Banking Interview Questions
An Overview of Banking
Banking is an industry of money. Banking includes handling cash, financial transactions, credit and debits of the accounts, etc. In simple words, we can say that Banking is all about taking care of the money which is owned by individuals and entities. Our vast collection of Banking Interview Questions are the best resources for cracking your interviews.
There are five types of banking:-
- Retail Banking
- Business Banking
- Corporate Banking
- Private Banking
- Investment Banking
Retail Banking is also called as Consumer Banking or Personal banking. Retail Banking service is provided by the bank for the general public and the small businesses. Retail banking includes personal loans, debit and credit cards, saving accounts, current accounts.
Business banking or Commercial Banking is the service which is provided by the bank for the middle-sized businesses. Business banking includes business loans, investment products, financial products which functions as a business for getting a profit.
Corporate Banking is also a business banking service which is provided by the bank for the large size business like Finance Institutions and corporates
Private Banking is the service provided by the bank to the HNWI (High Net-Worth Individuals). They are those individuals who hold financial assets with a value much more significant than 1 million US dollars. Private Banking services include wealth management strategies.
Investment Banking is related to investments in the financial market. Investment Banking does the business transactions or creates capital on behalf of the corporations, individuals and governments.
The banking interview questions we are mentioning below will help you to gain enough of the knowledge of becoming an effective team leader.
Importance of Banking
- Banks provides several saving schemes which in return attract the people to save money.
- Provides secure money transactions all over the globe
- Provides loan to the agricultural sector at a very low-interest-rate that indirectly affects us.
- Generate employment for all the sectors of society
Most Frequently Asked Banking Interview Questions And Answers With Examples:
- Why do you want to join the banking sector?
- What is the bank and explain the types of banks?
- What do you mean by investment banking?
- What do you mean by commercial banking and explain its types?
- In the Banking Scenario, what are the essential needs of the Banking Industry?
- What is KYC? Why is it important?
- What is the difference between check and draft?
- Explain the types of accounts in banks?
- What documents are required for KYC?
- What are the functions of RBI?
- Explain the different ways you can operate your accounts?
- What do you mean by Money Laundering?
- What do you mean by CRR & SLR rate?
- What is ‘Crossed Cheque’? Explain
- What is the difference between APR and interest rate?
- What is the CAPM formula?
- How is beta calculated in CAPM?
- How do you calculate the rate of return on a stock?
- Explain the difference between accretion and amortization?
- What is accretion accounting?
- Explain different types of bank loans?
- What are the core banking applications?
- What is discount accretion?
- Which software is used in the banking sector?
- Explain the different types of banking software applications are available in this industry?
- What is working capital and how is it calculated?
- What are the types of working capital?
- Why Is Debt a cheaper source of finance?
- What are the advantages of equity financing over debt financing?
- Why should a company prefer equity finance to debt finance?
- What is the treasury stock method?
- How do you calculate treasury stock?
The banking sector is regarded as one of the most respected and fastest growing industry. There is growth potential in this sector from the Trainee level to the general manager level, and the most important is this sector has job security.
A bank is considered as a financial institution which deals with money matters. In a bank, customers can deposit and borrow money, and also it takes care of their financial stabilities.
There are two types of banks:-
- Retail Banking
- Business Banking
- Corporate Banking
- Private Banking
- Investment Banking
Investment Banking is related to investments in the financial market. Investment Banking does the financial transactions or creates capital on behalf of the corporations, individuals and governments. Investment Banking also assists in mergers and acquisitions.
The commercial bank includes short-term loans to small business and individuals, withdrawals and deposit of money, savings accounts, home mortgages. The money that the customer deposits in the bank is utilized by the bank to give a business loan, personal loan, mortgages and home repair loans.
Types of Commercial Banking
- Retail or consumer banking
Retail Banking service is provided by the bank for the general public and for the small businesses.
- Corporate or business banking
Business banking is the service which is provided by the bank for the large-sized and middle-sized businesses.
- Securities and Investment banking
Investment Banking does the financial transactions or creates capital, assist in mergers and acquisitions on behalf of the corporations, individuals and governments.
- Non-traditional options
There are various non-bank entities which offer financial services precisely like what the bank provides. The non-bank entities are credit card companies, credit card report agencies, etc.
This is the favorite interview question in banking interview questions.
KYC stands to know your customer. KYC is a process by which the banks get the information about their customers, i.e. the identity and address. The KYC details are taken from the customer while opening the bank accounts. KYC is received from the customer to identify the theft, to Prevent money from going to the terrorist, Money laundering and Financial fraud
Cheque and Demand draft(DD) both are used to make the payments.
|1.||It is issued by the customer||It is published by the bank|
|2.||Payment is made after depositing the cheque||Demand draft is issued after giving the money to the bank|
|3.||Signature is required in cheque||Signature is not required in DD|
|4.||It can bounce||It cannot be dishonored|
There are six types of account in banks:-
- Current Account:- This account is for people with businesses, firms, and companies. Any number of transactions or the amount of transactions customers can do in a day.
- Savings Account:- This account is used by the public for saving the money. Any person can open the account single or a joint account. The advantage of having a saving bank account is bank pays the interest on your savings.
- Recurring Deposit Account: -This account is opened when a person wants to save a certain amount of money every month and earn a high rate of interest.
- Fixed Deposit Account:- This account is opened when a person wants to put a specific amount for a particular time and get a high rate of interest.
- DMAT Account:- This account is used to perform the transactions on the shares.
- NRI Account:- This account is for the Indians who are settled out of India.
The documents required for KYC are:-
- Identity Proof:-Passport, Driving Licence, PAN Card, Voter's ID Card, Aadhaar Card
- Address proof:-Passport, Driving Licence, PAN Card, Voter's ID Card, Aadhaar Card
- Recent photograph
Point to be noted: Go through this Q&A very thoroughly as this is one of the critical banking interview questions.
Some of the functions of the RBI are:-
- RBI has a right to issue the currency notes except the One rupee note.
- RBI manages the banking requirements of the government.
- RBI supports banks with money in their financial crisis. This is called “lender of last resort.”
- RBI manages the Foreign Currency
The different ways to operate my accounts are:-
- Internet banking
- Mobile banking
- Going to the Bank
- ATM ( Automated Teller Machine)
CRR stands for cash reserve ratio, and SLR stands for statutory liquidity ratio. In CRR, some percentage of the total bank deposits must be kept in the current account with the RBI. The banks do not have permission to use that money for any commercial activity. Banks can’t use that money for investment purposes. Here, the banks don’t earn any interest on money.
In SLR, some percentage of the total bank deposits is invested in specific securities mainly the central government and the state government securities. Here the bank earns a certain amount of interest on their investment.
This is a very critical question in banking interview questions.
A crossed cheque is a check which has been passed with two parallel lines on the top left-hand corner of the check. This cheque cannot be encashed at the bank’s cash counter. This cheque can only be credited to the payee's account. The crossed cheque provides the security to the payer.
|1.||It includes the interest rate and the other costs like the broker fees||It Includes the expenditure of borrowing the principal loan amount|
|2.||Monthly payment is not based on Interest rate||Monthly payment is based on Interest rate and the principal balance amount|
CAPM stands for the Capital Asset Pricing Model. This model explains the relationship between the systematic risk and the awaited return for assets mainly stocks. CAPM is used in finance for pricing the risky securities and as a result, generating the required rate of return of an asset.
ERi = Rf + βi (ERm- Rf)
Eri = Expected return of investment or security
Rf = Risk-free rate
βi = Beta of the investment or security
ERm = Expected return of the market
(ERm - Rf) = Market risk premium
Beta measures the risks in the stocks that have been invested. If a stock is riskier than the market, then the beta will be higher than one. If a stock has less risk, then the beta will be less than one.
This is the favorite interviewer question in banking interview questions.
The rate of Return can be calculated by the formula:-
The price of Return=
|1.||It is the increase in the price of the bond as compared to the purchase price||It is the decrease in the amount of the relationship as compared to the purchase price|
The different type of loans are:-
- Secured:- A loan in which a borrower gives some asset as collateral like mortgage loan
- Unsecured:- A loan in which a borrower does not provide the assets as collateral like personal loans
- Demand:- These loans are the short term loans which do not have a fixed date of the repayment.
- Subsidized:- In these loans, the interest is reduced by the hidden subsidy
Concessional:- These loans are given at the lowest market rates.
Core stands for Centralized Online Real-time Exchange. Core banking is a banking service that has been provided by a group of networked bank branches where the customers can access their bank accounts and can also perform the necessary transactions from any of the member branch offices. This Application is for retail banking.
The banking software that is used by the banks are:-
- Finacle by Infosys.
- BaNCS by TCS.
- Flexcube by Oracle.
Some of the banking software applications are:-
- Internet banking system: This application allows the customers and the banks to do the transaction using the bank's website.
- Stock market management system: This application manages the financial portfolio like securities and bonds.
- Loan management system: This application collects all the data and maintains the track about the customers who borrow the money.
- ATM banking (Automated Teller Machine): ATM is an electronic banking machine which allows the customers to complete necessary transactions.
This is also an essential question in banking interview questions.
Working capital or net working capital is the difference between a company’s current assets such as cash, customers’ unpaid bills, inventories and the companies current liabilities like accounts payable.
Working Capital = Current Assets - Current Liabilities
Debt finance is a cheaper source of finance because of the two essential points:-
- The company gets an income tax benefit on the interest component that is paid to the lender.
- If the company becomes bankrupt, debt holders have the first claim on their company assets (collateral) which increases their security
The advantages of equity financing over debt financing are:-
- Company owner does not have to pay the fixed monthly loans
- Equity financing does not take money from the company’s cash flow.
- The Company has an opportunity to grow
Equity finance is preferred over debt finance because in Equity finance the company has more opportunity to grow in the business because the owner of the company gives equity investors an excellent return on their investment, but there are no required monthly payments associated with equity finance due to which company has no financial burden.
The treasury stock method is a process in which the companies to calculate how many additional shares can be generated from the outstanding in-the-money warrants and the options. These new shares that have been added can then be used in calculating the company’s diluted earnings per share (EPS).
Treasury Stock Method Formula:
Additional outstanding shares = Shares from the exercise – repurchased shares
Additional outstanding shares = n – (n x K / P)
Additional outstanding shares = n (1 – K/P)
In the formula:-
N = shares from the options or the exercised warrants
P = Average share price for the period
K = Average exercise share price
Solve some questions on this. This one of the vital banking interview questions.