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IBPS PO Deposits & Loans

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This page covers IBPS PO Deposits & Loans with complete concept notes, 24 graded practice MCQs, key points and exam-specific tips. Free to study.

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Concept Notes

Deposits & Loans— Rules & Concept

Core ConceptRead this first — the foundation of the topic
Maximum

10 years. Premature withdrawal is allowed but with a penalty. 4. RECURRING DEPOSIT (RD) — You deposit a fixed amount every month for a fixed period. Good for salaried people.

Interest is similar to FD. 5. FCNR (B) ACCOUNT — Foreign Currency Non-Resident (Banks) account. Opened by NRIs. Deposits are in foreign currency.

No exchange rate risk for depositor. 6. NRE ACCOUNT — Non-Resident External account. Opened by NRIs. Deposits in Indian Rupees.

Fully repatriable (money can be sent back abroad). Interest is tax-free in India. 7. NRO ACCOUNT — Non-Resident Ordinary account. For income earned in India (rent, pension).

Partially repatriable. Interest is taxable

KEY RULE — DICGC INSURANCE

Deposits up to Rs. 5 lakh per depositor per bank are insured by DICGC (Deposit Insurance and Credit Guarantee Corporation). This limit was revised from Rs. 1 lakh to Rs. 5 lakh in February 2020. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ TYPES OF LOANS ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ 1. SECURED LOAN — Backed by collateral (asset). Lower interest rate

Example

Home Loan, Car Loan, Loan Against FD. 2. UNSECURED LOAN — No collateral needed. Higher interest rate

Example

Personal Loan, Credit Card Loan. 3. TERM LOAN — One-time loan repaid in fixed instalments (EMIs) over a period. 4. OVERDRAFT — You can withdraw more than your balance up to a limit. Interest paid only on the amount used. 5.

CASH CREDIT — A running credit limit given mainly to businesses against stock/inventory. Similar to overdraft. 6. PRIORITY SECTOR LENDING (PSL) — RBI mandates banks to give 40% of their Adjusted Net Bank Credit (ANBC) to priority sectors. For foreign banks with less than 20 branches, this is 40% of ANBC. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━

Formula BlockMemorise — at least one formula appears in every paper

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Simple Interest (SI) = (Principal x Rate x Time) / 100
Compound Interest (CI) = Principal x [(1 + Rate/100)^Time] - Principal
EMI Formula = [P x R x (1+R)^N] / [(1+R)^N - 1]
Where P = Principal, R = Monthly interest rate, N = Number of months
Rule of 72 (SHORTCUT): Number of years to double money = 72 / Rate of Interest
Example: At 8% interest, money doubles in 72/8 = 9 years.

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Exam PatternsWhat examiners ask — read before attempting PYQs

— WHAT GETS ASKED ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ • DICGC insurance limit (Rs. 5 lakh) — asked almost every year • Difference between NRE and NRO accounts • PSL target percentage (40% of ANBC) • Difference between Cash Credit and Overdraft • Interest calculation on FD or RD • Minimum tenure of FD (7 days) ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ SHORTCUTS & TRICKS ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ SHORTCUT 1 — RULE OF 72: To find how many years it takes to double your money: Divide 72 by the interest rate. At 6% → 72/6 = 12 years. At 9% → 72/9 = 8 years. SHORTCUT 2 — CI vs SI DIFFERENCE: For 2 years: CI - SI = P x (R/100)^2 Example: P = Rs. 10,000, R = 10% CI - SI = 10,000 x (10/100)^2 = 10,000 x 0.01 = Rs. 100 SHORTCUT 3 — RD INTEREST SHORTCUT: For RD, effective principal = Monthly Deposit x n(n+1)/2 x (1/12) Where n = number of months. This gives you the average principal on which interest is calculated. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━

Worked ExampleSolve this step-by-step before moving on
1
Step 1

Write the formula → SI = (P x R x T) / 100

2
Step 2

Put values → SI = (50,000 x 8 x 2) / 100

3
Step 3

Calculate → SI = 8,00,000 / 100 = Rs. 8,000

4
Step 4

Maturity Amount = Principal + SI = 50,000 + 8,000 = Rs. 58,000 Answer: Rs. 58,000 ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ WORKED EXAMPLE 2 — CI vs SI Difference ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Question: Find the difference between CI and SI on Rs. 20,000 at 5% per annum for 2 years.

1
Step 1

Use shortcut formula → CI - SI = P x (R/100)^2

2
Step 2

Put values → CI - SI = 20,000 x (5/100)^2

3
Step 3

Calculate → CI - SI = 20,000 x (0.05)^2 = 20,000 x 0.0025

4
Step 4

Answer = Rs. 50 Verification: SI = (20,000 x 5 x 2)/100 = Rs. 2,000. CI = 20,000 x (1.05)^2 - 20,000 = 20,000 x 1.1025 - 20,000 = 22,050 - 20,000 = Rs. 2,050. Difference = 2,050 - 2,000 = Rs. 50. Confirmed! ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━

Exam TrapsCommon mistakes students make — avoid these

— THE #1 TRAP ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ STUDENTS CONFUSE NRE AND NRO ACCOUNTS!

Memory HookRemember this — never confuse the two again

simple trick: NRE = External = money EARNED outside India = Fully Repatriable = Tax-Free interest NRO = Ordinary = income from ORDINARY Indian sources (rent, salary in India) = Partially Repatriable = Interest is TAXABLE In exams, the question will say 'NRI has rental income in India — which account?' Answer is always NRO. Don't pick NRE just because it sounds better.

Key Points to Remember

  • Savings Account interest rate is deregulated by RBI since October 2011 — banks decide their own rates.
  • DICGC insures deposits up to Rs. 5 lakh per depositor per bank — limit revised from Rs. 1 lakh in February 2020.
  • Minimum tenure for Fixed Deposit is 7 days; Maximum is 10 years.
  • Current Account pays ZERO interest but provides overdraft facility — mainly used by businesses.
  • NRE Account: deposits in INR, fully repatriable, interest is TAX-FREE in India.
  • NRO Account: for India-sourced income, partially repatriable, interest is TAXABLE.
  • FORMULA: Simple Interest = (P x R x T) / 100; always apply this before CI.
  • SHORTCUT — Rule of 72: Years to double money = 72 divided by Rate of Interest.
  • SHORTCUT — CI minus SI for 2 years = P x (R/100) squared.
  • Priority Sector Lending target = 40% of ANBC for domestic banks and foreign banks with 20+ branches.

Exam-Specific Tips

  • DICGC deposit insurance limit is Rs. 5 lakh per depositor per bank, revised in February 2020 from the earlier limit of Rs. 1 lakh.
  • FCNR(B) stands for Foreign Currency Non-Resident (Banks) account — deposits are held in foreign currency, eliminating exchange rate risk for the NRI depositor.
  • Minimum period for a Fixed Deposit in India is 7 days.
  • RBI deregulated Savings Account interest rates in October 2011 — banks are now free to set their own savings deposit rates.
  • Priority Sector Lending (PSL) mandatory target is 40% of Adjusted Net Bank Credit (ANBC) for all domestic scheduled commercial banks.
  • Cash Credit is a credit facility given against pledge or hypothecation of stock/inventory — mainly used by traders and businesses.
  • Overdraft differs from Cash Credit: Overdraft is sanctioned against securities like FD, shares, or insurance policies, while Cash Credit is against current assets/stock.
  • NRE account interest income is fully exempt from income tax in India under Section 10(4) of the Income Tax Act.
Practice MCQs

Deposits & Loans — Practice Questions

24graded MCQs · easy to hard · full solution & trap analysis · showing 20 of 24

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Practice 1medium

Which of the following best describes the primary distinction between a Demand Deposit and a Term Deposit in the context of banking regulation?

Practice 2medium

Under RBI guidelines, what is the primary purpose of maintaining a Statutory Liquidity Ratio (SLR) by commercial banks?

Practice 3medium

A customer takes a home loan of ₹50 lakhs from a bank at 8% per annum. After 2 years, the RBI reduces the repo rate by 100 basis points. Which of the following statements is most accurate regarding the impact on the customer's loan?

Practice 4medium

Which of the following is NOT a component of Net Demand and Time Liabilities (NDTL) as defined by RBI for the purpose of calculating reserve requirements?

Practice 5medium

Under RBI guidelines, which of the following best describes the relationship between the Marginal Cost of Funds Based Lending Rate (MCLR) and the Prime Lending Rate (PLR) in the context of loan pricing?

Practice 6medium

Under the Banking Regulation Act, 1949, which of the following best describes the Statutory Liquidity Ratio (SLR) that banks must maintain?

Practice 7medium

Which of the following correctly describes the relationship between a bank's Repo Rate and Reverse Repo Rate in the RBI's monetary policy framework?

Practice 8medium

A bank customer deposits ₹50 lakhs in a Fixed Deposit (FD) account. Under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme, what is the maximum amount of insurance coverage available for this deposit?

Practice 9medium

Which of the following statements correctly describes the difference between a Demand Loan and a Term Loan in retail banking?

Practice 10medium

Under RBI guidelines, what is the primary purpose of the Loan-to-Value (LTV) ratio requirement in home loan lending?

Practice 11medium

Under the Banking Regulation Act, 1949, which of the following best describes the primary distinction between a Demand Deposit and a Term Deposit in the context of bank liability classification?

Practice 12medium

A bank customer avails a Home Loan of ₹50 lakhs at 8.5% per annum with a 20-year tenure. Under RBI's Lending Code and consumer protection norms, which of the following is NOT a mandatory disclosure requirement by the bank to the borrower before loan sanction?

Practice 13hard

A bank grants a housing loan to a borrower at a floating rate linked to the Marginal Cost of Funds Based Lending Rate (MCLR). If the MCLR is 6.5% and the bank adds a spread of 0.75%, what is the loan rate? Additionally, if the RBI's Repo Rate is 6.5%, what is the relationship between MCLR and Repo Rate in this scenario?

Practice 14hard

A Non-Resident External (NRE) account holder deposits foreign currency earnings in their NRE savings account. Which of the following statements is INCORRECT regarding NRE deposits?

Practice 15hard

A bank customer avails a loan against securities (LAS) by pledging listed equity shares worth ₹10 lakhs. The bank applies a Loan-to-Value (LTV) ratio of 50%. What is the maximum loan amount the customer can obtain, and which RBI regulation governs such lending?

Practice 16hard

Under Basel III framework, a Scheduled Commercial Bank must maintain a minimum Common Equity Tier 1 (CET1) capital ratio of what percentage of Risk-Weighted Assets (RWA)?

Practice 17hard

A bank offers a Fixed Deposit (FD) with a tenure of 18 months at 6.5% per annum. The depositor chooses the 'Cumulative' option. Under which provision of the Banking Regulation Act, 1949, is the bank required to disclose the maturity amount and interest calculation method to the depositor?

Practice 18hard

A bank grants a term loan of ₹50 lakhs to a manufacturing unit. Under RBI's Prompt Corrective Action (PCA) framework, if the bank's Capital to Risk-Weighted Assets Ratio (CRAR) falls below a certain threshold, the bank must classify this loan under a specific NPA category within a defined timeline. What is the mandatory NPA classification timeline for such loans when a bank is under PCA?

Practice 19hard

A bank customer deposits ₹8 lakhs in a Fixed Deposit account. Under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme, what is the maximum amount of insurance coverage the depositor will receive if the bank fails?

Practice 20hard

A bank customer avails a home loan of ₹25 lakhs at 7.5% per annum with a tenure of 20 years under a floating rate structure. The loan agreement includes a clause allowing the bank to adjust the interest rate based on changes in the RBI's Repo Rate. Which RBI regulation specifically governs the transparency and disclosure requirements for such floating rate loans?

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60-Second Revision — Deposits & Loans

  • Remember: DICGC = Rs. 5 lakh insurance per depositor per bank — this is the most frequently asked deposit fact.
  • Remember: NRE = External earnings, Tax-FREE, Fully Repatriable. NRO = Ordinary Indian income, Taxable, Partially Repatriable.
  • Formula: SI = (P x R x T) / 100. For CI minus SI in 2 years = P x (R/100) squared.
  • Shortcut: Rule of 72 — divide 72 by interest rate to get years needed to double money.
  • Trap: Students mix NRE and NRO — always ask 'where was the income earned?' India = NRO, Abroad = NRE.
  • Remember: Minimum FD tenure = 7 days. Current Account = Zero interest. PSL target = 40% of ANBC.
  • Remember: Cash Credit is against stock/inventory. Overdraft is against securities like FD or shares.
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