1.What is a Non -banking Financial Company (NBFC)?

Difference between NBFC and banks?A NBFC is a company registered under the companies act, 1956 which is involved in the business of loans, shares/stocks, etc. Non-banking financial companies are financial institutions that provide banking services, but do not hold a banking license. These institutions are not allowed to take deposits from the public. NBFCs do offer all sorts of banking services, such as loans and credit facilities, retirement planning, money markets, underwriting, and merger activities. The basic difference between bank and NBFC is:-


– They can’t accept demand deposits.

– They are not a part of the payment and settlement system and can’t issue cheques drawn on themselves

– They are not registered in the banking act and don’t have a banking license.

– They don’t have to maintain CRR, SLR or CASA like banks.


2.What is the difference between nationalized banks and private banks?

A nationalized bank is owned by the govt. of that country and is also known as public sector bank whereas a private sector bank is owned by an independent individual or company.


3.What are the Non Performing assets of a company?

A NPA is an obligation payable to the bank which has not been made or the interest and principal amount has not been paid on the due time. NPA is the loan or credit provided by the bank to its customers which could not be recovered in due time. Thus NPA is somehow not yielding any income to the lender either in the form of principal or interest payments. NPA is also known as “bad debts”.

NPA is shown at the assets side of the balance sheet whereas deposits are shown at the liability side.

If there is any recent story or news regarding NPA, then revise it thoroughly. For ex:- Recently, United bank of India was marred in loss due to its rising NPA. So was the case with Kotak Mahindra Bank.


4.What are the various risks that banks face?

Sir, there are mainly three types of risks faced by banks:-


– Credit Risk: – loan or NPA.

– Market Risk: – Money invested in the market.

– Operational risk: – Day-to-Day working risks.


5.What do you mean by term “CASA” related to bank?

CASA stands for Current Account Savings Account. The CASA ratio shows how much deposit a bank has in the form of current and saving account deposits in the total deposit. A higher CASA ratio means better operating efficiency of the bank because on current account there is no interest payable whereas on savings account a tiny 3.5% interest is payable by the bank. CASA ratio shows how much of the deposit of the bank comes from the current and savings deposit.


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

Cheque is a negotiable instrument which is paid to the bearer but a demand draft is a negotiable instrument always payable on order.


7.What are the parts of banks’ capital?

Bank has following parts of capital:-


– Tier 1 capital: – Paid up capital (core capital) + Reserves (owners or promoters’ fund)

– Tier 2 capital: – Secondary Capital (borrowed funds) + general loss reserves + subordinated term debts + undisclosed reserves (can’t be maintained in India)

– Tier 3 capital: – Same as tier 2 capital but with a higher amount in order to face the market risks of the bank.


8.Tell us something about BSBDA.

BSBDA stands for Basic Savings Bank deposit account. BSBDA is the new name for “no-frill accounts” under which anyone can open a bank account with even zero balance in it or “zero balance account”. This BSBDA is aimed at providing banking facilities to weaker section of the society and improve financial inclusion. All scheduled commercial banks in India including foreign banks with branches in India have to avail BSBDA. Important:-


– Such accounts are opened with “relaxed KYC norms”.

– Relaxed KYC norms include an affidavit by the Pradhaan or councilor of a village or area confirming about the person concerned.

– In such accounts there are certain restrictions- in a month, 4 withdrawls can be done at a maximum. This includes ATM withdrawls. The amount withdrawn in a month shouldn’t exceed Rs. 10,000 and the balance in the account at anytime shouldn’t exceed Rs. 50,000.


9.What is the meaning of “base rate”?

Base Rate is the minimum rate of interest which a bank has to charge from its customers and a bank can’t sanction loan on a rate below the base rate. This rate came into effect from July 1 2010. Before Base rate there was Basic Prime Lending Rate or BPLR introduced in 2003. It was replaced with Base Rate because in BPLR banks had an option to loan their special customers below BPLR. Banks may choose any benchmark to decide on the base rate. The exceptions of base rate are:-


– Agriculture loans

– Govt. sponsored schemes

– Staff loans

– Only under the above cases, bank can lend below base rate.

Only under the above cases, bank can lend below base rate.


10.We hear regularly that all bank branches are turning CBS. What is CBS?

Sir, CBS stands for CORE banking solutions under which the branches of the banks are interconnected with each other through intra net with a central database server. Now, with this facility, a person having an account in a certain branch of the bank can operate from any other branch of the same bank. He need not visit the same branch to operate his account. The CORE word in CBS stands for Centralized Online Realtime Exchange.