Saturday, January 1, 2011
Sunday, December 26, 2010
Interview Questions/Suggested Answers for the benefit of Persons appearing in Interviews for Jobs in Banking/Insurance/Mutual Funds
Interview Questions/Suggested Answers for the benefit of Persons appearing in Interviews for Jobs in Banking/Insurance/Mutual Funds
General
Q1.Please tell me about yourself?
A. My name is -----------.I have studied up to-----------from ---------college/University. Presently I am looking for a suitable opening/preparing for competitive examinations/studying at-----------. (Or list any other activity you are engaged in at present for example enrolled in IFBNI course for developing my skills suitable opening in Banking/Financial Services/Insurance business.)
Q2.Please tell me about your family?
A. MY father is a businessman/ Teacher /banker/Govt. Officer/Employee/Working in a corporation/Pvt. Service. My mother is a Housewife/ working in----------. I have one/two brothers/one / two sisters.
Q. When your father is retiring/ what are his future plans?
A. He is still in job/ service and has no immediate retirement plans. He proposes to remain active for quite some time but has as yet not finalized his retirement plans.
Q. What you have learnt from your father/ mother?
A. I have learnt from my father the value of honesty, integrity and sincerity to the job. My mother has taught me the value of patience and tolerance.
Q3. Why do not you join family business?
A. It is a small scale business and it does not require my presence. Moreover I am interested to make an independent career.
Q. Why do you join Banking/ Financial Services/Insurance?
The Banking/ Financial Services Sector is booming and offers immense avenues for growth. I learn this sector is growing at a rate of 25% and a number of opportunities are likely to emerge for the right candidates. I think by joining this industry my career will be secured and I can rise if I put in hard work and prove a success.
Q4.Why do you want this job? What makes you think that you are fit for the job? Why we should we hire you? What is special in you? Why should not hire someone else? Why you only?
A. I am the most suitable person for this job. I understand that you require persons of integrity who are capable of putting hard work and are sincere and with high level of commitment to the organization. I think I fulfill all of your requirements and will prove a good addition to your work force.
Q5. The job is very challenging/ difficult/ involves sales and long hours of work. Can you handle the job stress? Can you work under pressure?
A. Yes, I can. I know that this job is quite challenging and requires a lot of efforts to succeed. I am mentally and physically ready and willing to put in my best efforts to make it a success. I will not give you a chance of complaint. As regards sales portion is concerned, all jobs involve some kind of targets/budgets and one has to be ready and willing to work for the growth of the organization. My training at IFBi has taught me to work under difficult circumstances. We were required to complete the Exercises/Assignments in a short time on the spot and accurately. I have become stronger and capable of performing under pressure.
Q6.How you can contribute to the organization? What do you look for in this job?
A. I think the job involves dealing with the customers and I am very well poised for customer inter-action. If the customer’s needs are satisfied and are well attended to, the business automatically increases. It is my belief that one satisfied customer brings more customers and one dissatisfied customer takes away many. I am a very cool and calm person and can handle difficult situations.
Q. Suppose you are posted with in a back office which has nothing to do with the customers how well are you prepared for working long hours?
A I am a very hardworking person and physically well. I can put in long hours and contribute the organization in whatever capacity I work.
Q7 . What are your successes/ strong points?
A. I have contributed immensely to ------------club/society/ or organized ---------(event) successfully.
B. I am a man of integrity and you can rely upon me for any job. I have a deep sense of commitment and willingness to accomplish any task. In the past I have successfully handled many family commitments which give me a felling that given a chance I can deal with any situation. ( You can narrate anything special which you have handled successfully).
Q8.What are your weak points/failures?
A. I speak the truth which lands me in difficulty sometimes , since I am straightforward. I have now learnt to be a little more tactful, diplomatic and practical without diluting my beliefs and view about things / or persons.
ii. Another weakness about me was to delay the things/ getting up late in the morning but now that bad habit I have also overcome. In IFBI I was required to be in the class at 8 A.M. and complete my assignments in time leaving little time for delay or postponement.
Q9. What else have you learnt from IFBI?
A. I have learnt punctuality, discipline , value of hardwork, spirit of competition and will to succeed under any circumstances.
Q.10 what are your interests outside your work?
I like playing--------( any Game) / acting in plays/ drama/ poetry/music/debates/watching TV/ films.
(Do not lie. Speak the truth. You are most likely to be probed further on whatever you say. Always be ready to substantiate whatever you say.
Q11. Where do you see 3-5 years hence?
A I see myself as a successful banker with proven track record ready to shoulder higher responsibility.
Q12. What is important to you i.Higher salary i)Recgnition or pat on your back or iii) more monetary/ other benefits?
A. More salary is always welcome bur really matters, is the job satisfaction. If you are happy in your job and seniors appreciate your work, it is more than enough. Higher salary always follows if you perform well.
Q13 How long you hope to continue with our organization?
A. I have plans of a long term commitment. I hope to do well and can continue for long in case my contribution is well recognized.
Q14.. What are the decisions you find difficult to take?
A. Such a situation has not arisen so far. I have been ably guided by my family to take the correct and timely decisions. In future if the difficult decisions are required to be taken I will definitely seek the guidance of my parents/ seniors/ friends/ responsible persons who can help me if the need arises.
Q15. What do you know about our organization?
A.It is a highly reputed organization with proven track record and it offers a great career for the most deserving candidates.( Pleae see the Website of the Bank/Company and know more about the bank/company before going for the interview. You should know when it was set up. Number of Offices/ level of business handled/ number of employees or any other useful / important information )
Banking
Banking means accepting Deposits for the purpose of Lending withdrawable by cash, cheque or otherwise.
Saving Bank Deposits
Saving Bank Deposits enable the customers to store their surplus funds which are not needed for use. SB accounts are for the benefits of individual customers and not for business organizations. With effect from 1.7.2010 the Banks are required to pay interest on SB balances on daily product basis. Banks also put conditions like maintenance of Minimum Balance in SB accounts. Salary Accounts are generally free from such restrictions . No TDS is deducted on interest paid on these balances.
Current Accounts
Current Accounts are opened for meeting the business needs of the customers. However Self Employed professionals like Chartered Accountants/Lawyers or other individuals can also open Current Accounts if required. No interest is paid on such deposit accounts. There is no restriction on number of withdrawals. Banks sometimes also allow Overdrafts in such accounts in their discretion depending upon the credit worthiness of the account holders.
Fixed Deposit Accounts
Fixed Deposit Accounts are opened for a fixed period of time on a fixed rate of interest in the names of account holders. Interest is paid on quarterly basis. Monthly interest can also be paid if the customer so requires. Fixed Deposits period can range from 7 days to 10 years. Fixed Deposits cannot be issued for a period of more than 10 years as RBI directives.
If the quarterly interest is not paid to the depositor and is reinvested the Fixed Deposit is called Cumulative Deposit or Special Term Deposit. In such cases the interest gets compounded on quarterly basis and the entire sum of Principal amount and Interest is paid on maturity. TDS is deducted @10% if PAN No. is provided or else @ 20% IF PAN NO. is not provided to the BANK as per rules.
Now the RBI has permitted the Banks to issue Fixed Deposit Receipts on Floating Rate of Interest but the Depositors are not going for such schemes at present. In such cases the Rate of interest is not fixed but keeps on changing quarterly . It is linked to some benchmark rate. The customers will benefit only if the fixed Deposit rates are rising as they can get higher rate without breaking their existing FDRs.
Flexi Deposits
Now a days the Banks have started accepting Deposits under Flexi Deposits Scheme in terms of which some portion of SB balance is transferred to Fixed Deposit automatically as desired by the customer attracting Fixed Deposit Rate of Interest. However if the customer wishes to withdraw the amount from the SB account the same is allowed by breaking the Fixed Deposit Portion automatically. The interest is paid for the period the Deposit remained with the Bank. In such cases no Fixed Deposit Receipt is issued. Only Statement of account/Passbook is issued. TDS is deducted as per rules.
Recurring Deposits
These Deposits are in the nature of Fixed Deposits and designed for the benefit of those customers who wish to save small amount regularly every month for a long period ranging from 6 months to 10 years. Interest is paid on maturity along with the Principal amount deposited by the Customer. No TDS is deducted by the Bank on interest earned on these deposits.
Retail Loans
Retails are given to individuals for purchase of House/Car/Meeting Hospitalization Expenses/Travel in India or Abroad/ buying consumer durables or personal consumption. Interest is charged on these loans by the Banks recoverable in installments along with the Principal Amount lent in easy monthly installments generally called EMI.
In cases like Home Loans the installments start a few months later also if the Home is to be constructed. The intervening period between the grant of Loan and Start of Emi is called Moratorium Period.
Retail Loans are very helpful to the individuals improve their quality of lie. Retail Loans also help economic Growth by increasing demand for cars/two wheelers/ flats/consumer durables lie TV/Fridge etc. thereby increasing production and employment.
Credit Cards
Credit Cards are generally issued by Banks and the customer can use these cards for purchase of goods and services. The amount up to which the customer can make purchases or withdrawals is called the Credit Limit. The customer gets a monthly statement of account from the Card Issuer and is required to pay the Amount Due within the specified period without payment of any interest. If the Bill Amount is not paid before the due date the customer is required to pay heavy interest on the outstanding balance. The credit Card is also called plastic Money.
Debit Cards
In case of Debit cards the amount withdrawn from ATM or purchase amount in respect of goods and services purchased is debited to the customer’s account promptly. No statement is issued by the Card issuer and no interest is charged because no overdraft is created in such cases. It is also called Plastic money.
Overdrafts
Times the customers need overdrafts to tide over some temporary need of funds.
While the Businessmen can get an Overdraft Limit sanctioned in their favor based on their creditworthiness, the individuals or businessmen also get an overdraft limit sanctioned against the security of their Fixed Deposits with Bank or Pledge of Other Govt. securities/Postal securities like NSC etc./Life Insurance Policies etc. The Overdraft is adjusted by liquidating these securities if the customers do not pay back the overdraft amount on demand. Overdraft Account sometimes remains in credit and sometimes in debit.
Cash Credit
To meet the Working Capital Requirements of the Businessmen the Banks grant Cash Credit Facility against the security of Hypothecation of their Stocks consisting of Raw Material/Semi Finished/Finished goods/Receivables. Cash Credit Account is just like a Current Account and the customers are free to withdraw the money from the account for their business needs. The Limit is set depending upon the requirement for working Capital and the customers are required to furnish a statement of the Stocks held by them every month. The Drawing power is set every month on the basis of actual stock held leaving a prescribed margin within the sanctioned Limit. thCash credit Account almost always remains in debit.
Packing Credit
Packing Credit is just a variation of Cash credit. The Exporters are given financial assistance for executing export orders and the each Packing Credit is got adjusted after the actual export takes place/ export proceeds are received from the foreign country. Now a days the Banks have set up Packing Credit limits under which the Exporters keep withdrawing funds for processing export orders and the Sale Proceeds are deposited in such accounts. It is the duty of the Banks to ensure that the Packing Credit Limits are used only for processing Export Orders and the Sale Proceeds are in fact receive from abroad. The reason being that the Banks charge Reduced Rate of interest on such accounts as per Govt.Policy to increase Exports.
Cheque Purchase / Bill Purchase / Bill Discount
Sometimes the Banks purchase Cheques /Bills drawn on other banks in India or abroad to give immediate payment to the customer in case the customer so desires. The Banks charge commission for this service and also the interest for the period they remain out of funds. This facility is extended to important customers who are well known to the bank. In case the cheque is received unpaid the entire amount is recovered from the customer. Similarly the Demand Bills are also purchased from the Traders for the goods supplied to their customers. The Bill Amount is recovered from the drawee on presentation.
In case of Usance Bills which are payable after a time say 90/180 days later, these bills are discounted and instant credit is given to the customer. The Bank charges interest for the period it remains out of funds i.e. till the amount is recovered from the drawee.
Cheque
In common parlance the Cheque can be referred as a substitute for cash . One can make payments for goods and services by issuing a cheque or withdrawal of cash from the bank account. The cheque is always drawn on a Bank where the individual has an account. The person receiving the cheque can receive the cash from the concerned bank.If the issuer so desires that the payment of the cheque should not be made in cash to the receiver, he can draw two transverse lines across the cheque on its left corner (preferably). It is called CROSSING. The payment of the crossed cheque can be made by credit into the account of the payee or the person who has become the lawful owner of the cheque.
In Banking parlance, A cheque is defined as a bill of exchange drawn on bank issued by the customer instructing the bank to pay a specified amount to the person named in the cheque or the bearer of the cheque. If the cheque bears two transverse lines across it is called a crossed cheque and the payment of such cheques can not be made in cash over the counter. It can be collected by another banker and the amount is credited in the account of the customer. However the customer can transfer this cheque to another person just by signing on the reverse by writing the words Pay To------. It is called an Endorsement.
Account Payee crossed cheques (i.e. the cheques where the cheque bears two transverse lines with the words A/C Payee only), cannot be endorsed to anybody else. The payment of such cheques can be made only to the named payee that too in his account only.
Pay Order/Banker cheque
A Pay Order/Banker Cheque is a cheque issued by a bank on itself. Both the drawer and drawee is the same bank, in fact, the same branch of the bank. A bank issues PO after receipt of the money from the applicant on payment of a commission. Payment of the Pay Order/Banker Cheque cannot be stopped as the same is issued after receipt of money from the customer. Pay Order can be issued for any amount by debiting the account of the customer as per his mandate but the PAY ORDER for Rs. 500000 or above cannot be issued by depositing of CASH at the counter. However the Pay Order upto Rs.50000 can be issued by accepting cash at the counter.
Demand Draft
Draft is a cheque issued by a bank drawn on another branch of the same bank while the Pay Order is issued on the same branch. The draft is issued on receipt of money and hence the payment of the draft cannot be stopped. The Demand draft cannot be payable to the bearer, it assumes the character of a currency note. As per rules only RBI is permitted to issue Currency Notes.
Like Pay Order the Demand Draft can be issued against Cash Receipt upto Rs.50000 only. If the customer wants a draft for Rs.50000or above he has to deposit the cash into his account and the draft will be issued by debiting the account.
Multi City Cheques
Generally the cheques are payable at the branch where the customer maintains his account. Now a days the Banks have started paying the cheques at all branches of the bank. To some extent the use of drafts is becoming less& less due to this facility.
NEFT( National Electric Fund Transfer)
National electronic Fund Transfer is a facility for electronic transfer of funds up to Rs.2 Lacs to accounts in other banks. Generally it takes one/two working days to get the funds transferred. The transfer of funds is completed through the RBI with whom all banks maintain their accounts with banks. The Paying Bank after debiting the account of the customer will inform the RBI electronically to debit their account of the Customer’s Bank and credit the account of the Payee in the other Bank.
RTGS( Real Time Gross Settlement System)
RTGS is a system to settle inter-bank and customer transactions electronically, on a gross settlement basis. It is just like NEFT for transfer of funds exceeding Rs.2 Lacs. The RTGS message containing the full details of the remitter and beneficiary of funds is sent to RBI electronically and the RTGS transactions are completed within a few hours.The transfer of funds from one bank account to another bank account takes place on the same day.
Clean Note Policy
RBI has given the following directions to the Banks and the general Public for ensuring that the quality of Currency Notes always remains good and dirty / torn notes are nor circulated in the market:
-Do not staple currency notes
-Do not write/put any rubber stamp or any other mark on the bank notes.
-Store the currency Notes safely to prevent any damage.
KYC Norms
KYC means Know Your Customer. It means that the Bank is supposed to verify the Identity and Address of the account holder to prevent opening of benami/fraudulent accounts.The Bank must obtain documentary proof of the identity of the customer and his residential address and ensure that these are correct. The Bank must ask the purpose of opening the account and the Bank Officials must interview the customer and obtain information on sources of funds, business activities, turnover etc. After opening the account the transactions are also required to be monitored to check any suspicious/ fraudulent transactions. Therefore the Bank officials must meet the person at his communication address or residence/office or branch in case of SB account, taking signatures of the customer in own presence ,and verify the copies of the ID/Address proof documents after seeing the originals only.
Importance of KYC Compliance
-Preserving Bank’s reputation
-Preventing the bank from being used for money laundering.
-RBI can penalize the Bank for non-observance of KYC norms
Pillars of KYC Guidelines
1.Customer Acceptance
The Bank can refuse to open the account of any individual in its discretion. For example the Criminals or bad character persons cannot force the bank to open the account.
2.Customer identification
The Bank can specify what documents are required for ID Proof or Address proof. However these are to be uniformly followed for all customers. Generally the Banks prescribe these documents and display the same on its website or prominently in the Banking Hall of the branches.
3.Monitoring of Account Operations
In the newly opened accounts there are more chances of a fraudulent transaction. The fraudulent customers deposit bogus/fake cheques/drafts in the bank for collection and withdraw the amount immediately leaving no trail for finding their whereabouts because they open the account by providing fake ID/Address Proof. Therefore the Banks have to be very cautious while accepting the new customers.
Anti-Money Laundering
Money Laundering means cleaning of money. It is the practice of engaging in a specific transaction to conceal the identity or source and / or destination of money.
Anti –Money Laundering measures ensure that the no tainted money should pass through the banking channels.
The tainted money means proceeds of Crime or Tax Evasion or Money likely to be used for anti-national activities like Acts of Terrorism etc.
It can also be described as Grey/Dirty/Hot Money explained as hereunder:
Grey: Money arising out of illegal activity, e,g. Tax Evasion/black money
Dirty: money out of criminal activity e.g. sale of narcotic drugs
Hot: Capital flight between nations comprising of Legal, Grey & Dirty Money.
Three Stages of Money Laundering
1. Placement: Initial point of entry for funds derived from any criminal activities
2. Layering. Creation of a complex network of transactions which attempts to hide the link between the entry point the end of the laundry cycle.
3. Integration: Return of funds to the legitimate economy for later extraction
"Negotiable instrument".-[(1) A "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer.
Explanation (i).- A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable.
Explanation (ii).- A promissory note, bill of exchange or cheque is payable to bearer which is expressed to be so payable or on which the only or last endorsements is an endorsement is an endorsement in blank.
Explanation (iii) Where a promissory note, bill of exchange or cheque, either originally or by endorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option.]
Negotiation.- When a promise note, bill of exchange or cheque is transferred to any person, so as to continue the person the holder thereof, the instrument is said to be negotiated.
A promissory note, bill of exchange or cheque payable to bearer is negotiable by the deliver thereof.
Illustrations
A sign instrument in the following terms:
(a) "I promise to pay B on order Rs. 500".
(b) "I acknowledge myself to be indebted to B in Rs. 1, 000, to be paid on demand, for value received."
(c) "Mr. B, I.O.U Rs. 1,000."
(d) "I promise to pay B Rs. 500 and all other sums which shall be due to him."
(e) I promise to pay B Rs. 500 first deducting there out any money which he may owe me."
(f) "I promise to pay B Rs. 500 seven days after my marriage with C."
(g) "I promise to pay B Rs. 500 on D's death, provided D leaves me enough to pay that sum,"
(h) "I promise to pay B Rs. 500 and to deliver to him my black horse on 1st January next."
The instruments respectively marked (a) and (b) are promissory notes. The instruments respectively marked (c), (d), (e), (f), (g) and (h) are not promissory notes.
"Payment in due course".-"Payment in due course" means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.
Endorsement.- When the marker or holder of an negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, one the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paperintended to be completed as a negotiable instrument, he is said to indorse the same, and is called the endorser.
Where amount is stated differently in figures and words.- If the amount undertaken or ordered to be paid is stated differently in figures and in words, the amount stated in words shall be the amount undertaken or ordered to be paid.
Systematic risk, sometimes called Market Risk, aggregate risk, or undiversifiable risk, is the risk associated with aggregate market returns.BETA is called the measure of systematic risk.
By contrast, unsystematic risk, sometimes called specific risk, residual risk, or diversifiable risk, is the company-specific or industry-specific risk in a portfolio
Unsystematic risk can be mitigated through diversification ystematic risk can not be mitigated.
ALFA
ALFA is the indication of the Fund Manager’s Performance. Positive ALFA is indicative of Out-Performance by the fund manager while negative alfa measures the under-performance of the fund manager. For example if the Market Returns of a similar scheme/ portfolio are 8% and and a particular fund manager is able to register 10% returns, it means that the ALFA Returns are 2%..(10-8=2%). Alfa Returns are more relevant for comparing the various Fund Managers’ Performance investing in the similar schemes.
Beta
What Does Beta Mean?
A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used to calculate the expected return of an asset based on its beta and expected market returns..
A beta of 1 indicates that the security's price will move with the market.
A beta of less than 1 means that the security will be less volatile than the market.
A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.
Many stocks have a beta of less than 1. Conversely, most high-tech stocks have a beta of greater than 1, offering the possibility of a higher rate of return, but also posing more risk.
Beta is a measure of Systematic Risk. It is the risk associated with the market and cannot be diversified. It measures the movement of the a particular scrip/portfolio in relation to the Market.
SHARPE RATIO
Sharpe Ratio is effectively the risk premium per unit of risk. An investor can invest in Fixed Deposit Scheme of a Bank( or investment in any Govt. Security) and earn a RISK FREE Return of 8% say RF. Through investing in a Mutual Fund Scheme the investor can earn a higher return say Rs. The difference between the two returns ie. Rs-RF is called the Risk Premium. It is the Premium that the investor has earned for the risk taken,as compared to Bank’s risk free return.
SHARPE RATIO uses Standard Deviation as a measure of risk. It is calculated as
(Rs-RF)/ Standard Deviation.. For example , if the Risk Free Rate is 8% and the Return of a Mutual Fund scheme is 10% with Standard Deviation of 0.5%. The SHARPE RATIO will be 10-8=2/0.5%=4%. The higher the SHARPE RATIO the better the performance of the scheme. The care should be taken to compare two similar schemes. Ie compare oranges with oranges and apples with apples.
TREYNOR RATIO
Like Sharpe Ratio this ratio also measures the risk premium per unit.
Here the denominator is used as BETA and not the Standard Deviation. In the above example if the BETA is 1.2 then the Treynor ratio will be
10-8=2/1.2=2.5%
Higher the Treynor ratio the better is the performance. Since the concept of Beta is more relevant to diversified schemes the Treynor Ratio is ideally suited to comparing the performance of Diversified Schemes.
Moral Hazards in Life Insurance Business
Why Grandson cannot take insurance policy for his Grandfather while the Grandfather can take policy for his Grandson? Or Similarly or such similar relatives where the insurer may take less care of the insured with a view to benefitting from the claim under the policy. This is because of the Term Moral Hazard in Insurance.
A term used to describe a subjective hazard that tends to increase the probable frequency or severity of loss due to an insured peril. Moral hazard is measured by the character of the insured and the circumstances surrounding the subject of the insurance, especially the extent of potential loss or gain to the insured in case of loss. For example, insurance on a thriving business is not subject to a moral hazard to as great an extent as insurance on an unprofitable business. On the other hand, an insured with high moral standards may pose less of a moral hazard even with an unprofitable business than an insured with low moral standards. Moral hazards are considered when underwriting insurance, particularly fire insurance, and are also addressed by certain policy exclusions. For example, underwriters are hesitant to insure vacant and unoccupied buildings because of the possibility that an insured will be tempted to intentionally start a fire to obtain an insurance recovery.
Why Grandson cannot seek insurance policy for his Grandfather or such relatives where the beneficiary is set to gain by the death of the insured.
What is Bancaassurance?
The Insurance Business undertaken by the Banks is called Bancassurance.
What is the Savings Bank Interest? Who sets it?
The SB rate is 3.5% at present. The RBI regulates the SB interest Rate.
How is the SB interest calculated?
The interest on Savings Balances is calculated on the basis of Daily Product Basis
(ie outstanding balance at the end of each day of the month) . The interest is however paid on half yearly basis at the end of June/December each year.
Who sets the Fixed Deposit Rate.
Each Bank sets its own rate for the Fixed Deposits.
Is interest from Fixed Deposits/SB deposits/Recurring Deposits taxable?
Yes. The entire interest Income earned from the Bank is taxable but no TDS is deducted on interest earned on SB/Recurring Deposits.
What is Bill Pay Facility?
The Utility Bills that can be paid through the Banks is referred to as the Bill Pay Facility. The utility Bills can be Telephone bill/ Mobile Bill/Electricity bill/Insurance Premium etc.. The customer need not remember the Due Date of the Bill. The Bill Issuer sends the Bill directly to the Bank with a copy to the customer. The bill is paid by the Bank automatically by debiting the account of the customer. However the customer has to give AUTO PAY instructions to the Bank for direct debit of the account on presentation of the bill. The customer can also make the Payment ONLINE through INTERNET Banking facility. The receipt is generated online. The benefit to the customer is that the payment is made without any hassle and without visiting the offices of the Utility Provider.
What is the Fund Transfer Facility?
The facility of Funds Transfer from the account of one individual to the account of the other individual in another ban/branch is called Fund Transfer. The Funds can be transferred in two ways by using Paper Based mode or Electronic Transfers.
1.Paper Based : Demand Drafts or Pay Order/ Banker Cheque
2.Electronic transfers e.g. NEFT OR RTGS
What charges apply for ATM usage?
The ATM card holder can withdraw money from the ATM of any Bank upto FIVE times in a month beyond which he will be charged Rs.20 for the withdrawal on each occasion. However all withdrawals from the ATM of Card Issuer Bank are free to any number of times.
What is the difference between a Credit Card and a Debit Card?
In the case of debit card the money can be withdrawn up to the Balance in the account but in case of credit Card the money can be withdrawn up to the credit Limit set b the Card Issuer Bank. In the case of Debit no interest is charged to the customer because the amount is immediately debited to the account and no monthly statement is issued. In case of Credit Card the monthly bill is sent to the customer and interest is charged after the due date of the payment of the bill.
What are the Roles of RBI?
Primarily the RBI performs the following roles.
As issuer of currency
As banker to the government
As banker to other banks
As controller of money supply and credit
As exchange manager and controller
As publisher of monetary data and other data
Who Issues Coins?
The Issue Deptt. Of RBI issues the coins on behalf of the Central Govt.
Who issues currency Nores?
The Issue Deptt. Of RBi issues the Currency Notes. It is the liability of the RBi but the same is guaranteed by the Central Bank.
What is AML?
AML is Anti Money Laundering . It is aimed at ensuring that no tainted money passes through the Banking System.
What documents are acceptable for KYC?
Documentation required are:
Identity proof
Proof of communication address
Self cheque or cash deposit for which the customer has to personally visit the branch
Permanent Account Number (PAN) or form 60/61
What is a No Frill Account?
No Frill Account can be opened by those individuals who are unable to complete detailed KYC formalities like providing Identity/Address proof. Such individuals can open Bank Account just by giving Introduction of some existing Account Holder of the Bank. However the Balance in such accounts cannot exceed Rs.50000 and the total transactions cannot exceed Rs.100000 in a year. If this requirement is not met the account takes the shape of Normal Account and all KYC guidelines are to be followed.
Is nomination facility compulsory?
No, It is optional. However the customer is strongly advised to avail nomination facility to avoid unnecessary hassles in case of death of the account holder.
Are Foreign Banks governed by RBI?
Yes. All Banks operating in India are required to strictly follow RBI guidelines.
General
Q1.Please tell me about yourself?
A. My name is -----------.I have studied up to-----------from ---------college/University. Presently I am looking for a suitable opening/preparing for competitive examinations/studying at-----------. (Or list any other activity you are engaged in at present for example enrolled in IFBNI course for developing my skills suitable opening in Banking/Financial Services/Insurance business.)
Q2.Please tell me about your family?
A. MY father is a businessman/ Teacher /banker/Govt. Officer/Employee/Working in a corporation/Pvt. Service. My mother is a Housewife/ working in----------. I have one/two brothers/one / two sisters.
Q. When your father is retiring/ what are his future plans?
A. He is still in job/ service and has no immediate retirement plans. He proposes to remain active for quite some time but has as yet not finalized his retirement plans.
Q. What you have learnt from your father/ mother?
A. I have learnt from my father the value of honesty, integrity and sincerity to the job. My mother has taught me the value of patience and tolerance.
Q3. Why do not you join family business?
A. It is a small scale business and it does not require my presence. Moreover I am interested to make an independent career.
Q. Why do you join Banking/ Financial Services/Insurance?
The Banking/ Financial Services Sector is booming and offers immense avenues for growth. I learn this sector is growing at a rate of 25% and a number of opportunities are likely to emerge for the right candidates. I think by joining this industry my career will be secured and I can rise if I put in hard work and prove a success.
Q4.Why do you want this job? What makes you think that you are fit for the job? Why we should we hire you? What is special in you? Why should not hire someone else? Why you only?
A. I am the most suitable person for this job. I understand that you require persons of integrity who are capable of putting hard work and are sincere and with high level of commitment to the organization. I think I fulfill all of your requirements and will prove a good addition to your work force.
Q5. The job is very challenging/ difficult/ involves sales and long hours of work. Can you handle the job stress? Can you work under pressure?
A. Yes, I can. I know that this job is quite challenging and requires a lot of efforts to succeed. I am mentally and physically ready and willing to put in my best efforts to make it a success. I will not give you a chance of complaint. As regards sales portion is concerned, all jobs involve some kind of targets/budgets and one has to be ready and willing to work for the growth of the organization. My training at IFBi has taught me to work under difficult circumstances. We were required to complete the Exercises/Assignments in a short time on the spot and accurately. I have become stronger and capable of performing under pressure.
Q6.How you can contribute to the organization? What do you look for in this job?
A. I think the job involves dealing with the customers and I am very well poised for customer inter-action. If the customer’s needs are satisfied and are well attended to, the business automatically increases. It is my belief that one satisfied customer brings more customers and one dissatisfied customer takes away many. I am a very cool and calm person and can handle difficult situations.
Q. Suppose you are posted with in a back office which has nothing to do with the customers how well are you prepared for working long hours?
A I am a very hardworking person and physically well. I can put in long hours and contribute the organization in whatever capacity I work.
Q7 . What are your successes/ strong points?
A. I have contributed immensely to ------------club/society/ or organized ---------(event) successfully.
B. I am a man of integrity and you can rely upon me for any job. I have a deep sense of commitment and willingness to accomplish any task. In the past I have successfully handled many family commitments which give me a felling that given a chance I can deal with any situation. ( You can narrate anything special which you have handled successfully).
Q8.What are your weak points/failures?
A. I speak the truth which lands me in difficulty sometimes , since I am straightforward. I have now learnt to be a little more tactful, diplomatic and practical without diluting my beliefs and view about things / or persons.
ii. Another weakness about me was to delay the things/ getting up late in the morning but now that bad habit I have also overcome. In IFBI I was required to be in the class at 8 A.M. and complete my assignments in time leaving little time for delay or postponement.
Q9. What else have you learnt from IFBI?
A. I have learnt punctuality, discipline , value of hardwork, spirit of competition and will to succeed under any circumstances.
Q.10 what are your interests outside your work?
I like playing--------( any Game) / acting in plays/ drama/ poetry/music/debates/watching TV/ films.
(Do not lie. Speak the truth. You are most likely to be probed further on whatever you say. Always be ready to substantiate whatever you say.
Q11. Where do you see 3-5 years hence?
A I see myself as a successful banker with proven track record ready to shoulder higher responsibility.
Q12. What is important to you i.Higher salary i)Recgnition or pat on your back or iii) more monetary/ other benefits?
A. More salary is always welcome bur really matters, is the job satisfaction. If you are happy in your job and seniors appreciate your work, it is more than enough. Higher salary always follows if you perform well.
Q13 How long you hope to continue with our organization?
A. I have plans of a long term commitment. I hope to do well and can continue for long in case my contribution is well recognized.
Q14.. What are the decisions you find difficult to take?
A. Such a situation has not arisen so far. I have been ably guided by my family to take the correct and timely decisions. In future if the difficult decisions are required to be taken I will definitely seek the guidance of my parents/ seniors/ friends/ responsible persons who can help me if the need arises.
Q15. What do you know about our organization?
A.It is a highly reputed organization with proven track record and it offers a great career for the most deserving candidates.( Pleae see the Website of the Bank/Company and know more about the bank/company before going for the interview. You should know when it was set up. Number of Offices/ level of business handled/ number of employees or any other useful / important information )
Banking
Banking means accepting Deposits for the purpose of Lending withdrawable by cash, cheque or otherwise.
Saving Bank Deposits
Saving Bank Deposits enable the customers to store their surplus funds which are not needed for use. SB accounts are for the benefits of individual customers and not for business organizations. With effect from 1.7.2010 the Banks are required to pay interest on SB balances on daily product basis. Banks also put conditions like maintenance of Minimum Balance in SB accounts. Salary Accounts are generally free from such restrictions . No TDS is deducted on interest paid on these balances.
Current Accounts
Current Accounts are opened for meeting the business needs of the customers. However Self Employed professionals like Chartered Accountants/Lawyers or other individuals can also open Current Accounts if required. No interest is paid on such deposit accounts. There is no restriction on number of withdrawals. Banks sometimes also allow Overdrafts in such accounts in their discretion depending upon the credit worthiness of the account holders.
Fixed Deposit Accounts
Fixed Deposit Accounts are opened for a fixed period of time on a fixed rate of interest in the names of account holders. Interest is paid on quarterly basis. Monthly interest can also be paid if the customer so requires. Fixed Deposits period can range from 7 days to 10 years. Fixed Deposits cannot be issued for a period of more than 10 years as RBI directives.
If the quarterly interest is not paid to the depositor and is reinvested the Fixed Deposit is called Cumulative Deposit or Special Term Deposit. In such cases the interest gets compounded on quarterly basis and the entire sum of Principal amount and Interest is paid on maturity. TDS is deducted @10% if PAN No. is provided or else @ 20% IF PAN NO. is not provided to the BANK as per rules.
Now the RBI has permitted the Banks to issue Fixed Deposit Receipts on Floating Rate of Interest but the Depositors are not going for such schemes at present. In such cases the Rate of interest is not fixed but keeps on changing quarterly . It is linked to some benchmark rate. The customers will benefit only if the fixed Deposit rates are rising as they can get higher rate without breaking their existing FDRs.
Flexi Deposits
Now a days the Banks have started accepting Deposits under Flexi Deposits Scheme in terms of which some portion of SB balance is transferred to Fixed Deposit automatically as desired by the customer attracting Fixed Deposit Rate of Interest. However if the customer wishes to withdraw the amount from the SB account the same is allowed by breaking the Fixed Deposit Portion automatically. The interest is paid for the period the Deposit remained with the Bank. In such cases no Fixed Deposit Receipt is issued. Only Statement of account/Passbook is issued. TDS is deducted as per rules.
Recurring Deposits
These Deposits are in the nature of Fixed Deposits and designed for the benefit of those customers who wish to save small amount regularly every month for a long period ranging from 6 months to 10 years. Interest is paid on maturity along with the Principal amount deposited by the Customer. No TDS is deducted by the Bank on interest earned on these deposits.
Retail Loans
Retails are given to individuals for purchase of House/Car/Meeting Hospitalization Expenses/Travel in India or Abroad/ buying consumer durables or personal consumption. Interest is charged on these loans by the Banks recoverable in installments along with the Principal Amount lent in easy monthly installments generally called EMI.
In cases like Home Loans the installments start a few months later also if the Home is to be constructed. The intervening period between the grant of Loan and Start of Emi is called Moratorium Period.
Retail Loans are very helpful to the individuals improve their quality of lie. Retail Loans also help economic Growth by increasing demand for cars/two wheelers/ flats/consumer durables lie TV/Fridge etc. thereby increasing production and employment.
Credit Cards
Credit Cards are generally issued by Banks and the customer can use these cards for purchase of goods and services. The amount up to which the customer can make purchases or withdrawals is called the Credit Limit. The customer gets a monthly statement of account from the Card Issuer and is required to pay the Amount Due within the specified period without payment of any interest. If the Bill Amount is not paid before the due date the customer is required to pay heavy interest on the outstanding balance. The credit Card is also called plastic Money.
Debit Cards
In case of Debit cards the amount withdrawn from ATM or purchase amount in respect of goods and services purchased is debited to the customer’s account promptly. No statement is issued by the Card issuer and no interest is charged because no overdraft is created in such cases. It is also called Plastic money.
Overdrafts
Times the customers need overdrafts to tide over some temporary need of funds.
While the Businessmen can get an Overdraft Limit sanctioned in their favor based on their creditworthiness, the individuals or businessmen also get an overdraft limit sanctioned against the security of their Fixed Deposits with Bank or Pledge of Other Govt. securities/Postal securities like NSC etc./Life Insurance Policies etc. The Overdraft is adjusted by liquidating these securities if the customers do not pay back the overdraft amount on demand. Overdraft Account sometimes remains in credit and sometimes in debit.
Cash Credit
To meet the Working Capital Requirements of the Businessmen the Banks grant Cash Credit Facility against the security of Hypothecation of their Stocks consisting of Raw Material/Semi Finished/Finished goods/Receivables. Cash Credit Account is just like a Current Account and the customers are free to withdraw the money from the account for their business needs. The Limit is set depending upon the requirement for working Capital and the customers are required to furnish a statement of the Stocks held by them every month. The Drawing power is set every month on the basis of actual stock held leaving a prescribed margin within the sanctioned Limit. thCash credit Account almost always remains in debit.
Packing Credit
Packing Credit is just a variation of Cash credit. The Exporters are given financial assistance for executing export orders and the each Packing Credit is got adjusted after the actual export takes place/ export proceeds are received from the foreign country. Now a days the Banks have set up Packing Credit limits under which the Exporters keep withdrawing funds for processing export orders and the Sale Proceeds are deposited in such accounts. It is the duty of the Banks to ensure that the Packing Credit Limits are used only for processing Export Orders and the Sale Proceeds are in fact receive from abroad. The reason being that the Banks charge Reduced Rate of interest on such accounts as per Govt.Policy to increase Exports.
Cheque Purchase / Bill Purchase / Bill Discount
Sometimes the Banks purchase Cheques /Bills drawn on other banks in India or abroad to give immediate payment to the customer in case the customer so desires. The Banks charge commission for this service and also the interest for the period they remain out of funds. This facility is extended to important customers who are well known to the bank. In case the cheque is received unpaid the entire amount is recovered from the customer. Similarly the Demand Bills are also purchased from the Traders for the goods supplied to their customers. The Bill Amount is recovered from the drawee on presentation.
In case of Usance Bills which are payable after a time say 90/180 days later, these bills are discounted and instant credit is given to the customer. The Bank charges interest for the period it remains out of funds i.e. till the amount is recovered from the drawee.
Cheque
In common parlance the Cheque can be referred as a substitute for cash . One can make payments for goods and services by issuing a cheque or withdrawal of cash from the bank account. The cheque is always drawn on a Bank where the individual has an account. The person receiving the cheque can receive the cash from the concerned bank.If the issuer so desires that the payment of the cheque should not be made in cash to the receiver, he can draw two transverse lines across the cheque on its left corner (preferably). It is called CROSSING. The payment of the crossed cheque can be made by credit into the account of the payee or the person who has become the lawful owner of the cheque.
In Banking parlance, A cheque is defined as a bill of exchange drawn on bank issued by the customer instructing the bank to pay a specified amount to the person named in the cheque or the bearer of the cheque. If the cheque bears two transverse lines across it is called a crossed cheque and the payment of such cheques can not be made in cash over the counter. It can be collected by another banker and the amount is credited in the account of the customer. However the customer can transfer this cheque to another person just by signing on the reverse by writing the words Pay To------. It is called an Endorsement.
Account Payee crossed cheques (i.e. the cheques where the cheque bears two transverse lines with the words A/C Payee only), cannot be endorsed to anybody else. The payment of such cheques can be made only to the named payee that too in his account only.
Pay Order/Banker cheque
A Pay Order/Banker Cheque is a cheque issued by a bank on itself. Both the drawer and drawee is the same bank, in fact, the same branch of the bank. A bank issues PO after receipt of the money from the applicant on payment of a commission. Payment of the Pay Order/Banker Cheque cannot be stopped as the same is issued after receipt of money from the customer. Pay Order can be issued for any amount by debiting the account of the customer as per his mandate but the PAY ORDER for Rs. 500000 or above cannot be issued by depositing of CASH at the counter. However the Pay Order upto Rs.50000 can be issued by accepting cash at the counter.
Demand Draft
Draft is a cheque issued by a bank drawn on another branch of the same bank while the Pay Order is issued on the same branch. The draft is issued on receipt of money and hence the payment of the draft cannot be stopped. The Demand draft cannot be payable to the bearer, it assumes the character of a currency note. As per rules only RBI is permitted to issue Currency Notes.
Like Pay Order the Demand Draft can be issued against Cash Receipt upto Rs.50000 only. If the customer wants a draft for Rs.50000or above he has to deposit the cash into his account and the draft will be issued by debiting the account.
Multi City Cheques
Generally the cheques are payable at the branch where the customer maintains his account. Now a days the Banks have started paying the cheques at all branches of the bank. To some extent the use of drafts is becoming less& less due to this facility.
NEFT( National Electric Fund Transfer)
National electronic Fund Transfer is a facility for electronic transfer of funds up to Rs.2 Lacs to accounts in other banks. Generally it takes one/two working days to get the funds transferred. The transfer of funds is completed through the RBI with whom all banks maintain their accounts with banks. The Paying Bank after debiting the account of the customer will inform the RBI electronically to debit their account of the Customer’s Bank and credit the account of the Payee in the other Bank.
RTGS( Real Time Gross Settlement System)
RTGS is a system to settle inter-bank and customer transactions electronically, on a gross settlement basis. It is just like NEFT for transfer of funds exceeding Rs.2 Lacs. The RTGS message containing the full details of the remitter and beneficiary of funds is sent to RBI electronically and the RTGS transactions are completed within a few hours.The transfer of funds from one bank account to another bank account takes place on the same day.
Clean Note Policy
RBI has given the following directions to the Banks and the general Public for ensuring that the quality of Currency Notes always remains good and dirty / torn notes are nor circulated in the market:
-Do not staple currency notes
-Do not write/put any rubber stamp or any other mark on the bank notes.
-Store the currency Notes safely to prevent any damage.
KYC Norms
KYC means Know Your Customer. It means that the Bank is supposed to verify the Identity and Address of the account holder to prevent opening of benami/fraudulent accounts.The Bank must obtain documentary proof of the identity of the customer and his residential address and ensure that these are correct. The Bank must ask the purpose of opening the account and the Bank Officials must interview the customer and obtain information on sources of funds, business activities, turnover etc. After opening the account the transactions are also required to be monitored to check any suspicious/ fraudulent transactions. Therefore the Bank officials must meet the person at his communication address or residence/office or branch in case of SB account, taking signatures of the customer in own presence ,and verify the copies of the ID/Address proof documents after seeing the originals only.
Importance of KYC Compliance
-Preserving Bank’s reputation
-Preventing the bank from being used for money laundering.
-RBI can penalize the Bank for non-observance of KYC norms
Pillars of KYC Guidelines
1.Customer Acceptance
The Bank can refuse to open the account of any individual in its discretion. For example the Criminals or bad character persons cannot force the bank to open the account.
2.Customer identification
The Bank can specify what documents are required for ID Proof or Address proof. However these are to be uniformly followed for all customers. Generally the Banks prescribe these documents and display the same on its website or prominently in the Banking Hall of the branches.
3.Monitoring of Account Operations
In the newly opened accounts there are more chances of a fraudulent transaction. The fraudulent customers deposit bogus/fake cheques/drafts in the bank for collection and withdraw the amount immediately leaving no trail for finding their whereabouts because they open the account by providing fake ID/Address Proof. Therefore the Banks have to be very cautious while accepting the new customers.
Anti-Money Laundering
Money Laundering means cleaning of money. It is the practice of engaging in a specific transaction to conceal the identity or source and / or destination of money.
Anti –Money Laundering measures ensure that the no tainted money should pass through the banking channels.
The tainted money means proceeds of Crime or Tax Evasion or Money likely to be used for anti-national activities like Acts of Terrorism etc.
It can also be described as Grey/Dirty/Hot Money explained as hereunder:
Grey: Money arising out of illegal activity, e,g. Tax Evasion/black money
Dirty: money out of criminal activity e.g. sale of narcotic drugs
Hot: Capital flight between nations comprising of Legal, Grey & Dirty Money.
Three Stages of Money Laundering
1. Placement: Initial point of entry for funds derived from any criminal activities
2. Layering. Creation of a complex network of transactions which attempts to hide the link between the entry point the end of the laundry cycle.
3. Integration: Return of funds to the legitimate economy for later extraction
"Negotiable instrument".-[(1) A "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer.
Explanation (i).- A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable.
Explanation (ii).- A promissory note, bill of exchange or cheque is payable to bearer which is expressed to be so payable or on which the only or last endorsements is an endorsement is an endorsement in blank.
Explanation (iii) Where a promissory note, bill of exchange or cheque, either originally or by endorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option.]
Negotiation.- When a promise note, bill of exchange or cheque is transferred to any person, so as to continue the person the holder thereof, the instrument is said to be negotiated.
A promissory note, bill of exchange or cheque payable to bearer is negotiable by the deliver thereof.
Illustrations
A sign instrument in the following terms:
(a) "I promise to pay B on order Rs. 500".
(b) "I acknowledge myself to be indebted to B in Rs. 1, 000, to be paid on demand, for value received."
(c) "Mr. B, I.O.U Rs. 1,000."
(d) "I promise to pay B Rs. 500 and all other sums which shall be due to him."
(e) I promise to pay B Rs. 500 first deducting there out any money which he may owe me."
(f) "I promise to pay B Rs. 500 seven days after my marriage with C."
(g) "I promise to pay B Rs. 500 on D's death, provided D leaves me enough to pay that sum,"
(h) "I promise to pay B Rs. 500 and to deliver to him my black horse on 1st January next."
The instruments respectively marked (a) and (b) are promissory notes. The instruments respectively marked (c), (d), (e), (f), (g) and (h) are not promissory notes.
"Payment in due course".-"Payment in due course" means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.
Endorsement.- When the marker or holder of an negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, one the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paperintended to be completed as a negotiable instrument, he is said to indorse the same, and is called the endorser.
Where amount is stated differently in figures and words.- If the amount undertaken or ordered to be paid is stated differently in figures and in words, the amount stated in words shall be the amount undertaken or ordered to be paid.
Systematic risk, sometimes called Market Risk, aggregate risk, or undiversifiable risk, is the risk associated with aggregate market returns.BETA is called the measure of systematic risk.
By contrast, unsystematic risk, sometimes called specific risk, residual risk, or diversifiable risk, is the company-specific or industry-specific risk in a portfolio
Unsystematic risk can be mitigated through diversification ystematic risk can not be mitigated.
ALFA
ALFA is the indication of the Fund Manager’s Performance. Positive ALFA is indicative of Out-Performance by the fund manager while negative alfa measures the under-performance of the fund manager. For example if the Market Returns of a similar scheme/ portfolio are 8% and and a particular fund manager is able to register 10% returns, it means that the ALFA Returns are 2%..(10-8=2%). Alfa Returns are more relevant for comparing the various Fund Managers’ Performance investing in the similar schemes.
Beta
What Does Beta Mean?
A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used to calculate the expected return of an asset based on its beta and expected market returns..
A beta of 1 indicates that the security's price will move with the market.
A beta of less than 1 means that the security will be less volatile than the market.
A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.
Many stocks have a beta of less than 1. Conversely, most high-tech stocks have a beta of greater than 1, offering the possibility of a higher rate of return, but also posing more risk.
Beta is a measure of Systematic Risk. It is the risk associated with the market and cannot be diversified. It measures the movement of the a particular scrip/portfolio in relation to the Market.
SHARPE RATIO
Sharpe Ratio is effectively the risk premium per unit of risk. An investor can invest in Fixed Deposit Scheme of a Bank( or investment in any Govt. Security) and earn a RISK FREE Return of 8% say RF. Through investing in a Mutual Fund Scheme the investor can earn a higher return say Rs. The difference between the two returns ie. Rs-RF is called the Risk Premium. It is the Premium that the investor has earned for the risk taken,as compared to Bank’s risk free return.
SHARPE RATIO uses Standard Deviation as a measure of risk. It is calculated as
(Rs-RF)/ Standard Deviation.. For example , if the Risk Free Rate is 8% and the Return of a Mutual Fund scheme is 10% with Standard Deviation of 0.5%. The SHARPE RATIO will be 10-8=2/0.5%=4%. The higher the SHARPE RATIO the better the performance of the scheme. The care should be taken to compare two similar schemes. Ie compare oranges with oranges and apples with apples.
TREYNOR RATIO
Like Sharpe Ratio this ratio also measures the risk premium per unit.
Here the denominator is used as BETA and not the Standard Deviation. In the above example if the BETA is 1.2 then the Treynor ratio will be
10-8=2/1.2=2.5%
Higher the Treynor ratio the better is the performance. Since the concept of Beta is more relevant to diversified schemes the Treynor Ratio is ideally suited to comparing the performance of Diversified Schemes.
Moral Hazards in Life Insurance Business
Why Grandson cannot take insurance policy for his Grandfather while the Grandfather can take policy for his Grandson? Or Similarly or such similar relatives where the insurer may take less care of the insured with a view to benefitting from the claim under the policy. This is because of the Term Moral Hazard in Insurance.
A term used to describe a subjective hazard that tends to increase the probable frequency or severity of loss due to an insured peril. Moral hazard is measured by the character of the insured and the circumstances surrounding the subject of the insurance, especially the extent of potential loss or gain to the insured in case of loss. For example, insurance on a thriving business is not subject to a moral hazard to as great an extent as insurance on an unprofitable business. On the other hand, an insured with high moral standards may pose less of a moral hazard even with an unprofitable business than an insured with low moral standards. Moral hazards are considered when underwriting insurance, particularly fire insurance, and are also addressed by certain policy exclusions. For example, underwriters are hesitant to insure vacant and unoccupied buildings because of the possibility that an insured will be tempted to intentionally start a fire to obtain an insurance recovery.
Why Grandson cannot seek insurance policy for his Grandfather or such relatives where the beneficiary is set to gain by the death of the insured.
What is Bancaassurance?
The Insurance Business undertaken by the Banks is called Bancassurance.
What is the Savings Bank Interest? Who sets it?
The SB rate is 3.5% at present. The RBI regulates the SB interest Rate.
How is the SB interest calculated?
The interest on Savings Balances is calculated on the basis of Daily Product Basis
(ie outstanding balance at the end of each day of the month) . The interest is however paid on half yearly basis at the end of June/December each year.
Who sets the Fixed Deposit Rate.
Each Bank sets its own rate for the Fixed Deposits.
Is interest from Fixed Deposits/SB deposits/Recurring Deposits taxable?
Yes. The entire interest Income earned from the Bank is taxable but no TDS is deducted on interest earned on SB/Recurring Deposits.
What is Bill Pay Facility?
The Utility Bills that can be paid through the Banks is referred to as the Bill Pay Facility. The utility Bills can be Telephone bill/ Mobile Bill/Electricity bill/Insurance Premium etc.. The customer need not remember the Due Date of the Bill. The Bill Issuer sends the Bill directly to the Bank with a copy to the customer. The bill is paid by the Bank automatically by debiting the account of the customer. However the customer has to give AUTO PAY instructions to the Bank for direct debit of the account on presentation of the bill. The customer can also make the Payment ONLINE through INTERNET Banking facility. The receipt is generated online. The benefit to the customer is that the payment is made without any hassle and without visiting the offices of the Utility Provider.
What is the Fund Transfer Facility?
The facility of Funds Transfer from the account of one individual to the account of the other individual in another ban/branch is called Fund Transfer. The Funds can be transferred in two ways by using Paper Based mode or Electronic Transfers.
1.Paper Based : Demand Drafts or Pay Order/ Banker Cheque
2.Electronic transfers e.g. NEFT OR RTGS
What charges apply for ATM usage?
The ATM card holder can withdraw money from the ATM of any Bank upto FIVE times in a month beyond which he will be charged Rs.20 for the withdrawal on each occasion. However all withdrawals from the ATM of Card Issuer Bank are free to any number of times.
What is the difference between a Credit Card and a Debit Card?
In the case of debit card the money can be withdrawn up to the Balance in the account but in case of credit Card the money can be withdrawn up to the credit Limit set b the Card Issuer Bank. In the case of Debit no interest is charged to the customer because the amount is immediately debited to the account and no monthly statement is issued. In case of Credit Card the monthly bill is sent to the customer and interest is charged after the due date of the payment of the bill.
What are the Roles of RBI?
Primarily the RBI performs the following roles.
As issuer of currency As banker to the government As banker to other banks As controller of money supply and credit As exchange manager and controller As publisher of monetary data and other dataWho Issues Coins?
The Issue Deptt. Of RBI issues the coins on behalf of the Central Govt.
Who issues currency Nores?
The Issue Deptt. Of RBi issues the Currency Notes. It is the liability of the RBi but the same is guaranteed by the Central Bank.
What is AML?
AML is Anti Money Laundering . It is aimed at ensuring that no tainted money passes through the Banking System.
What documents are acceptable for KYC?
Documentation required are: Identity proof Proof of communication address Self cheque or cash deposit for which the customer has to personally visit the branch Permanent Account Number (PAN) or form 60/61 What is a No Frill Account?
No Frill Account can be opened by those individuals who are unable to complete detailed KYC formalities like providing Identity/Address proof. Such individuals can open Bank Account just by giving Introduction of some existing Account Holder of the Bank. However the Balance in such accounts cannot exceed Rs.50000 and the total transactions cannot exceed Rs.100000 in a year. If this requirement is not met the account takes the shape of Normal Account and all KYC guidelines are to be followed.
Is nomination facility compulsory?
No, It is optional. However the customer is strongly advised to avail nomination facility to avoid unnecessary hassles in case of death of the account holder.
Are Foreign Banks governed by RBI?
Yes. All Banks operating in India are required to strictly follow RBI guidelines.
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