Deposits, Loans and Credit
This domain tests deposit pricing arithmetic, lending principles and the standard loan products a branch sells.
Pricing deposits
Interest on a fixed deposit may be simple or compound, usually with quarterly compounding. SI = P × R × T / 100; maturity under compounding = P(1 + R/4/100)^(4T). Senior citizens often get an extra rate. Interest above the threshold (₹40,000 a year, ₹50,000 for senior citizens) attracts TDS at 10% unless Form 15G/15H is filed.
Lending discipline
Credit appraisal uses the 5 Cs - character, capacity, capital, collateral, conditions. Loans are priced off an external benchmark (repo-linked EBLR) or MCLR. Common products: cash credit (hypothecation, running limit), overdraft, term loan, gold loan, housing loan, Kisan Credit Card. Priority sector lending requires 40% of adjusted net bank credit for commercial banks, with sub-targets for small and marginal farmers and weaker sections. EMI = P × r × (1+r)^n / ((1+r)^n − 1), where r is the monthly rate.
Worked example
₹40,000 at 9% p.a. simple interest for 9 months. Reasoning: time must be in years, so T = 9/12 = 0.75. SI = 40,000 × 0.09 × 0.75 = ₹2,700. If compounding is introduced, effective yield rises - never quote the nominal rate when the question asks for effective.
Traps that cost marks
Using months directly as T; forgetting TDS on FD interest; treating cash credit as a term loan; confusing repo rate with the bank's lending rate; applying the 40% PSL target to every institution type.