumer bank is a new addition in the banking sector, such bank exist only in countries
like U.S.A and Germany. This bank provides loans to their customer to buy T.V, Car, furniture
etc. and give the option of easy payment through instalment.

30. What is ‘Crossed Cheque’?

 A crossed cheque indicates the amount should be deposited into the payees account and
cannot be cashed by the bank over the counter.

31. What is ‘Credit-Netting’?

A system to reduce the number of credit checks on financial transaction is known as

credit-netting. Such agreement occurs normally between large banks and other financial
institutions. It places all the future and current transaction into one agreement, removing the need
for credit cheques on each transaction.

33. What is inter-bank deposit?

Any deposit that is held by one bank for another bank is known as inter-bank deposit.
The bank for which the deposit is being held is referred as the correspondent bank.

34. What is ILOC (Irrevocable Letter Of Credit)?

It is a letter of credit or a contractual agreement between financial institute (Bank) and

the party to which the letter is handed. The ILOC letter cannot be cancelled under any
circumstance and, guarantees the payment to the party. It requires the bank to pay against the
drafts meeting all the terms of ILOC. It is valid upto the stated period of time. For example, if a
small business wanted to contract with an overseas supplier for a specified item they would come
to an agreement on the terms of the sale like quality standards and pricing, and ask their
respective banks to open a letter of credit for the transaction. The buyer’s bank would forward
the letter of credit to the seller’s bank, where the payment terms would be finalized and the
shipment would be made.

35. What is the difference between bank guarantee and letter of credit?

There is not much difference between bank guarantee and letter of credit as they both
take the liability of payment. A bank guarantee contains more risk for a bank than a letter of
credit as it is protecting both parties the purchaser and seller.

36. What is cashier’s cheque?

A cashier cheque issued by the bank on behalf of the customer and takes the guarantee
for the payment. The payment is done from the bank’s own funds and signed by the cashier. The
cashier cheque is issued when rapid settlement is necessary.
37. What do you mean by co-maker?

A person who signs a note to guarantee the payment of the loan on behalf of the main
loan applicant’s is known as co-maker or co-signer.

38. What is home equity loan?

Home equity loan, also known as the second mortgage, enables you to borrow money
against the value of equity in your home. For example, if the value of the home is Rs.1, 50,000
and you have paid Rs.50,000. The balance owed on your mortgage is Rs.1, 00,000. The amount
Rs.50,000 is an equity, which is the difference of the actual value of the home and what you owe
to the bank. Based on equity the lender will give you a loan. Usually, the applicant will get 85%
of the loan on its equity, considering your income and credit score. In this case, you will get 85%
of Rs.50,000, which is Rs.42,500.

39. What is Line of credit?

Line of credit is an agreement or arrangement between the bank and a borrower, to

provide a certain amount of loans on borrower’s demand. The borrower can withdraw the
amount at any moment of time and pay the interest only on the amount withdrawn. For example,
if you have Rs.5000 line of credit, you can withdraw the full amount or any amount less than
Rs.5000 (say Rs.2000) and only pay the interest for the amount withdrawn (in this case
Rs.2000).

40. How bank earns profit?

The bank earns profit in various ways

a) Banking value chain

b) Accepting deposit

c) Providing funds to borrowers on interest

d) Interest spread

e) Additional charges on services like checking account maintenance, online bill payment, ATM
transaction
41. What are payroll cards?

Payroll cards are types of smart cards issued by banks to facilitate salary payments
between employer and employees. Through payroll card, employer can load salary payments
onto an employee’s smart card, and employee can withdraw the salary even though he/she
doesn’t have an account in the bank.

42. What is the card based payments?

There are two types of card payments

a) Credit Card

b) Debit Card

43. What ACH stands for?

ACH stands for Automated Clearing House, which is an electronic transfer of funds
between banks or financial institutions.

44. What ‘LIBOR’ stands for?

‘LIBOR’ stands for London Inter-Bank Offered Rate. As the name suggest, it is an
average interest rate offered for U.S dollar or Euro dollar deposited between groups of London
banks. It is an international interest rate that follows world economic condition and used as a
base rate by banks to set interest rate. LIBOR comes in 8 maturities from overnight to 12 months
and in 5 different currencies. Once in a day LIBOR announces its interest rate.

45. What do you mean by term ‘Usury’?

When a loan is charged with high interest rate illegally then it is referred as ‘Usury’.
Usury rates are generally set by State Law.

46. What is Payday loan?

A pay-day loan is generally, a small amount and a short-term loan available at high
interest rate. A borrower normally writes post-dated cheques to the lender in respect to the
amount they wish to borrow.
47. What do you mean by ‘cheque endorsing’?

‘Endorsing cheque’ ensures that the cheque get deposited into your account only. It
minimizes the risk of theft. Normally, in endorsing cheque, the cashier will ask you to sign at the
back of the cheque. The signature should match the payee.

48. What are the different types of ‘Fixed Deposits’?

There are two different types of ‘Fixed Deposits’

Special Term Deposits: In this type of ‘Fixed Deposits’, the earned interest on the deposit
is added to the principal amount and compounded quarterly. This amount is accumulated and
repaid with the principal amount on maturity of the deposit.

Ordinary Term Deposits: In this type of ‘Fixed Deposits’, the earned credit is credited to
the investor’s account, once in a quarter. In some cases, interest may be credited on a monthly
basis.

The earned interest on fixed deposits is non-taxable. You can also take a loan against
your fixed deposit.

49. What are the different types of Loans offered by Commercial Banks?

Start-Up Loans

This type of Loan is offered to borrower to start their business and can be used to build a
storefront, to acquire inventory or pay franchise fees to get a business rolling.

Line of Credit

Lines of credit are another type of business loan provided by commercial banks. It is
more like a security for your business; the bank allows the customer to withdraw the amount
from readily available funds in an adverse time. Customer or Company can pay back over time
and withdraw money again without going into the loan process.

Small Business Administration Loans

It is a Federal Agency (U.S) that gives funding to small businesses and entrepreneurs.
SBA (Small Business Administration) loans are made through banks, credit unions and other
lenders who partners with SBA.
50. What is ‘Bill Purchase’?

In ‘Bill Purchase’ the loan will be created for the full value of the draft and the interest
will be recovered when the actual payment comes. For example, a ‘Sight draft’ is presented for
which the loan is created for 100% of the draft value. The money is received after 7 days, and
then the interest will be recovered for 7 days along with the principal amount

51. What is ‘Bill Discount’?

‘Bill Discount’ is a settlement of the bill, where your electricity bill or gas bill is sold to a
bank for early payment at less than the face value and the bank will recover the full amount of
the bill from you before bill due date. For example, electricity bill for XYZ is Rs.1000; the
electricity bill company will sell the bill to the bank for 10% to 20% discount to the face value.
Here, the bank will buy the electricity bill for Rs.900 whose face value is Rs.1000, now the bank
will recover, full amount of bill from the customer i.e Rs.1000. If the customer fails to pay the
bill, the bank will put interest on the outstanding bill and ask the customer for the payment.

52.What is ‘Cheque Discount’?

Cheque discounting service is offered only by few banks. For instance, if you have a
cheque of Rs.3000 outstation and the cheque will take 7 seven days for clearance, then bank will
offer you a service for early payment. The bank can make an early payment, but they will pay
only for certain percentage of the actual amount, here they will pay you Rs.2000 but they will
charge interest on it and the remaining Rs.1000 will be paid, once the outstation cheques get
clear.

53. Differences between a Cheque and Demand Draft

Cheque and Demand drafts (DD) are both negotiable instruments. Both are mechanisms
used to make payments.

A cheque is a Bill of Exchange drawn on a specified banker and not expressed to be

payable otherwise than on demand.

Demand Draft is a pre-paid Negotiable Instrument, wherein the drawee bank acts as
guarantor to make payment in full when the instrument is presented.
 Here are few other differences between cheque and DD:

• The cheque is issued by the customer, whereas Demand draft is issued by the bank.

• In cheque payment is made after presenting the cheque to the bank, while in DD is given after
making payment to the bank.

• A cheque can bounce due to insufficient balance. DD cannot be dishonored as the amount is paid
beforehand.

• Payment of cheque can be stopped by the drawee, whereas payment cannot be stopped in DD.

• A cheque can be paid to bearer or order. While DD is paid to a person on order.

• In cheque drawer and payee are different persons. In DD, both parties are banks.

• A cheque needs signature to transfer amount, While DD does not require signature to transfer
funds.

54. Indian Financial System Code

Indian Financial System Code (IFSC) is an eleven-character alphanumeric code that

helps in transferring funds online.

55. What is the full form of OTP

OTP stands for One Time Password. It is a 4 or 6 digit code which is also known as a
one-time pin or dynamic password. It is a type of security password that is valid only for a
single-use or transaction and on a single computer, mobile device, etc., which is used for the
transaction.

56. What is UPI?

Unified Payments Interface (UPI) is an instant payment system developed by the

National Payments Corporation of India (NPCI), an RBI regulated entity. UPI is built over the
IMPS infrastructure and allows you to instantly transfer money between any two parties' bank
accounts.

57. What is NPCI?

National Payments Corporation of India (NPCI), an initiative of the Reserve Bank of

India (RBI) and Indian Banks’ Association (IBA), is an umbrella organisation for operating retail
payments and settlement systems in India. NPCI has ten core promoter banks—State Bank of
India, Punjab National Bank, Bank of Baroda, Canara Bank, Bank of India, HDFC Bank,
Citibank, HSBC, and ICICI Bank.

58. What is IMPS?

Immediate Payment Service (IMPS) is an instant interbank electronic fund transfer

service through mobile phones. It is also being extended through other channels such as ATM,
Internet Banking, etc.

59. Whose signature on 1 rupee note

The one rupee note must bear the signature of former Principal Secretary, Ministry of
Finance, H.M Patel.

60. How to identify fake currency notes

1. Look at the Watermark

In a fake currency, the watermark usually looks thick. Pay detail attention to the
watermark . the

Fake currency gang apply oil, grease or wax to give the picture a translucent feel.

2. Figures & Alignment

In real currency, the figures will be aligned perfectly. But in the facke currency, chances
are there to get the figures out of alignments. The gap between digits, smaller or bigger number,
and the unaligned digits should be observed carefully.

3. Ink Smudge

Real notes will not have ink smudges broken printed lines. The notes with broken printed
lines and ink smudges should be regarded with suspicion.

4. Security Threads

Security threads that are just drawn or printed on the crrency, instead of the original one
that is incorporated through the currency.
5. Typography

In fake notes the typography for “Reserve Bank of India” will be thicker whereas in real
Indian currency will have smoother lettering.

6. Micro lettering

In real currency, the micro- lettering feature appears between the vertical bank and
Mahatma Gandhi portrait which contains RBI. A Magnifying glass would be required to see this
feature well.

61. What Is Demat Account?

Demat Account is an account that is used to hold shares and securities in electronic
format. The full form of Demat account is a dematerialised account. The purpose of opening a
Demat account is to hold shares that have been bought or dematerialised (converted from
physical to electronic shares), thus making share trading easy for the users during online trading.

In India, depositories such as NSDL and CDSL provide Free Demat account services.
Intermediaries, depository participants or stockbrokers—like Angel Broking—facilitate these
services. Each intermediary may have Demat account charges that vary as per volume held in the
account, type of subscription, and terms and conditions between a depository and a stockbroker.

What is Demat account?

A Demat Account or Dematerialised Account provides the facility of holding shares and
securities in an electronic format. During online trading, shares are bought and held in a Demat
Account, thus, facilitating easy trade for the users. A Demat Account holds all the investments an
individual makes in shares, government securities, exchange-traded funds, bonds and mutual
funds in one place.

What is dematerialisation?

Dematerialisation is the process of converting the physical share certificates into

electronic form, which is a lot easier to maintain and is accessible from anywhere throughout the
world. An investor who wants to trade online needs to open a Demat with a Depository
Participant (DP). The purpose of dematerialisation is to eliminate the need for the investor to
hold physical share certificates and facilitating a seamless tracking and monitoring of holdings.