IMPORTANT BANKING INTERVIEW - QUESTION & ANSWERS - PART - II

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21. What is the Functions of RBI?

=> The Reserve Bank of India is the central bank of India, was established on April 1, 1935 in 

accordance with the provisions of the Reserve Bank of India Act, 1934.

- The Reserve Bank of India was set up on the recommendationsof the Hilton Young Commission. 

The commission submitted its report in the year 1926, though the bank was not set up for nine 

years.To regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary 

stability in India and generally to operate the currency and credit system of the country to its 

advantage." Banker to the Government: performs merchant banking function for the central and the 

state governments; also acts as their banker.Banker to banks: maintains banking accounts of all 

scheduled banks.

21. What is monetary policy?

=> A Monetary policy is the process by which the government, central bank, of a country controls

(i) the supply of money,

(ii) availability of money, and

(iii) cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth 

and stability of the economy.

22. What is SEZ?

=> SEZ means Special Economic Zone is the one of the part of government’s policies in India. A 

special Economic zone is a geographical region that economic laws which are more liberal than the 

usual economic laws in the country. The basic motto behind this is to increase foreign investment, 

development of infrastructure,job opportunities and increase the income level of the people.

23. What is SIDBI?

=> The Small Industries Development Bank of India is a state-run bank aimed to aid the growth and 

development of micro, small and medium scale industries in India. Set up in 1990 through an act of 

parliament, it was incorporated initially as a wholly owned subsidiary of Industrial Development 

Bank of India.

24. What is TREASURY BILLS (TB)?

=> Treasury bills (T-Bills) are the short term liabilities of the central government .theoretically 

government of India issued three types of T-bills through auctions, namely 91 days, 182days,and 364 

days. There are no treasury bills issued by state government. Minimum amount of T –Bills is Rs. 

2500and in multiple of RS. 2500.T-bills are issued at a discount and are redeemed at par from 1st 

April 1997 treasury bills have been replaced by WAYS AND MEANS ADVANCES .

25. What is COMMERCIAL PAPER (CP)?

=> commercial paper was introduced by RBI in 1991. It is a short term money market instrument 

issued in the form of promissory note . Corporate; primary dealers and the all India financial 

institution are eligible to issue CP. The maturity period of each commercial paper is 7days to 1year 

from the date of issue .CP can be issued denominations of Rs. 5lakh or multiples thereof. Only a 

schedule bank can act as an issuing and paying agent (IPA) for issuance of CP.

26. What is CRM?

=> Customer Relationship Management (CRM) refers to the ability to understand, anticipate and 

manage the needs of the customer, interaction and relationship resulting in increased profitability 

through revenue and margin growth and operational efficiencies.

27. What is Right to information Act?

=> The Right to Information act is a law enacted by the Parliament of India giving citizens of India 

access to records of the Central Government and State governments.TheAct applies to all States and 

Union Territories of India, except the State of Jammu and Kashmir - which is covered under a State-

level law. This law was passed by Parliament on 15 June 2005 and came fully into force on 13 

October 2005.

28. What is Recession?

=> A true economic recession can only be confirmed if GDP (Gross Domestic Product)growth is 

negative for a period of two or more consecutive quarters.

29. What is dematerialisation ?

=> Dematerialisation is a process by which the paper certificates of an investor are taken back by the 

company/registrar and actually destroyed and an equivalent number of securities are credited in 

electronic holdings of that investor.

30. What is Defivative ?

=> A derivative is a financial contract that derives its value from another financial 

product/commodity (say spot rate) called underlying (that may be a stock, stock index, a foreign 

currency, a commodity). Forward contract in foreign exchange transaction, is a simple form of a 

derivative.

31. What is LAF ?

=> Liquidity Adjustment Facility (LAF) was introduced by RBI during June, 2000 in phases, to 

ensure smooth transition and keeping pace with technological upgradation.

32. What is a Repo Rate?

=> Repo rate is the rate at which our banks borrow rupees from RBI. Whenever the banks have any 

shortage of funds they can borrow it from RBI. A reduction in the repo rate will help banks to get 

money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive

33. What is Reverse Repo Rate?

=> This is exact opposite of Repo rate. Reverse Repo rate is the rate at which Reserve Bank of India 

(RBI) borrows money from banks. RBI uses this tool when it feels there is too much money floating 

in the banking system. Banks are always happy to lend money to RBI since their money is in safe 

hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more 

funds to RBI due to this attractive interest rates.

34. What is CRR Rate?

=> Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI 

decides to increase the percent of this, the available amount with the banks comes down. RBI is using 

this method (increase of CRR rate), to drain out the excessive money from the banks.

35. What is Bank Rate?

=> Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges 

on the loans and advances that it extends to commercial banks and other financial 

intermediaries.Changes in the bank rate are often used by central banks to control the money supply.

36. What is PLR?

=> The Prime Interest Rate is the interest rate charged by banks to their most creditworthy customers 

(usually the most prominent and stable business customers). The rate is almost always the same 

amongst major banks. Adjustments to the prime rate are made by banks at the same time; although, 

the prime rate does not adjust on any regular basis. The Prime Rate is usually adjusted at the same 

time and in correlation to the adjustments of the Fed Funds Rate. The rates reported below are based 

upon the prime rates on the first day of each respective month. Some banks use the name "Reference 

Rate" or "Base Lending Rate" to refer to their Prime Lending Rate.

37. What is Bitcoin?

=> Bitcoin is a consensus network that enables a new payment system and a completely digital 

money. It is the first decentralized peer-to-peer payment network that is powered by its users with no 

central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the 

Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence.

38. What is SLR Rate?

=> SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of 

cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate 

is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of 

bank credit. SLR is determined as the percentage of total demand and percentage of time liabilities. 

Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their anytime 

demand. SLR is used to control inflation and propel growth. Through SLR rate tuning the money 

supply in the system can be controlled efficiently.

39. What is Deposit Rate?

=> Interest Rates paid by a depository institution on the cash on deposit.

40. What is Fiscal Policy?

=> Fiscal policy is the use of government spending and revenue collection to influence the economy. 

These policies affect tax rates, interest rates and government spending, in an effort to control the 

economy. Fiscal policy is an additional method to determine public revenue and public expenditure.