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Interview questions --Bank PO/Clerks

August 13, 2011
Mr. Raja is attending KVB interview. He raised certain doubts and I have answered them herein for his perusal and for the guidance of others. These are suggested answers and it can be improved depending on the interview trend.
1.what is meant by sub-prime crisis?
The US subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages.
Approximately 80% of U.S. mortgages issued to subprime borrowers were adjustable-rate mortgages.[1] After U.S. house sales prices peaked in mid-2006 and began their steep decline forthwith, refinancing became more difficult. As adjustable-rate mortgages began to reset at higher interest rates, mortgage delinquencies soared. Securities backed with mortgages, including subprime mortgages, widely held by financial firms, lost most of their value. Global investors also drastically reduced purchases of mortgage-backed debt and other securities as part of a decline in the capacity and willingness of the private financial system to support lending. Concerns about the soundness of U.S. credit and financial markets led to tightening credit around the world and slowing economic growth in the U.S. and Europe.
The immediate cause or trigger of the crisis was the bursting of the United States housing bubble which peaked in approximately 2005–2006.[2][3] High default rates on "subprime" and adjustable rate mortgages (ARM), began to increase quickly thereafter. An increase in loan incentives such as easy initial terms and a long-term trend of rising housing prices had encouraged borrowers to assume difficult mortgages in the belief they would be able to quickly refinance at more favorable terms. Additionally, the economic incentives provided to the originators of subprime mortgages, along with outright fraud, increased the number of subprime mortgages provided to consumers who would have otherwise qualified for conforming loans. However, once interest rates began to rise and housing prices started to drop moderately in 2006–2007 in many parts of the U.S., refinancing became more difficult. Defaults and foreclosure activity increased dramatically as easy initial terms expired, home prices failed to go up as anticipated, and ARM interest rates reset higher. Falling prices also resulted in 23% of U.S. homes worth less than the mortgage loan by September 2010, providing a financial incentive for borrowers to enter foreclosure.[4] The ongoing foreclosure epidemic, of which subprime loans are one part, that began in late 2006 in the U.S. continues to be a key factor in the global economic crisis, because it drains wealth from consumers and erodes the financial strength of banking institutions.

2.what is meant by sub-prime lending?
In finance, subprime lending (also referred to as near-prime, non-prime, and second-chance lending) means making loans to people who may have difficulty maintaining the repayment schedule. These loans are characterized by higher interest rates and less favorable terms in order to compensate for higher credit risk.[1]
Proponents of subprime lending maintain that the practice extends credit to people who would otherwise not have access to the credit market. Professor Harvey S. Rosen of Princeton University explained, "The main thing that innovations in the mortgage market have done over the past 30 years is to let in the excluded: the young, the discriminated-against, the people without a lot of money in the bank to use for a down payment."[2]
As people become economically active, records are created relating to their borrowing, earning and lending history. This is called a credit rating, and although covered by privacy laws the information is readily available to people with a need to know (in some countries, loan applications specifically allow the lender to access such records).
Subprime borrowers have credit ratings that might include:
 limited debt experience (so the lender's assessor simply does not know, and assumes the worst), or
 no possession of property assets that could be used as security (for the lender to sell in case of default)
 excessive debt (the known income of the individual or family is unlikely to be enough to pay living expenses + interest + repayment),
 a history of late or sometimes missed payments (morose debt[citation needed]) so that the loan period had to be extended,
 failures to pay debts completely (default debt), and
 any legal judgements such as "orders to pay" or bankruptcy (sometimes known in Britain as County Court Judgements or CCJs).
Lenders' standards for determining risk categories may also consider the size of the proposed loan, and also take into account the way the loan and the repayment plan is structured, if it is a conventional repayment loan a mortgage loan, an Endowment mortgage interest only loan, Standard repayment loan, amortized loan, credit card limit or some other arrangement. The originator is also taken into consideration. Because of this, it was possible for a loan to a borrower with "prime" characteristics (e.g. high credit score, low debt) to be classified as subprime.[3]
3. How can we overcome sub-prime crisis?
India is not the centre point of sub-prime crisis. It was only USA that was affected by it wholly. However Indian stocks/share prices were affected on account of sub-prime crisis. To prevent recurrence of sub-prime crisis banks will have to make quality lending.
4. whether the situation in American economy is similar to subprime crisis or not?
As told earlier American economy was only the starting place of sub-prime crisis. Even now American economy is facing problems on account of Standrd & Poors downgrading the rating of US economy from AAA+ to AA-. However the impact of this has not been felt so far since this down grading was done in the first week of August 2011 only.
5. what you do if you get offer in public sector banks after joining here?
Sir, KVB has been progressing well offering more promotion opportunities. Pay scale is also comparable to public sector. Further good performance in KVB will get me further elevations. So I will not be applying for public sector bank after joining KVB.

6. explain the term public sector bank, nationalised bank and private
sector bank?
A public sector bank is a bank in which the government has got 51% and more share in its capital. Ex. SBI and its 5 subsidiaries + nationalized banks.

Nationalised bank is one that is formed as per Acquisition and Transfer of Undertaking Act 1969 – 14 banks were natkonlised. Subsequently – 6 more banks were nationlised in 1980. Out of these one bank New Bank of India was taken over by Punjab National Bank. So we now have 19 nationalised banks.

Private sector bank is one where the capital is fully owned by private individuals, firms and no share is held by the government.

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