Answer :
This is a frequent asked question in IBPS and other bank interviews.

(i) While answering these types of question you have to be very careful as these questions are critical to your selection and your answer can make or break your chances of final selection.
(ii) By asking these types of questions the interviewer wants to judge whether you have clarity in your thoughts and you are well aware of the post and organization you are preparing.
(iii) Panel members in the interview looks for a confident and a proactive candidate who is well aware and ready to take responsibility if hired.

Here is a model answer for you which we will suggest you adopt. Sir, I want to join banking sector because

1. Banks play an important role in the growth of our economy and is a very fast-moving sector. If I work in a bank then with the progress of the organisation, there will be personal growth in my expertise too.
2. As we are moving towards a digital era, more and more of our daily activities are new dependent on banks. Whether it is school fee or any online transaction. So, I feel it would give me job satisfaction by helping people.
3. I want to be a part of an organisation which customers trust and get financial support from. Hence, my job would be stable and respectable.
4. Multiple opportunities and scope in different segments of Bank. Versatile personality i.e. Cheque clearing, Cash transactions, Loan, Customer meet etc. More challenges and the opportunity to work and learn across functions.

Answer :
It is important to answer in a well-structured way by covering a few topics to leave a better impact on interviewers, such as.

1. Your Interest in the Job
2. Your Core Strengths
3. Your Professional Goals
4. Where you would like to be each year

A perfect way to answer this question would be:

• As I will be joining bank within few months. During the 2 years of probation period, I will learn how to handle customers and will grasp max knowledge of all the products. So, I definitely see myself employed within this bank for the next five years and beyond.

Note: When answering this question, it is important to make sure you are expressing that you plan on staying at the BANK for a long time.

Answer:
Bank is a financial institution which deals in debts and credits. It accepts deposits, lends money and also creates money. It bridges the gap between the savers and borrowers. Banks are not merely traders in money but also in an important sense manufacturer of money.
Primary banking functions of the banks include:

1. Acceptance of deposits
2. Advancing loans
3. Creation of credit
4. Clearing of cheques
5. Financing foreign trade
6. Remittance of funds

Answer:
The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission. RBI was nationalized on 1 January 1949.
The Management of RBI: The Executive head of the RBI is called the Governor, who is assisted by 4 Deputy Governors and other executive officers.
Present Governor of RBI – Urjit Patel is the present governor of RBI. He assumed charge as the 24th Governor of the Reserve Bank of India on September 4, 2016.
At present there are three Deputy Governor of RBI -

1. B.P. Kanungo
2. Viral V. Acharya
3. N. S. Vishwanathan

Powers of RBI – The Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949 have given the RBI wide powers of:
Supervision and Control over commercial Banks - relating to

• licensing and establishments


• Branch expansion


• Liquidity of their assets


• Management and methods of working


• Amalgamation (merger)


• Reconstruction and liquidation

Functions of RBI –

Issue of Currency – RBI is the sole authority for the issue of currency in India other than one rupee notes and subsidiary coins, the magnitude of which is relatively small. The RBI is also called “Bank of Issue”.

Note:

Under the Section 22 of the RBI Act 1934, RBI has the sole right to issue Bank notes of all denominations except one rupee note.

The One Rupees notes, and coins are issued by the Central Govt., The Ministry of Finance.

Banker to the Government – As a Bankers to the Govt. RBI performs the following functions:

(i) It accepts money, makes payment and also carries out their exchange and remittances for the Govt.
(ii) It makes loans and advances to the States and local authorities.
(iii) It also sells treasury bills to maintain liquidity in the economy.
(iv) It makes ways and means advances to the Governments for 90 days.
(v) It acts as adviser to the Government on all monetary and banking matters.

Banker’s Bank – The RBI has extensive power to control and supervise commercial banking system under the RBI Act, 1934 and the Banking Regulation Act, 149.

(i) The Banks are required to maintain a minimum of Cash Reserve Ratio (CRR) with RBI.
(ii) The RBI provides financial assistance to scheduled banks and state cooperative banks.
(iii) Enables banks to maintain their accounts with RBI for statutory reserve requirements and maintenance of transaction balances.

Custodian of foreign exchange reserves – The RBI functions as the custodian and manager of forex reserves, and operates within the overall policy framework agreed upon with Government of India.

(i) The ‘ reserves ’ refer to both foreign reserves in the form of gold assets in the Banking Department and foreign securities held by the Issue Department, and domestic reserves in the form of ‘bank reserves’.
(ii) Foreign exchange reserves are important indicators of ability to repay foreign debt and for currency defense, and are used to determine credit ratings of nations.
(iii) Its commonly includes foreign exchange and gold, special drawing rights,(SDRs) and International Monetary Fund(IMF) reserve positions.

Note: China holds the highest Foreign Exchange Reserve in world.

Controller of credit – Credit control is generally considered to be the principal function of Central Bank. By making frequent changes in monetary policy, it ensures that the monetary system in the economy functions according to the nation’s need and goals.

(i) It can do so through changing the Bank rate or through open market operations.
(ii) It controls the credit operations of banks through quantitative and qualitative controls.
(iii) It controls the banking system through the system of licensing, inspection and calling for information.

Lender of last resort – Lender of the last resort means “Central Bank (RBI) helps all the commercial and other banks in time of financial crises.

(i) It can come to the rescue of a bank that is solvent but faces temporary liquidity problems by supplying it with much needed liquidity when no one else is willing to extend credit to that bank.
(ii) The Reserve Bank extends this facility to protect the interest of the depositors of the bank and to prevent possible failure of the bank, which in turn may also affect other banks and institutions and can have an adverse impact on financial stability and thus on the economy.

Answer:
Monetary policy is how central banks manage the money supply to guide healthy economic growth. The money supply is credit, cash, checks, and money market mutual funds. The most important of these is credit, which includes loans, bonds, mortgages, and other agreements to repay.
Objectives of Monetary Policy - The primary objective of central banks is to manage inflation. The second is to reduce unemployment once inflation has been controlled.
Central bank reduces inflation by raising interest rates, selling securities through open market operations, and other measures to reduce liquidity.
Instrument of Monetary Policy - There are several direct and indirect instruments that are used in the implementation of monetary policy.

• Open Market Operations (OMOs): It refers to buying and selling of government securities by RBI in the open market. It controls the money supply in the economy. When RBI sells govt. securities to banks, the lendable resources of the latter are reduced and banks are forced to reduce or contain their lending, thus curbing the money supply. When money supply is reduced, it result increase in the interest rates tends to limit spending and investment.
  On the other hand, when RBI buys Govt. securities from banks, their lending resources are higher which in turn encourage banks to lend more in the market and lending leads to increase in money supply. When money supply is increased, it result decline in the interest rates tends to promote spending and investment.


• Cash Reserve Ratio (CRR): It is the amount of funds that the banks have to keep with the RBI. For ex - When a bank’s deposits increase by Rs 100, and if the cash reserve ratio is 4%, the banks will have to hold additional Rs 4 with RBI and Bank will be able to use only Rs 96 for investments and lending / credit purpose. Therefore, higher the ratio (i.e. CRR), the lower is the amount that banks will be able to use for lending and investment.


• Statutory Liquidity Ratio (SLR): It indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities.

Note: If SLR increases, banks need to keep more liabilities (deposits) with them and provides less loans to people. If SLR decreases, banks need to keep fewer liabilities (deposits) with them and provides more loans to people. Changes in SLR often influence the availability of resources in the banking system for lending to the private sector.

• Repo Rate – It is the rate at which RBI lends money to commercial banks in the event of any shortfall of funds. It is the rate of interest which RBI implements on the short term loans, i.e., from a period ranging between 2 days to 3 months (90 Days). It is used by monetary authorities to control inflation. A reduction in the repo rate helps banks get money at a cheaper rate and vice versa.


• Reverse Repo Rate – It is the rate at which the RBI borrows money from commercial banks. Banks are always happy to lend money to the RBI since their money is in safe hands with a good interest. An increase in reverse repo rate can prompt banks to park more funds with the RBI to earn higher returns on idle cash. It is also a tool which can be used by the RBI to drain excess money out of the banking system.


• Marginal Standing Facility (MSF): A facility under which scheduled commercial banks can borrow additional amount of overnight money from the Reserve Bank by dipping into their SLR portfolio up to a limit (currently two per cent of their net demand and time liabilities deposits) at a penal rate of interest (currently 100 basis points above the repo rate). This provides a safety valve against unanticipated liquidity shocks to the banking system. MSF rate and reverse repo rate determine the corridor for the daily movement in short term money market interest rates.


• Bank Rate: Bank rate is the rate of interest implemented by 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. Under this definition, Bank Rate and Repo Rate seem to be similar terms because both are the interest rates at which RBI lends money to banks.

However, the Repo Rate is a short-term measure and refers to short-term loans used for controlling the amount of money in the market, whereas Bank Rate is a long-term measure and is governed by the long-term monetary policies of the RBI. 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.
Current Policy and Reserve Rates:

Answer:
BPS is an acronym for basic points is used to indicate changes in rate of interest and other financial instrument. 1 Basic point is equal to 0.01%. So when we say that repo rate has been increased by 25 bps, it means that the rate has been increased by 0.25%.

Answer :
Before the execution of MCLR rate, there was the method to decide the interest rate for loans. This rate is called the Base Rate.

• Now, all loans (except few) are MCLR (Marginal Cost of Funds based Lending Rate) based. This method has replaced the base rate system.


• The MCLR is aimed at bringing uniformity among BRs of banks so that they will be more sensitive to any changes in policy rates of the RBI like Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), etc.


• MCLR - It is the minimum interest rate of a bank below which it cannot lend.


• This method of fixing interest rates for advances was introduced by the RBI with effect from April 1, 2016.

Base Rate

• It was introduced on 1 July 2010 by the RBI.


• It replaced the benchmark prime lending rate (BPLR), the interest rate which commercial banks charged their most credit worthy customer.

Answer:

• The Monetary Policy Committee (MPC) is a committee of the central bank — Reserve Bank of India, headed by its Governor. It was set up by amending the RBI Act after the government and RBI agreed to task RBI with the responsibility for price stability and inflation targeting. The RBI and the government signed the Monetary Policy Framework Agreement on February 20, 2015.

Composition of MPC -

• The MPC will have six members.


• Three each will be nominated by the government and the RBI and each member will have one vote.


• While the majority voice of the committee will be final in deciding the interest rates and the RBI will have to accept the verdict, the governor gets a casting vote in case of tie.


• Chairman of the Monetary Policy Committee is Governor of RBI. Urjit Patel is the present chairman of MPC.

Note: The committee will be guided by the consumer inflation target the government has set in discussion with the RBI — 4% with a margin of two percentage points for the five years ending March 2021.

Answer:
SWIFT stands for - Society for Worldwide Inter bank Financial Telecommunication.

• A SWIFT transfer is a type of international money transfer sent via the SWIFT international payment network.


• This is a kind of network between banks, which can be used to send and receive messages.


• In fact, many banks and financial services providers and institutions use it, and through them, the payment becomes easily and fast.


• For every bank, there is a special swift code that works for its identification.


• The SWIFT network does not actually transfer funds, but instead, it sends payment orders between institutions’ accounts, using SWIFT codes.


• A SWIFT code is an international bank code that identifies banks worldwide.


• It's also known as a Bank Identifier Code (BIC). Comm Bank uses SWIFT codes to send money to overseas banks.

SWIFT code consists of 8 or 11 characters.

• When code is of 8 digits, it is referred to primary office


• [latex]{1}^{st}[/latex] [latex] {2}^{nd}[/latex] [latex] {3}^{rd}[/latex] and [latex]{4}^{th} [/latex] digit - bank code


• [latex]{5}^{th}[/latex] and [latex]{6}^{th} [/latex]digits - country code


• [latex]{7}^{th}[/latex] and [latex]{8}^{th} [/latex]digits - location code


• [latex]{9}^{th}[/latex] [latex] {10}^{th} and {11}^{th} [/latex]digits - branch code

Answer :
It is the process of policy decision making in relation to the financial structure of the government receipts and payments. It includes the action strategies on tax policy, revenue and expenditure, loans and borrowing, deficit financing etc. Primarily it is the budgetary policy of the Govt. and is reflected through the annual budget formulation.
The Objective of the policy are –

• Mobilizations of resources for meeting the financial requirements for economic growth.


• Improve savings and investment rate to improve the capital formation.


• To initiate steps to remove poverty and unemployment and improve the standard of living of the people.


• To reduce regional disparities.

Answer:
Banking system commenced in India with the foundation of Bank of Hindustan in Calcutta (now Kolkata) in 1770 which ceased to operate in 1832. After that many banks came but some were not successful like –

1. General Bank of India (1786-1791)
2. Oudh Commercial Bank (1881-1958) – the first commercial bank of India.

Whereas some are successful and continue to lead even now like –

1. Allahabad Bank (est. 1865)
2. Punjab National Bank (est. 1894, with HQ in Lahore (that time)
3. Bank of India (est. 1906)
4. Bank of Baroda (est. 1908)
5. Central Bank of India (est. 1911)

While some others like Bank of Bengal (est. 1806), Bank of Bombay (est. 1840), Bank of Madras (est. 1843) merged into a single entity in 1921 which came to be known as Imperial Bank of India.
Imperial Bank of India was later renamed in 1955 as the State Bank of India.

In April 1935, Reserve Bank of India was formed based on the recommendation of Hilton Young Commission (setup in 1926).

The Indian banking sector is broadly classified into scheduled banks and non-scheduled banks. The scheduled banks are those which are included under the 2nd Schedule of the Reserve Bank of India Act, 1934.
The scheduled banks are further classified into: nationalized banks; State Bank of India and its associates; Regional Rural Banks (RRBs); foreign banks; and other Indian private sector banks. The term commercial banks refer to both scheduled and non-scheduled commercial banks which are regulated under the Banking Regulation Act, 1949.

Answer :
Nationalization is the process of taking a private industry or private assets into public ownership by a national government or state.
Need for nationalization in India:

1. The banks mostly catered to the needs of large industries, big business houses.
2. Sectors such as agriculture, small scale industries and exports were lagging behind.
3. The poor masses continued to be exploited by the moneylenders.

Following this, in the year 1949, [latex]{1}^{st}[/latex] January the Reserve Bank of India was nationalized.

Answer :
Smt. Indira Gandhi was the Prime Minister of India, during in 1969. These were –

1. Central Bank of India
2. Bank of India
3. Punjab National Bank
4. Bank of Baroda
5. United Commercial Bank
6. Canara Bank
7. Dena Bank
8. United Bank
9. Syndicate Bank
10. Allahabad Bank
11. Indian Bank
12. Union Bank of India
13. Bank of Maharashtra
14. Indian Overseas Bank

Six more commercial banks were nationalized in April 1980. These were:

1. Andhra Bank
2. Corporation Bank
3. New Bank of India
4. Oriental Bank of Commerce
5. Punjab & Sindh Bank
6. Vijaya Bank.

Mean while on the recommendation of M. Narsimhan committee, RRBs (Regional Rural Banks) were formed on Oct 2, 1975. The objective behind the formation of RRBs was to serve large unserved population of rural areas and promoting financial inclusion.

Answer:
Public Sector Banks (PSBs) are banks where a majority stake (i.e. more than 50%) is held by a government. The shares of these banks are listed on stock exchanges. There are a total of 27 PSBs in India [21 Nationalized banks + 6 State bank group (SBI + 5 associates) ]. In 2011 IDBI bank and in 2014 Bharatiya Mahila Bank were nationalized with a minimum capital of Rs 500 cr.
For Ex – Bank of Baroda, Punjab National Bank, Bank of India, etc.

Answer :
The private-sector banks in India represent part of the indian banking sector that is made up of both private and public sector banks. The "private-sector banks" are banks where greater parts of stake or equity are held by the private shareholders and not by government.
For ex – ICICI Bank, HDFC Bank, Axis Bank, etc.

Answer :
The private-sector banks in India represent part of the indian banking sector that is made up of both private and public sector banks. The "private-sector banks" are banks where greater parts of stake or equity are held by the private shareholders and not by government.
For ex – ICICI Bank, HDFC Bank, Axis Bank, etc.

Answer:
Regional Rural Banks are local level banking organizations operating in different States of India. They have been created with a view to serve primarily the rural areas of India with basic banking and financial services. However, RRB's may have branches set up for urban operations and their area of operation may include urban areas too. The Government of India, the concerned State Government and the bank, which had sponsored the RRB contributed to the share capital of RRBs in the proportion of 50%, 15% and 35%, respectively.

Answer :
A bank is a business organisation engaged in the business of borrowing and lending money. A bank can earn income only if it borrows at a lower rate and lends at a higher rate. The difference between the two rates will represent the costs incurred by the bank and the profit. Bank also provides a number of services to its customers for which it charges commission. This is also an important source of income.
The followings are the various sources of a bank’s profit:

• Interest on Loans – The main function of a commercial bank is to borrow money for the purpose of lending at a higher rate of interest. Bank grants various types of loans to the industrialists and traders. The yields from loans constitute the major portion of the income of a bank. The banks grant loans generally for short periods. But now the banks also advance call loans which can be called at a very short notice. Such loans are granted to share brokers and other banks. These assets are highly liquid because they can be called at any time. Moreover, they are source of income to the bank.


• Interest on Investments – Banks also invest an important portion of their resources in government and other first class industrial securities. The interest and dividend received from time to time on these investments is a source of income for the banks. Bank also earn some income when the market prices of these securities rise.


• Discounts - Commercial banks invest a part of their funds in bills of exchange by discounting them. Banks discount both foreign and inland bills of exchange, or in other words, they purchase the bills at discount and receive the full amount at the date of maturity. For instance, if a bill of Rs. 1000 is discounted for Rs. 975, the bank earns a discount of Rs. 25 because bank pays Rs. 975 today, but will get Rs. 1000 on the due date. Discount, as a matter of fact, is the interest on the amount paid for the remaining period of the bill. The rate of discount on bills of exchange is slightly lower than the interest rate charged on loans and advances because bills are considered to be highly liquid assets.


• Commission, Brokerage, etc. - Banks perform numerous services to their customers and charge commission, etc., for such services. Banks collect cheques, rents, dividends, etc., accepts bills of exchange, issue drafts and letters of credit and collect pensions and salaries on behalf of their customers. They pay insurance premiums, rents, taxes etc., on behalf of their customers. For all these services banks charge their commission. They also earn locker rents for providing safety vaults to their customers. Recently the banks have also started underwriting the shares and debentures issued by the joint stock companies for which they receive underwriting commission.

Answer:
Non-bank financial companies (NBFCs) are financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license. These institutions typically are restricted from taking deposits from the public depending on the jurisdiction. Nonetheless, operations of these institutions are often still covered under a country's banking regulations.
NBFCs are doing functions similar to banks. What is difference between banks & NBFCs? NBFCs lend and make investments and hence their activities are similar to that of banks; however there are a few differences as given below:

i. NBFC cannot accept demand deposits;
ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
iii. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

Answer:
It is a process by which banks obtain information about the identity and address of the customers. This process helps to ensure that banks’ services are not misused. The KYC procedure is to be completed by the banks while opening accounts and also periodically update the same.
KYC guidelines were introduced in year 2002 by RBI and all banks were asked to make all accounts KYC compliant by 31 December 2005. These guidelines are issued under Section 35 A of the Banking Regulation Act, 1949.
KYC documents: These are the documents used to establish customer’s identity. Banks need two types of document one for identity another for address.

• Individual: Identity: Pan card, Passport, Aadhar card, Voter id card, Driving license, any other identity card upto bank’s satisfaction, letter from recognized public authority establishing identity of the customer.
  
• Address: Telephone bill, electricity bill, Aadhar card, voter id card, Driving license, any other identity card up to bank’s satisfaction, letter from recognized public authority establishing address and identity of the customer, letter from employer, letter from landlord along with kyc of landlord.

Note: If a person is unable to produce necessary documents mentioned, a relaxation is extended if:

1. Balance < Rs. 50000 for all a/cs taken together
2. Total credit in all a/cs for a year < Rs. 1,00,000

Such customer needs to be introduced from an existing customer at least six months old and having full KYC. Also, transactions are to be stopped in such a/cs once Balance reaches Rs. 40,000 or total credit reaches Rs. 80,000.

Answer:
Money laundering is the process by which the origin of funds gained by illegal means is concealed, and made to appear such that they have been derived from legitimate sources and inserting them back into economic circulation. Money laundering also covers financial transactions where the end use of funds goes for financing terrorism irrespective of the source of the funds.
The prevention of money laundering act, 2002 was enacted to prevent money laundering and deal with those who are guilty of money laundering. The PMLA seeks to combat money laundering in India and has three main objectives:

(i) To prevent and control money laundering
(ii) To confiscate and seize the property obtained from the laundered money; and
(iii) To deal with any other issue connected with money laundering in India.

Case of AML – DMK’s Kanimozhi, A Raja and Dayalu Ammal were charged under anti-money-laundering act for their involvement in 2G scam.

Answer :
Financial inclusion is a concept of making available banking/financial services to a vast section of low income groups and weaker sections at an affordable price. The objective of financial inclusion is to provide the service of basic banking products to the unserved masses of the country, aiming towards inclusive economic growth.
The need for financial inclusion raised when even after years of Independence 40% population lacked access to basic banking products. And apart from poverty, illiteracy and lack of regular income the major barriers are lack of reach, high cost of transactions and time.
Regulatory steps taken by Reserve Bank of India in this regard-

• BSBDA (Basic Savings Bank Deposit Account)
  – No requirement for any minimum balance.
  – No limit on the number of deposits while restriction on withdrawal to 4.


• Relaxation in KYC guidelines


• Use of extensive technology in banking


• Appointing business correspondents and business facilitators


• Opening of branches in un banked rural areas


• Licensing of differentiated banks like Payment Bank and Small Bank

Schemes launched by Government of India to promote financial inclusion are-

PMJDY (Pradhan Mantri Jan Dhan Yojana) – The main features of this scheme are

(i) The slogan of the scheme is “Mera Khata – Bhagya Vidhaata”
(ii) The scheme provided Rs 5,000 overdraft facility for Aadhar – linked accounts and RuPay Debit Card for all account holders
(iii) An accident insurance cover of up to Rs. 1 Lakh is also provided.

Pradhan Mantri Suraksha Bima Yojana – The main features of this scheme are

(i) For personal accident insurance
(ii) Age group: 18-70 years
(iii) Sum assured: Rs 2 lakh, while premium: Rs 12 per annum

Pradhan Mantri Jeevan Jyoti Bima Yojana – The main features of this scheme are

(i) For life insurance
(ii) Age group: 18-50 years
(iii) Sum assured: Rs 2 lakh, while premium: Rs 330 per annum

Atal Pension Yojana – The main features of this scheme are

(i) For pension purpose
(ii) Age group: 18-40 years
(iii) Fixed pension: Rs 1000-5000 per month at age of 60 years.

Banking products that play a crucial role in the expansion of Financial Inclusion:

a. Savings-cum-overdraft account
b. Remittance products
c. Savings product
d. Kisan credit card (KCC) or General credit card (GCC)

Fund Allocation: Reserve Bank of India recently created a new Financial Inclusion Fund (FIF) with funding of Rs 2000 Crore for expanding the reach of banking services. The new Financial Inclusion Fund is created by merging Financial Inclusion Fund and Financial Inclusion Technology Fund into a single Fund — Financial Inclusion Fund (FIF). The new FIF will be maintained by NABARD.
Benefits of Financial Inclusion-

1. It offers potential for increasing banking business by bringing more and more customers to bank.
2. It seeks to improve the standard of living of vast majority of poor persons.
3. It enhances the number of Bankable customers.
4. It boosts the growth of Banking Business.
5. It can bridge the Urban-Rural divide.

Answer :
DeMat account is nothing but a dematerialized account. If one has to save money or make cheque payments, then he/she needs to open a bank account. Similarly, one needs to open a DeMat account if he/she wants to buy or sell stocks. Thus, DeMat account is similar to a bank account wherein the actual money is being replaced by shares. In order to open a DeMat account, one needs to approach the Depository Participants [DPs].

1. In India, a DeMat account is a type of banking account that dematerializes paper-based physical stock shares. The DeMat account is used to avoid holding of physical shares: the shares are bought as well as sold through a stock broker. In this case, the advantage is that one does not need any physical evidence for possessing these shares. All the things are taken care of by the DPs.
2. This account is very popular in India. Physically only 500 shares can be traded as per the provision given by SEBI. From April 2006, it has become mandatory for any person holding a DeMat account to possess a Permanent Account Number (PAN).

Answer:
A derivative is a financial contract that derives its value from another financial product/commodity (say spot rate) called underlying (that may be a stock, stock index, a foreign currency, a commodity). Forward contract in foreign exchange transaction, is a simple form of a derivative.

Answer :
Foreign exchange reserves (also called Forex reserves) in a strict sense are only the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, SDRs and IMF reserve positions.

Answer:
Bancassurance means distribution of financial products particularly the insurance policies (both the life and non-life), also called referral business, by banks as corporate agents, and through their branches located in different parts of the country.

Answer :
FII (Foreign Institutional Investor) used to denote an investor, mostly in the form of an institution. An institution established outside India, which proposes to invest in Indian market, in other words buying Indian stocks.

• FII's generally buy in large volumes which has an impact on the stock markets.


• Foreign Institutional Investors includes pension funds, mutual funds, Insurance Companies, Banks, etc.

Answer :
FDI (Foreign Direct Investment) occurs with the purchase of the “physical assets or a significant amount of ownership (stock) of a company in another country in order to gain a measure of management control” (Or) A foreign company having a stake in a Indian Company.

Answer:
The Small Industries Development Bank of India is a state-run bank aimed to aid the growth and development of micro, small and medium scale industries in India.

• It was set up in 1990 through an act of parliament; it was incorporated initially as a wholly owned subsidiary of Industrial Development Bank of India. Headquarter – Lucknow.

Answer :
NABARD was established on the recommendations of Shivaraman Committee on 12 July 1982 to implement the National Bank for Agriculture and Rural Development Act 1981. Its headquarter located in Mumbai. Present Chairman is Dr. Harsh Kumar Bhanwala.

• It replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and Development Corporation (ARDC).
  
• It is one of the premiere agencies to provide credit in rural areas. NABARD is set up as an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts.

Answer :

1. SEBI is the regulator for the Securities Market in India. Head office located in Mumbai
2. Originally set up by the Government of India in 1988, it acquired statutory form in 1992 with SEBI Act 1992 being passed by the Indian Parliament.
3. Ajay Tyagi is the present Chairman of SEBI.
4. Note: The Forward Markets Commission (FMC) is the chief regulator of commodity futures markets in India was merged with the Securities and Exchange Board of India (SEBI) on 28 September 2015.

Answer:
SENSEX is the short term for the words "Sensitive Index" and is associated with the Bombay (Mumbai) Stock Exchange (BSE). The SENSEX was first formed on 1-1-1986 and used the market capitalization of the 30 most traded stocks of BSE.
NSE - Whereas NSE has 50 most traded stocks of NSE.
Note:

• SENSEX is the index of BSE and NIFTY is the index of NSE.


• Both will show daily TRADING MARKS. Sensex and Nifty both are an "index”.


• An index is basically an indicator it indicates whether most of the stocks have gone up or most of the stocks have gone down.

Answer:
A true economic recession can only be confirmed if GDP (Gross Domestic Product) growth is negative for a period of two or more consecutive quarters.

Answer :
The Subprime crisis is due to sub-prime lending. These are the loans given to the people having low credit rating.

Answer :
IPO is Initial Public Offering. This is the f irst offering of shares to the general public from a company wishes to list on the stock exchange.

Answer :
It defines that, where the net amount received (by taxes and other forms) fails to meet the predicted net amount to be received by the government.

Answer :
National Income is the money value of all goods and services produced in a Country during the year.

Answer :
The Selling of the government stake in public sector undertakings.

Answer :
It is the difference between the government’s total receipts (excluding borrowings) and total expenditure.

Answer :
Mutual funds are investment companies that pool money from investors at large and offer to sell and buy back its shares on a continuous basis and use the capital thus raised to invest in securities of different companies.

• The mutual fund will have a fund manager that trades the pooled money on a regular basis. The net proceeds or losses are then typically distributed to the investors annually.

Answer:
An asset (loan), including a leased asset, becomes non performing when it stops generating income for the bank.
Note: Once the borrower has failed to make interest or principle payments for 90 days the loan is considered to be a nonperforming asset. It had been decided to adopt the '90 days' overdue' norm for identification of NPA, from the year ending March 31, 2004.
The conditions under which an asset becomes an NPA are as follows:

1. If interest or installment or both of principal remain overdue for a period of more than 90 days in respect of a term loan.
2. If Overdraft/ Cash Credit for an account remains ‘out of order’.
3. If bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted.
4. If installment of principal or interest remains overdue for two crop seasons for short duration crops / one crop season for long duration crops.

ASSET CLASSIFICATION: RBI has classified nonperforming assets into the following three categories based on the period for which the asset has remained nonperforming and the realisability of the dues:

• Substandard Assets: With effect from March 31, 2005, a substandard asset is one, which has remained NPA for a period less than or equal to 12 months.


• Doubtful Assets: With effect from March 31, 2005, an asset is classified as doubtful if it has remained in the substandard category for a period of 12 months.


• Loss Assets: A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some rescue or recovery value.

Reasons for NPA:

1. Macroeconomic situations: When a country is not growing on expected lines i.e. GDP is not growing, no demand for goods, then industry suffers and not able to payback.
2. Increased Interest Rate: The loan is taken at a time when interest rates were much higher than the present interest rate.
3. When some sectors of the economy are doing bad like Infrastructure, Power due to Land acquisition and forest related issues and environment clearances.
4. Willful defaulting: When one is able to pay but is not paying like Vijay Mallya.

Now what does the Bank / FIs do?
Firstly the Bank /FIs inspect whether there are genuine reasons or not for non-repayment of loans. Here genuine reasons include factors that are beyond one’s control and certain internal, external reasons. In this case, for the revival of the corporates as well as for the safety of the money lent by the banks and FIs, timely support through restructuring is done. This system of restructuring of loans is called as Corporate Debt Restructuring.
What if the case is not genuine? In this case Bank / FIs may

• refer the case to Debt Recovery Tribunal (DRT).


• refer to Asset Reconstruction Companies (ARC) as per SARFAESI Act, 2002.


• file winding up petition in the court of law.


• file criminal case against the willful defaulter.

Let’s first take the genuine case:
1. Corporate Debt Restructuring:

• It has been implemented by RBI from August 2001.


• It covers only multiple banking accounts or syndicated / consortium loan accounts of corporate borrowers where outstanding exposure is Rs 10 crore or more.


• The accounts are eligible for consideration under the CDR system provided at least 75% of the creditors (by value of loan) and 60% of creditors (by number of loan) agree to the proposal.

Note: The scheme will not apply to accounts involving only one financial institution or one bank. In case if the reason of non-repayment is not genuine then Bank / FIs can have following options:
In case if the reason of non-repayment is not genuine then Bank / FIs can have following options:
2. Debt Recovery Tribunal (DRT):

• These are established in various cities under “Recovery of Debts due to Banks and Financial Institutions (RDDBF) Act, 1993”.


• Banks / FIs can file an application with DRT or recover dues from persons / companies.


• As per the act the issue is to be settled in 6 months.


• In this case the success rate is around 20 -30 %.

3. Asset Reconstruction Companies (ARC):

• This is formed under the "Securitization and Reconstruction of financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002".


• It empowers the Banks & FIs to recover NPAs without the intervention of the court.


• It was brought to overcome the inefficiency of DRTs.


• Under this, Banks / FIs have the power to sell their Bad loans.


• The loans which are of Rs 1 lakh and more fall in this category.


• RBI has the power to issue licence to ARCs. Asset Reconstruction Company (India) Ltd is the first ARC established in India.

4. Filing of Criminal Cases: Criminal cases can be filed against the borrower if the banks feel the non-repayment of the debt is due to ‘willful default’. Example is Vijay Mallya defaulting on SBI, UCO, United Bank of India.
5. Winding up petitions: Under the Companies Act, if a borrower fails to pay back the loan, a petition can be filed. For this a Official liquidator is appointed. It is a long procedure and may not give satisfactory results to banks.
Apart from the steps described above Banks can take other prudential steps, which are:
1.Corrective Action Plan: As per RBI Before the loan becomes an NPA, classify them as

• SMA-0 (Special Mention Account) = up to 30 days.


• SMA-1 = 31 to 60 days.


• SMA-2 =61 to 90 days.

In order to take corrective actions.
2. Joint lenders’ forum: RBI has mandated to constitute a Joint Lenders’ Forum at SMA-2 stage, if the loan exposure is more than Rs 100 Crore or more.
3. Strategic Debt Restructuring: RBI has announced to convert debt into equity i.e. Bank will assume the role of management (ownership).

Answer :
The Basel committee on Banking Supervision (BCBS) was formed in 1974 by a group of central bank governors of G-10 countries. Later on the committee was expanded to include members from nearly 30 countries. BCBS in 1988 released Basel-I accords and subsequently to overcome the loopholes in it Basel –II was released in 2004.
BCBS released a comprehensive reform package in Dec 2010, which is called as Basel –III, a global regulatory framework for more resilient banks and banking systems. These recommendations cover almost all the nations. And it amend the Basel -2 guidelines, also introduces some new concepts and recommendations.
Need For BASEL-3 Worldwide: Banks mainly deals with three kind of risks. These are

1. Credit risk
2. Market risk
3. Operational risk

What is Credit risk? It is basically the risk of loss, arising when a borrower is not capable of paying back the loan as promised. Such borrowers are also known as Sub-prime borrowers.
Now let’s go back to the year 2008, when all of us observed /witnessed the Global financial crisis, which originated in US because of these Subprime borrowers and this crisis thereafter spilled over in the other markets as well. It created financial crisis throughout the world. Thus a need was felt for more stringent banking regulation worldwide.
Now In India what is the need to adopt such norms when we saw our banking system standing firm even during the crisis.
Need for Basel –III in INDIA

• Firstly ,The most important reason is that as India connects with the rest of the world, and as increasingly Indian banks go abroad and foreign banks come on to our shores, we cannot afford to have a regulatory deviation from global standards. Any deviation will hurt us.
  
• Secondly, if we ought to maintain a low standard regulatory regime this will put Indian banks at a disadvantage in global competition. Therefore, It is becomes important that Indian banks have the cushion provided by this risk management system to withstand shocks from external systems, especially as we deepen our links with the global financial system.

In India, Basel III regulations has been implemented from April 1, 2013 in phases and it will be fully implemented as on March 31, 2019.
The pillars of BASEL norms:

• Capital adequacy requirements


• Supervisory review


• Market discipline

Recommendations of Basel – III

• Firstly, Basel -3 recommended that the Capital Adequacy ratio(CAR) be increased to 8% internationally, while in INDIA it is 9%.


• Capital Adequacy ratio (CAR), also known as Capital to Risk (weighted ) Assets Ratio (CRAR), is a ratio of a bank’s capital to its risk.


• Capital is the money a bank receives in exchange for issuing shares.This capital is further classified into two – Tier 1 and Tier 2 capital.

CAR = (Tier 1 capital + Tier 2 capital)/ Risk weighted Assets

Out of the 9% (of RWA) capital adequacy requirement, 7 % (of RWA) has to be met by Tier 1 capital while the remaining 2%(of RWA) by Tier 2 capital.
Risk weighted assets – Every bank assigns its assets some weight-age based on the risk involved. Thus apply a weight percentage to each of its assets.
For example – Lets say a bank lends Rs 100 to a person for home loan and Rs 100 to a person to start a new company.
Bank’s total asset = Rs 100 + Rs 100 = Rs 200
Let’s imagine home loan has high probability of being repaid than the loan to person to start a company.
i.e. Risk Weight of Home Loan = 50% and Risk Weight of loan for company = 90 %
Risk Weighted Assets of Bank = 50% of 100 + 90% of 100 = 50 + 90 = Rs 140. So out of total assets worth Rs 200, Rs 140 are risk weighted assets.
Bank need 9% of RWA as Capital. Bank need 9% of 140 = Rs 12.6 as Capital.
Means, out of Rs 200 that a bank lends, Rs 12.6 must be funded with Capital. Rest, Rs 187.4 can be from the money that bank borrowed.
Secondly it also introduces the concept of leverage ratio, it measures the ratio of banks total assets to bank’s capital. Under the new set of guidelines, RBI has set the leverage ratio at 4.5% (3% under Basel III).
Leverage Ratio = Capital/Total Asset
Concept of leverage –
for e.g. - If you have Rs 100 and you invest them and earns a profit of 10% i.e. you have profit of Rs 10 on Rs 100.This is called non leverage profit.
Now again you have Rs 100 and you borrow Rs 400 and invest Rs 500, earns a profit of 10% i.e. you earn Rs 50 on your Rs 100. This is called leverage profit.
With Higher leverage, Bank’s Profit/Loss = Higher = Higher Risk also!
So now leverage ratio of 4.5 % means for every Rs bank funds itself with, it can lend up to 22.22 Rs
Challenges for Its Implementation in India

1. Capital – Since nearly 2.4 lakh crore rupees are required for its implementation in India.
2. Liquidity - During the global crisis 2008, the apparently strong banks of the world ran into difficulties when the inter bank wholesale funding market witnessed a seizure. Thus in Indian context, it would mean an additional burden of maintaining liquidity along with the SLR requirement.
3. Technology - BCBS is in the process of making significant changes in standard approach for computing RWAs for all three risk areas. Banks may need to upgrade their systems and processes to be able to compute capital requirements based on revised standard approach.
4. Skill development - Implementation of the new capital accord requires higher specialized skills in banks.
5. Governance - One can have the capital, the liquid assets and the infrastructure. But corporate governance will be the deciding factor in the ability of a bank to meet the challenges. Strong capital gives financial strength, it cannot assure good performance unless backed by good corporate governance.

Steps Taken by Government

• GOI has allowed banks to access markets to raise capital while maintaining a minimum 52% shareholding.


• Govt. also launched a scheme called INDRADHANUSH to revamp PSBs. This scheme seeks to improve the efficiency and functioning of banks thereby reducing the bad assets. And also plans to infuse Rs 70,000 crore in the banking system over next 5 years.


• In this regard government also announced two banks as DSIBs i.e. SBI and ICICI, based on the criteria of size, inter contentedness, complexity and substitutability.

Answer :
Negotiable instruments are written orders or unconditional promises to pay a fixed sum of money on demand or at a certain time. Negotiable instruments may be transferred from one person to another, who is known as a holder in due course. Upon transfer, also called negotiation of the instrument, the holder obtains full legal title to the instrument. Negotiable instruments may be transferred by delivery or by endorsement and delivery. For e.g. promissory notes, bills of exchange, cheques, drafts, certificates of deposit are all examples of negotiable instruments.

• Cheque - Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by the person who has deposited money with the banker, requiring him to pay on demand a certain sum of money only to or to the order of certain person or to the bearer of instrument."


• Bearer Cheque - The bearer cheque is payable to the person specified therein or to any other else who presents it to the bank for payment. However, such cheques are risky, this is because if such cheques are lost, the finder of the cheque can collect payment from the bank.


• Order Cheque - It is the one which is payable to a particular person. In such a cheque the word ‘bearer’ may be cut out or cancelled and the word ‘order’ may be written. The payee can transfer an order cheque to someone else by signing his or her name on the back of it.


• Crossed cheque: When a cheque is crossed, the holder cannot en-cash it at the counter of the bank. The payment of such cheque is only credited to the bank account of the payee. Crossed cheque is done by drawing two parallel lines across top left corner of the cheque, with or without writing ‘Account payee’ in the space between the lines.


• A self cheque: It is written by the account holder as pay self to receive money in physical form from the branch where he holds his account. This can be alternated by using an ATM card.


• Post-dated cheque (PDC): A PDC is a form of a crossed or account payee bearer cheque but post-dated to meet the said financial payment at a future date. The cheque is valid from the date of issue to three months.


• A Banker’s cheque: A banker’s cheque is issued by a bank drawing money from its own funds rather than that from an account holder’s. Banker’s cheque is issued after the bank verifies the account status of the requester and the amount is immediately deducted from the customer’s account. A banker’s cheque cannot be dishonored as in the case of a normal cheque, when an account holder has insufficient funds in his/her account. Though different from a normal cheque it requires clearing too.


• Stale Cheque - If a cheque is presented for payment after three months from the date of the cheque it is called stale cheque. A stale cheque is not honored by the bank.

Answer :
A DD is a negotiable instrument similar to a bill of exchange. It is used for effecting transfer of money. A bank issues a DD to a client (Drawer), directing another bank (Drawee) or one 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:

• A cheque is issued by an individual, whereas a DD is issued by a bank.


• 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.


• The payment of cheque can be stopped by the drawer of the cheque, whereas the payment of a DD cannot be stopped.


• A cheque can bounce or be dishonored, but a DD cannot be bounced and dishonored because it is already paid. A DD will bounce only when the drawee bank does not have enough funds to honor the cheque.


• A cheque can be made payable either to a bearer or to order. But a DD is always payable to order of certain person or organization, it cannot be a bearer draft

Answer :
Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, is a project undertaken by the Reserve Bank of India (RBI) in 2008, for faster clearing of cheques.
Cheque Truncation System (CTS) is a cheque clearing system undertaken by the Reserve Bank of India (RBI) for faster clearing of cheques. Truncation is the process of stopping the physical movement of cheques which is replaced by electronic images and associated MICR line of the cheque.
Advantage of CTS –

• Since there is no physical movement of cheques, there is no fear of loss of cheque in transit.


• Usage of CTS cheques also means quicker clearance, shorter clearing cycle and speedier credit of the amount to your account.


• Depending on whether the cheque is local or outstation, the cheque can get cleared on the same day or within 24 hours.


• The biggest advantage is that CTS-compliant cheques are more secure than old cheques and, hence, less prone to frauds. Also, as the system matures, it is proposed to integrate multiple locations and reduce geographical restrictions in cheque clearing

Answer :
The purpose of the small banks will be to provide a whole suite of basic banking products such as deposits and supply of credit, but in a limited area of operation. The aim of small banks is to increase financial inclusion in the country. The small bank shall be registered as a public limited company under the Companies Act, 2013.
Committee on Small Banks - The applications will be analyzed and evaluated by an External Advisory Committee (EAC). The EAC for small banks will be chaired by Usha Thorat, former deputy governor, RBI. RBI granted 'in-principle' approval to the 10 applicants to set up Small Finance Banks. The central bank had received 72 applications for setting up small finance bank licences.
Key points

1. Capital requirement - The minimum paid-up capital requirement for small banks is Rs. 100 crore.
2. As per the guidelines, the promoters' initial minimum contribution will be at least 40 % of the minimum capital, to be locked in for a period of 5 years.
3. Small banks will offer both deposits as well as loan products.
4. They cannot set up subsidiaries to undertake non-banking financial services activities.
5. The maximum loan size and investment limit exposure to single/group borrowers/issuers would be restricted to 15 percent of total capital funds.
6. Loans and advances of up to Rs 25 lakhs, primarily to micro enterprises, should constitute at least 50 per cent of the loan portfolio.
7. For the first three years, 25 per cent of branches should be in unbanked rural areas.
8. The foreign shareholding in the bank would be as per the extant FDI policy.
9. For the initial three years, prior approval will be required for branch expansion.

List of Small Finance Bank working in India –

• Capital Small Finance Bank (India's first small finance bank)


• Equitas Small Finance Bank


• Utkarsh Small Finance Bank


• Suryoday Small Finance Bank


• Ujjivan Small Finance Bank


• ESAF Small Finance Bank


• Au Small Finance Bank


• Fincare Small Finance Bank


• North East Small Finance Bank


• Jana Small Finance Bank

Answer :
The main objective of payment banks is to increase financial inclusion in the country via a primary focus on domestic payments services by providing small savings accounts. Payments banks will be used only for transaction and deposits purposes. Unlike small banks, payments banks cannot lend money.
List of Small Finance Bank working in India –

• Airtel Payment Bank – Joint venture b/w Bharti Airtel and Kotak Mahindra Bank.


• Paytm Payment Bank – Paytm


• India Post Payment Bank - 100 % owned by Govt. of India.


• Fino Payment Bank - The Fino has partnered with the ICICI Bank.


• Aditya Birla Idea Payment Bank - Joint venture b/w Idea and Vodafone


• Jio Payment Bank - Joint venture b/w Reliance and SBI.

Committee on Payment Banks - These applications are analyzed and evaluated by an External Advisory Committee (EAC). The EAC Committee for Payment Banks is chaired by Dr. Nachiket Mor, Director, Central Board of the Reserve Bank of India.
Key Points:

1. Capital requirement - The minimum paid-up capital requirement for payments banks is Rs. 100 crore.
2. The Reserve Bank grants a license for commencement of banking business under Section 22(1) of the Banking Regulation Act, 1949.
3. RBI's “in-principle” nod will be valid for a period of 18 months, during which time the applicants have to comply with the requirements under the Guidelines and fulfill the other conditions as may be stipulated by the Reserve bank.
4. As per the guidelines, the promoters' initial minimum contribution will be at least 40 % of the minimum capital, to be locked in for a period of 5 years.
5. The payments bank will need to invest 75 percent of its funds in government securities.
6. Payments banks can open small savings accounts and accept deposits of up to Rs.1 lakh per individual customer and provide remittance services. Hence, the balance at the close of business on any day should not exceed Rs.1 lakh per customer.
7. Payments banks can issue debit cards but they are not eligible to provide credit card facilities.
8. Payments Banks are allowed to set up their own ATMs (automated teller machines).
9. Payments banks will have to invest in government securities with a maturity of up to 1 year

Answer :
Inflation is as an increase in the price of bunch of Goods and services that projects the Indian economy. An increase in inflation figures occurs when there is an increase in the average level of prices in Goods and services. Inflation happens when there are fewer Goods and more buyers; this will result in increase in the price of Goods, since there is more demand and less supply of the goods.

Answer :
Deflation is the continuous decrease in prices of goods and services. Deflation occurs when the inflation rate becomes negative (below zero) and stays there for a longer period.