Banking Related Questions and Answers

1. What are the main functions of a commercial bank?

• Accept Deposits
• Provide Loans
• Provide locker facilities
• Dealing in foreign exchange
• Exchange of Securities

2. What is the overdraft protection service?

• Overdraft protection is a service offered by banks to their customers. In that case, the
bank will transfer money automatically from one account to another account that does
not have the cash to prevent cheque return or to clear shopping or electricity bills.

3. What are the different kinds of commercial banks?

• Public Sector Banks

• Private Sector Banks
• Foreign Banks

4. What do you understand by a commercial bank?

• A commercial bank is a type of bank that provides services such as accepting

deposits, offering checking account services, making business loans, offering basic
investment products, and offering basic financial products such as certificates of
deposit (CDs) and savings accounts for individuals and small businesses.
• The commercial bank is the most common bank where most people do their banking..

5. What are the things you should keep in mind while opening a bank account?

• Prior starting a bank account, you enter the which type of bank. You want to open a
saving account, you have to check the deposit's interest rate and whether the interest
rate remains consistent for the period. You should also check for different debit card
options banks provide when you open a new bank account. You want to open a
checking account, look how many cheques they given for free to use.

6. What do you understand by fixed APR and variable APR?

• Fixed APR: In fixed APR, the imposed interest rate will be the same throughout the
term of the loan or mortgage.
• Variable APR: In variable APR, the interest rate can be changed without notice,
according to some other factors like 'prime rate'.

7. What is investment banking?

• Investment banking is a specific division of banking used to manage portfolios of

financial assets and capital for other companies, governments, and other entities.
 • It also maintains portfolios of financial assets, commodity and currency, fixed
income, corporate finance, corporate advisory services for mergers and acquisitions,
debt and equity writing etc.

8. What are the documents required to open a bank account?

• Photographs,
• Proof of identity such as Aadhar card/ Pan Card etc.,
• Address proof for residence verification.

9. What is the prime rate used in APR?

• In some countries like the USA, the prime rate is the interest rate decided by banks for
their preferred customers, having a good credit score.
• In the variable Annual Percentage Rate, interest depends on the prime rates.

10. What is the APR in Banking?

• APR (Annual Percentage Rate) is a charge / interest that the bank imposes on their
customers for using their services like loans, credit cards, mortgage loans etc. Interest
on this service is calculated annually.

11. What are the different types of banks?

• There are several different kinds of banks, such as retail banks, commercial or
corporate banks, agricultural banks, cooperative banks, investment banks, etc.
• In most countries, the central bank of nation Government regulates all kinds of banks.
In the case of India, it is the Reserve Bank of India (RBI)

12. What do you understand by amortization and negative amortization?

• The term amortization specifies the loan repayment in installment to cover the
principal amount with interest.
• When the loan repayment is less than the loan's accumulated interest, then negative
amortization takes place. If the negative amortization occurs, it will increase the loan
amount instead of decreasing it.
• It is also called 'deferred interest'

13. What is loan grading in banking?

• Loan grading is the classification of the loan based on various risks and parameters
like repayment risk, borrowers credit history etc.
• The system places a loan on one to six categories, based on the stability and risk
associated with the loan.

14. What do you understand by the line of credit?

• The line of credit is an agreement between the bank and the person /company who
takes the loan.
 • This agreement specifies that the bank has to provide a certain amount of loans on the
borrower's demand.
• The borrower can withdraw the amount at any moment and pay the interest only on
the amount withdraws.

15. What do you understand by a foreign draft?

• A foreign draft is a bank draft established at a foreign bank and used to pay a foreign
currency transaction.
• It is an alternative to foreign currency. You can purchase a foreign draft from the
commercial banks after paying a charge according to their bank's rules and norms.
• A foreign draft is preferred for sending money as this method of sending money is
cheaper and safer.
• It is also very fast, and the receiver gets the fund quicker than a cheque or cash
transfer.

16. What is the adjustment credit?

• In the USA, an adjustment credit is a short-term loan provided by the Federal Reserve
Bank to a smaller commercial bank when it needs to maintain reserve requirements
and support short term lending when they are short of cash.
• The commercial banks secure adjustment credits with promissory notes when interest
rates are high, and the money supply is short.

17. What do you understand by consumer bank?

• Consumer banks are newly introduced in the banking sector in some countries like the
USA and Germany.
• These banks provide loans to their customers to buy a TV, Car, furniture, consumer
electronics etc. and provide a simple option of easy payment through easy and small
installments.

18. What is a balloon payment?

• The balloon payment is the final lump sum payment that is due.
• When the entire loan payment is not amortized within the loan's specified time, the
remaining balance is due as the final repayment to the lender.
• A balloon payment can occur within an adjustable-rate or fixed-rate mortgage.

19. What are the different ways to operate a bank account?

• Branch or Over the counter service

• Telephone or Mobile banking
• Internet banking
• ATM ( Automated Teller Machine) etc.

20. What is the debt to income ratio?

• The debt to income ratio is your monthly debt payments divided by your gross
monthly income.
 • It is calculated by dividing a loan applicant's total monthly debt payment by his
monthly gross income.

21. What is the definition of a bank?

• Bank is a financial institution licensed by the Government to receive deposits and

provide loans to their customers.
• Banks provide many other financial services such as wealth management, currency
exchange, and safe deposit boxes or security boxes to keep your jewelry and other
invaluable assets safe.

22. What do you understand by debt-to-income ratio?

• The debt-to-income ratio is calculated by all your monthly debt payments divided by
your gross monthly income.
• This is used to measure your ability to manage the monthly payments to repay the
money you want to borrow.

23. What are the different types of banking software applications available in the Indian
Banking Industry?

• Core Banking System

• ATM banking (Automated Teller Machine)
• Internet Banking System
• Loan Management System
• Credit Management System
• Investment Management System
• Stock market Management System
• Financial Management System

24. What are the different types of accounts in banks?

• Savings accounts
• Checking accounts
• Money market accounts
• Certificates of deposit (CDs)
• Retirement accounts

25. What is the difference between the cheque and demand draft?

• Cheque and demand draft are used to transfer an amount between two accounts of the
same or different bank.
• But, there is a key difference between them.
• Cheques can only be issued by an individual who holds the account in a bank.

26. What is a credit check?

• A credit check is also known as a credit search.

• It is done by the bank when they have to check your credit report to understand your
financial behavior.
 • It is done to ensure that an individual is capable enough to meet the financial
obligation for its business/ any other monetary transaction.

27. What do you understand by inter-bank deposit?

• When you deposit an amount in one bank meant for another bank, this process is an
inter-bank deposit.
• The bank for which you deposited the money is referred to as the correspondent bank.

28. How banks make a profit?

• Additional charges on services like annual maintenance charges, online bill payment
charges etc.
• Banking Value chain
• Interest spread
• By accepting deposits from the customers
• By providing funds to borrowers on interest

29. What do you understand by credit-netting?

• Credit netting is a system used to reduce credit checks on a financial transaction.

• This agreement is very common among large financial firms and other financial
institutions.
• It contains all the future and current transaction into one agreement, removing the
need for credit cheques on each transaction and making the transactions effectively
combined.

30. What do you understand by the term Co-Maker?

• When a person takes a loan, he may have to take a guarantee with him.
• The person who signs a note to guarantee the loan's payment on behalf of the main
loan applicant is called a co-maker or a signer.