101 Questions & Answers-Interview for Bank Promotions-VRK100-08Nov2010

8/8/2019 101 Questions & Answers-Interview for Bank Promotions-VRK100-08Nov2010

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Compiled by: Rama Krishna Vadlamudi, Hyderabad November 8, 2010

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Answers to 101 interview questions for bank promotions:

81. What is paripassu charge?

Aparipassu charge gives lenders a right to the property on which a charge iscreated in proportion to the amount lent to the debtor. Let us assume two banksX and Y have lent to a company with the outstanding at Rs 70 lakh and Rs 30lakh respectively and have paripassu charge over the assets hypothecated. Incase of liquidation of that company, the lenders X and Y will share the proceedsfrom 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 inChina. Based on the Chinese model, India too has set up several SEZs with a viewto 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 whichreceived in-principle approval from the Government. The advantage with SEZsis 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 theprivate sector.

61. Do commercial banks have freedom to raise/lower interest rate on SavingsBank account?

Commercial banks in India do not have freedom to set interest rate onSavings Bank deposits. Reserve Bank of India decides rates on SB account.However, RBI is preparing a discussion paper to assess the pros and cons ofderegulating interest rates on Savings Banks account. If RBI decides toderegulate and give freedom to banks to set rates on SB deposits ultimately, thensavers 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 interestrates 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 theintentions of the Government of India, commercial banks have been opening no-frills accounts to large sections of underprivileged sections of the society. Theno-

frills accounts are an innovative concept to introduce banking to the masses.This concept is part of financial inclusion drive started by the Government ofIndia some time back.

Customers can open no-frills accounts with either a zero balance or withbare 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 receiveGovernment Scholarships

Banks can provide credit cards against no-frills accounts in rural andsemi-urban areas

101. Why are gold prices rising?

This is a most difficult question to answer. However, let me try. Gold is a preciouscommodity. From time immemorial, gold has fascinated man (man includeswoman 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 adividend from a stock or interest from a bond) except capital gains. Internationalgold price is hovering around USD 1,390 per ounce and in India around Rs19,700 per 10 gm. The reasons for gold price rise can be attributed to:

Investors around the world are worried about the growth of the worldeconomy

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 inGovernments who have been printing currency notes in thousands ofcrores 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 thanfundamentals.


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11. Base Rate was recommended by a working group set up by RBI. Who headedthe working group?

Reserve Bank of India set up aworking group to introduce Base Rate. Thegroup was headed by Deepak Mohanty. As per the recommendations of theworking 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. Whyhas it decided to do so?

Since the 1990s, Reserve Bank of India had been deregulating interest rates ondeposits and advances. As part of the financial sector reforms and with a view togiving more freedom to banks, Reserve Bank of India is now consideringderegulating 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 31stDecember, 2009 to pay 75% of their overdues. In view of the recent drought insome States and the severe floods in some other parts of the country, it wasproposed to extend this period by six month up to 30th June, 2010';.

In the light of the above said announcement, Government has now decided toextend the period of payment of 75% of overdue portion by the 'other farmer'under the 'One Time Settlement' Scheme under ADWDRS, 2008 for another sixmonths i.e., from 01.01.2010 to 30.06.2010.

The banks/lending institutions are allowed to receive even less than 75% of theeligible amount under OTS provided the banks/lending institutions bear thedifference themselves and do not claim the same either from the Government orfrom 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, whatsteps would you initiate to turn around the Branch?

To increase profitability, the Branch Manager shall adopt strategiesdepending on the specific problems pertaining to that Branch and theenvironment. However, some general strategies could be:

Banks profitability basically depends on the spread between cost of deposits andyield 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


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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 anyinterest on CashReserve Ratio maintained by banks with RBI. With effect from April 1, 2007,

RBI prescribes CRR, depending on monetary policy considerations for bankswithout any floor or ceiling rate. With effect from April 24, 2010, CRR is six percent 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 countriesfinancially and economically. G-20 was established in 1999 with a view tobringing together industrialized nations and developing countries to discuss keyissues 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 atreplacing the multiple tax system currently being followed by the CentralGovernment 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 ofgoods and services. It is a tax on transactions and end customers who consumethe 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 ispostponed due to differences between the Centre and States. The Centre andStates 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 toBase Rate?

There was a public perception that banks had been offering lower lending rates tobig corporate customers, while charging higher rates from small borrowers in theretail, 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. Forseveral years especially since the early 2000s, RBI had tried to bring in atransparent 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 BaseRate System for loan pricing.


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90. Why is the US putting pressure on China to allow its currency, the Yuan, toappreciate?

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 wantsto protect the interests of its exporters and citizens. Chinese manufacturedproducts are sold everywhere in the world. To protect its exports, Chinas keepsits currency undervalued against major currencies, like, the US dollar.

America has a big trade deficit with China. If China allows Yuan to appreciate, itwill benefit American exports to some extent. As such, America has been puttingpressure 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 remainedthere at that level till July 2005. Between July 2005 and September 2008, Chinahad allowed the Yuan to appreciate to 6.85 to the US dollar. Between September2008 (post Lehman Brothers collapse) and June 2010, China kept the exchangerate stable at around 6.85. However, from June 2010, the Yuan has startedappreciating 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 mutualproducts to their own customers. By cross-selling, banks earn commission frominsurance companies and mutual funds. Banks enter into agreements withinsurance companies and asset management companies for cross-selling.

Within their own products, banks can cross-sell by the following ways: 1. sellingloan products to depositors, 2. offering SB/current accounts to borrowers, etc.

70. What is CIBIL?

CIBIL stands for Credit Information Bureau (India) Limited. CIBIL wasincorporated 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, HongKong Bank etc, included. CIBIL provides credit information on commercial andindividual borrowers to lenders, like, banks, NBFCs and others. The information

is provided for a fee. In credit markets, data sharing is very important betweenlenders and borrowers.


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20. What do you know about ASBA?

ASBAmeans Application Supported by Blocked Amount. It is a term used incapital markets. ASBA is an application containing an authorization to block theapplication 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/herapplication money shall be debited from the bank account only if his/herapplication is selected for allotment after the basis of allotment is finalized. Allinvestors can apply through ASBA in all public issues.

30. What is Indias GDP for 2009-10?

According to the Central Statistical Organisation (CSO), Indias GrossDomestic Product at factor cost at constant (2004-05) prices for 2009-10 wasestimated 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 grewby a spectacular 8.8 per cent over April-June 2009 quarter.

50. Does RBI have any powers to set interest rates (either for deposits oradvances)?

RBI has progressively deregulated interest rates during the last two decades.However, RBI still sets interest rates on Savings Bank deposits and currentaccounts. Savings Bank deposits fetch 3.5 per cent per annum while currentaccountholders do not get any interest. Banks do not have any freedom withregard to interest rates on DRI loans. DRI loans are lent at four per cent perannum.

Till recently, loans up to Rs 2 lakh to small borrowers, under priority sector, wereadministered. With the introduction of Base Rate System on July 1, 2010, bankshave 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 20including IDBI Bank. State Bank Group companies are six after the merger ofState 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 onbenchmark 10-year Government bond had gone up to a high of 8.14 per cent onOctober 20, 2010 before cooling down. The RBI had started raising policyinterest rates in February 2010. Since then, bond yields have gone up. Wheninterest rates go up, bond yields also go up while bond prices come down. Bondprices and bond yields have an inverse relationship.


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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 threemonths. After the RBI announcement, bond prices have rallied with the yield onbenchmark 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 amand 3.30 pm. But with effect from January 4, 2010, BSE and NSE changed themarket timings to between 9.00 am and 3.30 pm.

With effect from October 18, 2010, BSE and NSE introduced pre-open session forcall auction. The pre-open session shall be for duration of 15 minutes i.e. from9:00 am to 9:15 am and is applicable for Nifty and Sensex stocks initially. Thepre-open session is comprised of Order collection period and order matchingperiod. After completion of order matching there shall be silent period tofacilitate the transition from pre-open session to the normal market. So, normalmarket 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-terminfrastructure bonds which enjoy tax benefits. Resident Individuals andHUFs (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 IncomeTax Act. This new section was introduced this year only and is effective fromApril 1, 2010. This deduction of Rs 20,000/- from total income is in addition toRs 1.00 lakh deduction provided under Section 80C. Companies like, IFCI

Limited, IDFC Limited and L&T Infrastructure Finance Company Limited, issuedsuch 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, Euroand 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


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39. RBI had recently fined two private sector banks for violation of KYC norms.Which are these banks?

In July 2010, RBI imposed a penaltyof Rs 5 lakh each on Standard CharteredBank 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-LiabilityCommittees (ALCOs) to set interest rates on deposits and advances. However, ina few cases, like, SB deposits and current accounts, the rate is decided by RBI.

69. When will Indian Banks start issuing their financial statements (balancesheet, profit and loss account, etc) as per IFRS?

As per the available information, banks in India will converge theiraccounts with IFRS (International Financial Reporting Standards) with effectfrom April 1, 2013.

59. What is an EEFC account?

EEFC is short for Exchange Earners Foreign Currency account. Its salientfeatures are:

As the name suggests, an EEFC account is an account maintained by anexchange 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 toborrowers except in a few cases. Base Rate was implemented in India with effectfrom 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 bankto 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 StockExchange 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 26domestic banks, BSE, Jaypee Capital, Riddhi Siddhi Bullion, MMTC and IndiaPotash, among other. The CMD of USE is T.S. Narayanaswami.


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68. What is IFRS?

IFRS stands for International Financial Reporting Standards. IFRS standardsare set by an international body known as IASB. The objectives of IFRS are toestablish a single set of high quality global accounting standards that can be

adopted by several companies across countries and continents. More than 120countries have already adopted or are at an advanced stage of implementing theIFRS at their national level. Countries, like, Australia, the UK, countries in theEuropean Union and several countries in Africa have already moved towardIFRS. Countries, like, Brazil, Canada and India are shifting their nationalstandards to IFRS in the next one year. The US has been making a slow progressfrom its USGAAP standards to IFRS and it may take several more years forcomplete convergence.

India is adopting IFRS in stages. Companies in Nifty and Sensex indices will shiftto IFRS with effect from April 1, 2011. Banks will shift to IFRS with effect fromApril 1, 2013.

18. What is a Letter of Credit and what steps shall bankers take before negotiatingLCs?

Letter of Credit: A letter of credit is a document issued by a bank whichprovides an irrevocable undertaking to a beneficiary against complyingdocuments 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 arenot their regular customers

Banks should not discount any bill drawn under LCs for beneficiaries whoare not their regular clients

In the case of LCs for import of goods, banks should be very vigilant whilemaking payment to the overseas suppliers on the basis of shippingdocuments

Payments should be released to the foreign parties only after ensuring thatthe document are strictly in conformity with the terms of the LCs

Branch officials should not exceed their discretionary powers whilesanctioning facilities

Banks shall always honour their commitments under LCs and makepayment promptly


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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, SKSMicrofinance 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 inIndia?

With effect from August 1, 2009, the capital market regulatorSEBI bannedentry load on mutual funds. As such, investors need not pay any entry load forinvesting in mutual funds. However, some equity mutual funds usually imposeexit 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 oneinstance.

58. As per RBI, what percentage of NPAs shall banks maintain as compulsoryloan provisioning?

RBI has stipulated that banks shall make compulsorily make a loanprovision 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 billionin 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 tenureenjoy tax concession up to a maximum of Rs one lakh in a financial year.


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

As of now, there are no restrictions on banks opening new Automated TellerMachines. 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 ahouse property owned by them. The loan is given in lump sum or in installments andit provides important cash flow to the senior citizens who require money during theirold age. They continue to be the owners of the house and occupy it. The loanobligation is deferred till the death of the homeowner. The legal heirs of seniorcitizens can repay the loan amount after the death of the borrower and the bank willrelease the security on the house property.

23. Who are Business Correspondents (BCs)?

With a view to ensuring greater financial inclusion and increasing the penetration ofbanking services to vast sections of the underprivileged sections of the society, RBI afew 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 ofBanking Correspondentmodel.

In September 2010, RBI allowed banks to appoint companies as BusinessCorrespondents 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 bankingservices 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. BSElaunched mobile trading on September 22, 2010, using its proprietary Fastrademobile 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 Indiancompanies and financial institutions raise ECBs as interest rates abroad are muchcheaper compared to India. RBI allows companies to borrow through ECBs in tworoutes 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 ofUSD 35 billion in 2009-10.


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33. What is CDS?

ACDS 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 Bankof Mysore is 11.72 per cent.

94. What is SBIs BPLR?

In October 2010, State Bank of India raised its benchmark PLR by 25basis 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. Duringthe 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.


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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 thepresent two per cent to 4.5 per cent by 2015. In addition, they will have toset aside another 2.5 per cent as contingency capital, with which the totalcapital adequacy ratio would go up to seven per cent.

According to RBI Governor, Indian Banks are not likely to be impacted bythe new Basel III norms

These norms are still evolving and it may take some more time for RBI tocome 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 willconvert 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?

DSCRmeans debt-service coverage ratio. It indicates whether income generatedout 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 financialability 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 inthe 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 areshort-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 inAsset-Liability Management. Another is to issue to long-term bonds to insurancecompanies, pension funds, etc.


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44. What is our Banks quarterly profit in September 2010 quarter and why ournet profit has come down?

The net profit of State Bank of Mysore for the September 2010 quarter is Rs93.36 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 percent 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 theidea that they will not be able to pass on their house property to their children. Assuch, 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 ofits average net worth during four years immediately preceding such financialyear; or

(ii) failed to repay its debts within any three consecutive quarters on demandmade 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 sickindustrial company.

65. What is financial inclusion?

Financial inclusion is a process whereby easy access to banking services isprovided by banks to weaker sections and low-income groups. As part of financialinclusion, commercial banks have to offer, at affordable cost and in a fairmanner, financial products and services to these underprivileged sections. As perRBI guidelines, banks have to provide banking services through a banking outletin every village having a population of over 2,000. The banking services could beprovided through any of the various forms of models, such as, BusinessCorrespondents and not necessarily through a brick-and-mortar branch.

75. What is technology risk?

Technologyhas become an integral part of our day-to-day life. It has penetrateddeeper and deeper into our conscience. For a variety of activities, we depend ontechnology. Organizations too depend on technology for variety of functions, be itproviding services to customers, collecting data from clients, studying internalprocesses, offering client-based solution or searching for data from around the world. As we depend more and more on information technology, we need to


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understand risks posed by technology. This awareness will enable us to getprepared for facing technology risks like disruption of computer systems,natural disasters affecting computer hardware, virus attacks, threats to datasecurity, hacking of networks, and others. Organizations need to identify suchrisks so that management of such risks will become easier and allows smooth

functioning of business functions. If the employees are not skilled enough to facesuch 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 to7.60 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 sectoradvances by RBI. As such, it is attractive for banks to lend money to MFIs. Moreover, 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 99per 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 damageexceeding this amount, and up to 300 million SDR, the central

government will be liable.

All operators (except the central government) need to take insurance orprovide financial security to cover their liability.

15. Why is Indian Rupee appreciating against US dollar and other majorcurrencies?

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 farbrought in USD 25 billion. Dollar supply has increased which resulted inrupee appreciation.


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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 issuingsanction 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 thecommitted Rs 1,500 crore with UBI, IIFCL had done a take-out financing dealinvolving 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 970crore. In percentage terms it is 3.12 per cent. The net NPA is Rs 451 crore and inpercentage terms it is 1.48 per cent.

76. What is doorstep banking?

Doorstep banking is provision of banking services at the premises ofcustomers by banks. In 2005, RBI had issued guidelines to banks for providingdoorstep banking. Such banking services include, pick-up of cash, delivery ofcash, pick-up of instruments, delivery of demand drafts and others. Doorstepbanking 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 localfinancial assets into foreign financial assets and vice versa at market determinedrates of exchange. It is associated with changes of ownership in foreign/domestic

financial assets and liabilities and embodies the creation and liquidation ofclaims on, or by, the rest of the world. Reserve Bank of India appointed twocommittees one in 1997 and the other in 2006 to suggest a roadmap forcapital account convertibility. Both committees were headed by SS Tarapore,former governor of RBI.

Since the 1990s, India has progressively liberalized capital account transactionsthrough various measures. However, there exist still a plethora of controls oncapital account. Against this backdrop, we can say fuller capital accountconvertibilitymeans additional measures that can be taken to move forward oncapital 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 Funddefinition. An ETF is basically an index mutual fund scheme with a difference. AnETF is always listed and traded on an exchange. An ETF is linked to a benchmarkindex. An ETF can be bought and sold through an exchange like any share.


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A gold ETF is an ETF where the underlying is gold. The net asset value of a goldETF 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 oneunit of gold ETF will be Rs 1,970. One gram is usually the unit for gold ETFs inIndia. 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 checktheir account balances, make payments, verify transactions and others. It bringsdown transaction costs for customers as well as banks. It is an alternative deliverychannel for banks.

Banks need to encourage customers to use M-banking; otherwise, there is athreat of telecommunication companies taking away banking business frombanks. Bharti Airtel has become the first mobile operator in the country to get alicence from the Reserve Bank of India to start mobile payment services. Theservice will allow Airtel customers to exchange physical cash to virtual money which can be stored on mobile phones to pay for goods ands services fortransaction value of less than Rs 5,000. So, Bharti Airtel is now emerged as a bigcompetitor for banks!

16. Why are Foreign Institutional Investors (FIIs) pouring money into Indianstock market and debt market?

Foreign Institutional Investors (FIIs) have been investing billions ofdollars in Indian stock markets. During this calendar year, they have so farbrought in USD 25 billion.

As Indias is showing good economic growth compared to the developedmarkets, 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 inIndia. Even foreigners are allowed to invest in Indias debt markets,including Government bonds. Now, more foreign money is coming to debtmarkets 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 lastmonth. The allegations range from high interest rates, harsh measures ofrecovery and multiple lending. It is reported in the media that some micro-finance borrowers in Andhra Pradesh committed suicide due to debt trap.


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36. What role does IIFCL play?

India Infrastructure Finance Company Limited (IIFCL) is owned byGovernment of India. It was set up in 2006 to provide long-term financing toinfrastructure 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 theGovernment of India. The new status empowers the boards of these companies tomake investments up to Rs 5,000 crore with the governments approval. The newstatus 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 Mysoreraised Rs 583 crore in October 2010 through a rights issue to the existing equityshareholders in the ratio of three rights equity shares for every 10 equity sharesheld. 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 whichGovernment 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 debtpaper. Reserve Bank of India (RBI) acts as a money manager and issues theseCash Management Bills on behalf of Government of India. Government of India(GOI) had, along with RBI, issued guidelines in August 2009 itself for the CashManagement Bills.

57. When does an agricultural loan become NPA?

Two crop seasons not exceeding two half-years in case of short-term loan andone crop season not exceeding one year in case of long duration crop from thedue date of installment or interest. In case of miscellaneous agricultural activity where income is going to be generated daily/monthly like dairy the NPAclassification is once again as similar to P-segment/SBF advances.


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37. How is RBI controlling inflation in India?

To control inflation, RBI has been raising CRR, repo and reverse repo ratesgradually since February 2010. With such measures, money supply will berestricted and money will become costlier. In a rising interest rate scenario,

companies will be reluctant to start new projects which may impact overallgrowth. As a result, RBI always tries to maintain a balance between growth andprice stability.

87. What is a quick ratio?

Quick ratio simply means current assets excluding inventories divided bycurrent liabilities. It denotes the ability of a company/firm to meet short-termliabilities 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 companyspublicly-traded securities. The salient features of IDRs are:

IDRs are derivative instruments similar to GDRs or ADSs (GlobalDepository Receipts and American Depository Receipts are used by Indiancompanies 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 capitalthrough an IDR issue.

47. What is a Rights Issue?

In a rights issue, an existing shareholder will have a right to subscribe toshares as decided by a company. Let us assume a shareholder is holding 100shares of company X. If that company proposes to raise capital with a rightsissue 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 thecompany.

22. Who has created Rupee Symbol?

The new symbol for Indian Rupee was designed by Dr DharmalingamUdaya Kumar, a graduate from IIT, Bombay. He is working as a faculty in IIT,Guwahati.


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12. How is Base Rate Calculated?

Banks are given freedom to decide their own Base Rates based on cost ofdeposits, adjustment for CRR/SLR maintenance, unallocatable overhead costsand 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 rateshave 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/financialsystem to legitimize their ill-gotten money. Many terrorists and drug traffickershave been using banking channels as a conduit to transfer money for theirterrorist/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 termedas wilful default:

1) The borrower has defaulted even though he/she has the capacity to honourthe payments

2) The borrower has defaulted on the payments and has not utilized thefunds for the purpose they were sanctioned and diverted the funds

3) The borrower has defaulted on the payments and has siphoned off thefunds and the funds are not available in any other asset form


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62. Why do banks require introduction while opening SB/CA accounts?

Banks insist on introduction while opening SB/CA accounts in orderto avoid money laundering, opening of benami accounts, to meet requirement asper 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 theirassets in Government Securities and other bonds. When interest rates fall, banksmake 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 theearly 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 possiblereversal 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 fluctuationreserve (IFR) of a minimum of five per cent of investment portfolio consistingof HFT and AFS categories, within a period of five years. Such a reserve is calledinvestment fluctuation reserve. However, in October 2005, RBI allowed totransfer the balance in IFR account to Statutory Reserve, General Reserve orbalance 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 bankICICI 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


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Compiled by: Rama Krishna Vadlamudi, Hyderabad November 8, 201042. 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 Rs0.97 lakh crore of gold bullion.

Sources: various websites, like, RBI, SEBI, newspapers, etc.

Disclaimer: The above is for information purpose. Though every care has beentaken to provide authentic information on the above questions, readers have todo their own diligence and the author is not responsible for any mistakes.However, if you find any mistakes, please bring it to my notice.

101 Questions & Answers-Interview for Bank Promotions-VRK100-08Nov2010

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