The banking sector offers a plethora of career opportunities for both freshers and experienced professionals. However, to secure a job in this industry, one must successfully navigate through the interview process, which often includes a variety of challenging questions. This comprehensive guide will provide you with the top 27 most frequently asked banking interview questions and their answers, along with examples and tips to help you prepare effectively.
- Top 27 Mostly Asked Banking Interview Questions and Answers
- 1. Brief me about yourself
- 2. Why do you want to join the banking sector?
- 3. What are the types of accounts in a bank?
- 4. What are the necessary documents a person requires to open an account in a bank?
- 5. What are the types of Commercial Banks?
- 6. What is the annual percentage rate (APR)?
- 7. What is Amortization and negative amortization?
- 8. What is the debt to income ratio?
- 9. What is loan grading?
- 10. What do you mean by Co-Maker?
- 11. What is the line of credit?
- 12. How do banks earn a profit?
- 13. What is the payroll card?
- 14. What is the card-based payment?
- 15. What is a Payday loan?
- 16. What is a charge off?
- 17. What are the different types of loans offered by commercial banks?
- 18. What are the different types of fixed deposit?
- 19. What is a home equity loan?
- 20. What is the interbank deposit?
- 21. What are the non-performing assets of the company?
- 22. What is a credit score?
- 23. What is a bank guarantee?
- 24. What is a bank reconciliation statement?
- 25. What is the difference between a bank and a credit union?
- 26. What is the difference between a cheque and a demand draft?
- 27. What is the role of the central bank in a country?
1. Brief me about yourself
This is a common ice-breaker question that interviewers use to get to know you better. When answering, focus on your educational background, professional experience, and skills that are relevant to the banking sector. Be concise and limit your response to two minutes.
Example: “I am a finance graduate from XYZ University with a strong academic record. I have interned at ABC Bank where I gained hands-on experience in customer service and account management. I am particularly interested in the banking sector because of its dynamic nature and the opportunity it provides for continuous learning.”
2. Why do you want to join the banking sector?
This question is designed to assess your motivation and understanding of the banking industry. Highlight the aspects of banking that appeal to you, such as its growth potential, the opportunity to work with diverse clients, or the chance to make a significant impact on the economy.
Example: “I am drawn to the banking sector because of its pivotal role in the economy. I am excited by the prospect of working in a fast-paced, challenging environment that requires analytical skills and problem-solving abilities. Additionally, I believe that a career in banking will provide me with opportunities for professional growth and development.”
3. What are the types of accounts in a bank?
Banks offer various types of accounts to cater to the different needs of their customers. Here are the main types:
- Checking Account: This is a deposit account that allows for numerous withdrawals and unlimited deposits. Unlike a savings account, it does not earn interest.
- Savings Account: This account allows customers to save money and earn interest on the deposited amount. However, the number of withdrawals is limited.
- Money Market Account: This account combines the benefits of a checking and savings account. It allows for withdrawals and also earns interest. However, it requires a higher minimum balance.
- Certificate of Deposit (CD): In this account, the customer deposits money for a fixed period and earns interest on it. The funds cannot be withdrawn until the maturity date without incurring a penalty.
4. What are the necessary documents a person requires to open an account in a bank?
To open a bank account, a person needs to provide certain documents as per the Know Your Customer (KYC) guidelines. These include:
- Proof of identity (e.g., passport, driver’s license, Aadhar card, PAN card)
- Proof of address (e.g., utility bills, rental agreement)
- Recent photographs
5. What are the types of Commercial Banks?
Commercial banks can be categorized into the following types:
- Retail or Consumer Banks: These banks deal directly with consumers rather than corporations. They offer services like personal loans, credit cards, and savings accounts.
- Corporate or Business Banks: These banks provide services to corporate clients such as cash management, underwriting, and issuing of stocks and bonds.
- Non-traditional Banks: These are non-bank entities that offer financial services similar to banks, such as credit card companies and credit report agencies.
- Securities and Investment Banks: These banks manage portfolios of financial assets, corporate finance, fixed income, and equity writing.
6. What is the annual percentage rate (APR)?
The Annual Percentage Rate (APR) is the annual rate charged for borrowing or earned through an investment. It represents the actual yearly cost of funds over the term of a loan and includes any fees or additional costs associated with the transaction.
7. What is Amortization and negative amortization?
Amortization refers to the process of paying off a debt (often a loan) over time through regular payments. A portion of each payment is for interest while the remaining amount is applied towards the principal balance.
Negative amortization occurs when the payments made by a borrower are less than the interest on the loan, resulting in an increase in the loan balance. This typically happens when the borrower has a payment cap or is only making minimum payments.
8. What is the debt to income ratio?
The debt-to-income (DTI) ratio is a personal finance measure that compares the amount of debt you have to your overall income. Lenders use the DTI ratio to assess a person’s ability to manage monthly payments and repay debts. A lower DTI ratio is preferable as it indicates less risk.
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9. What is loan grading?
Loan grading is a classification system that banks use to assess the risk associated with a loan. It takes into account various factors such as the
borrower’s credit history, repayment risk, and the stability of the borrower’s income. Loans are typically graded on a scale, with lower numbers indicating less risk.
10. What do you mean by Co-Maker?
A Co-Maker, also known as a co-signer, is a person who agrees to pay a borrower’s debt if the borrower defaults on a loan obligation. The co-maker signs the loan document and effectively guarantees the loan.
11. What is the line of credit?
A line of credit is a flexible loan from a bank or financial institution. It allows a borrower to draw funds up to a specified limit at any time. The borrower only pays interest on the actual amount drawn from the line of credit.
12. How do banks earn a profit?
Banks earn profits through various means:
- Interest Spread: Banks lend money at a higher interest rate than they pay for deposits, and the difference between these rates is known as the interest spread.
- Fees and Commissions: Banks charge fees for various services such as account maintenance, ATM usage, and online bill payment.
- Investments: Banks invest in various securities and earn profits from the returns on these investments.
13. What is the payroll card?
A payroll card is a type of prepaid card onto which an employer loads an employee’s wages or salary each payday. Payroll cards are an alternative to direct deposit or paper checks. These cards are issued by major payment processors, like Visa or MasterCard.
14. What is the card-based payment?
Card-based payments are transactions that utilize a payment card, like a credit or debit card, for transferring funds from one account to another. These transactions can be made in person, online, or over the phone. They are processed through networks like Visa, MasterCard, and American Express.
15. What is a Payday loan?
A payday loan is a type of short-term borrowing where a lender will extend high-interest credit based on a borrower’s income and credit profile. These loans charge high-interest rates for short-term immediate credit. They are also called cash advance loans or check advance loans.
16. What is a charge off?
A charge-off or write-off is the declaration by a creditor (usually a credit card company) that an amount of debt is unlikely to be collected. This typically occurs when a consumer becomes severely delinquent on a debt. Traditionally, creditors will make this declaration at the point of six months without payment.
17. What are the different types of loans offered by commercial banks?
Commercial banks offer a variety of loans to cater to the needs of different customers. These include:
- Personal Loans: Unsecured loans given to individuals for personal use.
- Home Loans: Loans given to individuals who wish to purchase or build a house.
- Auto Loans: Loans given to individuals for the purchase of a vehicle.
- Education Loans: Loans provided to students to help cover the costs of higher education.
- Business Loans: Loans provided to businesses for various purposes like expansion, acquisition, capital expenditure, etc.
18. What are the different types of fixed deposit?
Fixed deposits are investment instruments offered by banks where investors can deposit money for a fixed period and earn a higher rate of interest compared to savings accounts. There are several types of fixed deposits:
- Standard Fixed Deposits: Deposit remains fixed for a specified period which is decided at the time of investment.
- Special Term Deposits: The interest is compounded quarterly and reinvested with the principal.
- Tax Saving Fixed Deposits: These are meant for individuals who want to save tax. The tenure of these deposits is 5 years and they come with tax benefits under Section 80C of the Income Tax Act.
- Senior Citizen Fixed Deposits: These are for senior citizens. They come with a higher rate of interest compared to regular fixed deposits.
19. What is a home equity loan?
A home equity loan, also known as an equity loan, a home equity installment loan, or a second mortgage, is a type of consumer debt. It allows homeowners to borrow against their home equity. The loan amount is given as a lump sum and is repaid over a fixed term, typically with a fixed interest rate.
20. What is the interbank deposit?
Interbank deposits are deposits that banks hold in other banks. These are typically short-term loans, often overnight, that banks give to each other. The rate at which these loans are given is called the interbank rate or the overnight rate.
21. What are the non-performing assets of the company?
Non-performing assets, or NPAs, are loans or advances that are in jeopardy of default. When the borrower stops making interest or principal payments on a loan for 90 days, the loan is considered to be a non-performing asset.
22. What is a credit score?
A credit score is a numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of an individual. A credit score is primarily based on a credit report, information typically sourced from credit bureaus.
23. What is a bank guarantee?
A bank guarantee is a type of financial backstop offered by a lending institution. The bank guarantee means that the lender will ensure that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it.
24. What is a bank reconciliation statement?
A bank reconciliation statement is a summary of banking and business activity that reconciles an entity’s bank account with its financial records. The statement outlines the deposits, withdrawals, and other activity impacting a bank account for a specific period.
25. What is the difference between a bank and a credit union?
The main difference between a bank and a credit union is that banks are for-profit financial institutions, while credit unions are non-profit. Banks are owned by shareholders and strive to generate profits to increase shareholder value. On the other hand, credit unions are owned and operated by their members and aim to provide high-quality financial services.
26. What is the difference between a cheque and a demand draft?
A cheque is a negotiable instrument that directs a bank to pay a specific amount from a specified transactional account held in the drawer’s name with that bank. However, a demand draft is a negotiable instrument where the drawee is a bank or a financial institution.
27. What is the role of the central bank in a country?
The central bank of a country is responsible for managing the country’s money supply, controlling interest rates, managing currency reserves, ensuring the security and integrity of the country’s financial system, and acting as a lender of last resort during times of financial crisis. It also regulates and supervises the commercial banking system of the country.
By understanding these questions and preparing thoughtful responses, you can increase your chances of performing well in your banking interview. Remember, the key to a successful interview is not just knowing the right answers, but also delivering them with confidence and professionalism. Good luck!
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