Deposit and Lending Products
Deposit and lending products are the revenue core of banking. The exam tests product features, eligibility, interest mechanics, collateral and consumer protections.
Deposits
Savings accounts suit daily transactions and earn interest; current accounts are for businesses and normally pay no interest. Fixed deposits lock funds for a term; recurring deposits accept monthly instalments. NRE, NRO and FCNR accounts serve non-resident customers. DICGC insures deposits up to ₹5 lakh per depositor per bank, covering principal and interest, but not mutual funds or insurance.
Loans
Fund-based credit includes term loans, cash credit, overdraft, home, auto, personal, gold, education and MSME loans. Non-fund-based facilities include letters of credit and bank guarantees. Lenders apply the 5 Cs: character, capacity, capital, collateral and conditions. Retail loans are usually EMI-based; MSME and agricultural loans may be working-capital or instalment based. Priority sector lending requires banks to allocate 40% of adjusted net bank credit to specified sectors.
Worked example
₹1,00,000 at 12% per annum for 12 months on reducing balance. The monthly rate is 1%. EMI = P × r × (1+r)^n / ((1+r)^n − 1) = approximately ₹8,885. Total repayment is ₹1,06,620, so interest is about ₹6,620. A flat-rate quote would understate the true cost because interest is charged on the original amount throughout.
Traps that cost marks
Confusing flat and reducing balance; thinking DICGC covers equity funds; ignoring processing fees and prepayment penalties; and assuming a guarantor has no liability. A guarantor is liable when the borrower defaults.