eBook

TOP 50
IMPORTANT
BANKING
TERMS
BANKING AWARENESS EBOOK

Information updated till 16th february , 2018

Top 50 Important Banking Terms

Banking awareness is an integral part of the general awareness section. Questions

from this topic are common in the general awareness section of Bank & Government
exams like SBI PO & Clerk, IBPS PO & Clerk, RBI Grade B and Assistant,

What does NPCI stand for?

a) National Power Company of India
b) National Payments Corporation of India
c) National Payments Company of India
d) National Payment Company Interface

Solution: b) National Payments Corporation of India

In competitive exams, as little as 1 mark can make a lot of difference. For your assistance,
we bring to you a Free eBook on Top 50 Important Banking Terms

2018

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Top 50 Important Banking Terms

WORD DEFINITION

- type of debt instrument

- have no collateral
- purchased on reputation of the issuer
Debenture - pay a xed rate of interest
- frequently used by governments & corporations
INDUSTRY EXAMPLES

Punjab National Bank raised Rs. 250 crores by issuing debentures

in March, 2017.

WORD DEFINITION

- a classication of loans
- debt that has been long past due
Non- - debt is categorized as nonperforming after
Performing 90 days of non-payment
Asset (NPA) INDUSTRY EXAMPLES
Bank of Maharashtra recorded a drop in the value of non-performing
assets and in the net loss, during the quarter ending
September 2017.

WORD DEFINITION
- xed income security with no maturity date
- a drawback : not redeemable
- a benet : pay a steady stream of interest payments forever
- also known as "consol" or "perp".
Perpetual
Bond INDUSTRY EXAMPLES

Recently, the Punjab National Bank proposed to raise as much as

Rs 1,500 crore via a perpetual bond issue

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Top 50 Important Banking Terms

WORD DEFINITION

- occurs when a government's total expenditures exceed its total

revenue
- this revenue is exclusive of money from borrowings
- it is an indication of the total borrowings needed by the government
Fiscal Decit - decit differs from debt, which is an accumulation of yearly decit
INDUSTRY EXAMPLES

According to a report by SBI Research, the government is likely to

achieve the scal decit target of 3.2 % of GDP for the rst time in
about seven years, but may cut its capital expenses by Rs 70,000
crore to meet the goal.

WORD DEFINITION

- rate at which the central bank (RBI) lends money to commercial

banks
- increasing repo rate reduces money supply in the economy
- used by monetary authorities to control ination
Repo Rate
INDUSTRY EXAMPLES

The Reserve Bank of India has kept its key lending rate-repo rate-
unchanged at 6% but has acknowledged that the disruptions from
GST have worsened the broader economy’s prospects in the short
term.
WORD DEFINITION
- simultaneous purchase and sale of an asset to prot from a
difference in the price
- exists as a result of market inefciencies
Arbitrage - mechanism to ensure prices don't deviate substantially from fair
value for a long time
INDUSTRY EXAMPLES
Data by Association of Mutual Funds in India (AMFI) reveals that
arbitrage funds accounted for 37 % of the total inows into equity
funds in July & August.
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Top 50 Important Banking Terms

WORD DEFINITION

- property or other asset that a borrower offers as a way for a

lender to secure the loan
- it can be siezed to recoup losses in case of non-payment of a loan
- lender's claim to a borrower's collateral is called a lien
Collateral
INDUSTRY EXAMPLES

As decided in a recent meeting of the State Transport Authority, the

Delhi Financial Corporation (DFC) will provide collateral free loans
for buying autorickshaws.

WORD DEFINITION

- it is the restructuring a company's debt and equity mixture

- done with the aim of making a company's capital structure more
stable
- process involves the exchange of one form of nancing for another
Recapitalization
- for eg: removing preferred shares and replacing them with bonds
INDUSTRY EXAMPLES

In the month of October, Government of India had announced an

allocation of Rs 2.11 lakh crore over two years for the
recapitalisationof public sector banks.

WORD DEFINITION
- an investment to reduce the risk of adverse price movements in an
asset
- the hedge is 100% inversely correlated to the vulnerable asset
- a perfect hedge is one that eliminates all risk in a position or
Hedge
portfolio
INDUSTRY EXAMPLES
Recently, the RBI came out with simplied norms for hedging
exchange rate risk under which companies can take exposure
of up to USD 30 million on gross basis.
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Top 50 Important Banking Terms

WORD DEFINITION

- arrangement in which a bank and an insurance company form a

partnership
- the insurance company can sell its products to the bank's client base
- banks earn additional revenue by selling the insurance products
Bancassurance - insurance companies are able to expand their customer bases
INDUSTRY EXAMPLES

Reliance General Insurance has signed a comprehensive

bancassurance - corporate agency agreement with YES Bank. YES
Bank with its network of 1,040 branches across the country will
enable Reliance General Insurance to reach a large retail base.

WORD DEFINITION

- these are government securities denominated in grams of gold

- they are substitutes for holding physical gold
- investors pay the issue price in cash and the bonds can be
redeemed in cash on maturity
Sovereign
- issued by Reserve Bank on behalf of Government of India
Gold
INDUSTRY EXAMPLES
Bond (SGB)
The issue price of the next offering of the Sovereign Gold
Bond (SGB) scheme has been xed at Rs 2,961 per gram.

WORD DEFINITION
- is an unsecured, short-term debt instrument
- issued for for the nancing of accounts receivable, inventories and
meeting short-term liabilities
- usually issued at a discount from face value and reects
Commercial prevailing market interest rates
Papers INDUSTRY EXAMPLES

In its bid to widen the bond market, the Reserve Bank of India relaxed
commercial paper (CP) issuances earlier this year.

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Top 50 Important Banking Terms

WORD DEFINITION

- is the amount of return an investor realizes on a bond

- when investors buy bonds, they lend bond issuers money
- in return, bond issuers agree to pay investors interest on bonds
and to repay the face value of bonds upon maturity
Bond Yield - as bond prices increase, bond yields fall
INDUSTRY EXAMPLES

The government bond yield has been on a roll of late and is

hovering around 7%.

WORD DEFINITION

- refers to the minimum interest rate of a bank below which it cannot

lend
- MCLR methodology for xing interest rates for advances was
introduced by the RBI with effect from April 1, 2016
MCLR
- it ensures availability of bank credit at interest rates which are fair to
Marginal Cost
borrowers as well as banks
of Funds based
Lending Rate INDUSTRY EXAMPLES

State-run Allahabad Bank said it would reduce its Marginal Cost of

Funds-based Lending Rate (MCLR) by 5 basis points (bps) across
all tenors with effect from December 1.
WORD DEFINITION

- is the rate of interest paid by bond issuers on the bond's face value
- it is the periodic rate of interest paid by bond issuers to its
purchasers
- it is calculated on the bond's face value (or par value)
Coupon Rate
INDUSTRY EXAMPLES
Canara Bank to Raise Rs.3,000 crore by Issuing Tier-II Bonds
The coupon rate on the bonds will be decided by the Bond
Committee of the bank.
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Top 50 Important Banking Terms

WORD DEFINITION

- is an investment in the form of a controlling ownership in a

business in one country by an entity based in another country
Foreign - a key feature is that FDI establishes either effective control of, or
Direct at least substantial inuence over, the decision making of a foreign
Investment business
(FDI) - is distinguished from a foreign portfolio investment by a notion of
direct control
INDUSTRY EXAMPLES

As per RBI data, outward FDI had dropped 58% to $1.35 billion in
October, 2017.
WORD DEFINITION

- amount of money paid out in interest by a bank or nancial

institution on cash deposits
- used as an incentive to attract clients
Deposit - attractive place to earn a steady amount on deposits
Rate

INDUSTRY EXAMPLES

Recently, the SBI hiked the deposit rate by 100 Bps for Rs 1 crore.

WORD DEFINITION

- is the rate at which the general level of prices for goods and
services is rising and,
- consequently, the purchasing power of a currency is falling
- central banks such as RBI, attempt to limit ination and avoid
Ination deation
INDUSTRY EXAMPLES

The year-on-year (YoY) CPI ination hardened to a seven-month

high 3.6% in October 2017 from 3.3% cent in September 2017.

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Top 50 Important Banking Terms

WORD DEFINITION

- rate charged to a merchant by a bank for providing debit and credit

card services
Merchant - it is expressed in percentage of the transaction amount
Discount - it is determined based on factors such as volume, average ticket
Rate (MDR) price, risk and industry
INDUSTRY EXAMPLES

As per the new guidelines issued by the RBI, debit card transactions at
merchants with turnover of up to Rs 20 lakh will attract an MDR of 0.40%
with a cap of Rs 200 per transaction, while the same at others will be
0.9% with a cap of Rs 1,000.

WORD DEFINITION
- is a popular long term investment option backed by Government of
India
- offers safety with attractive interest rate and returns that are fully
Public
exempted from tax
Provident
- minimum Rs. 500 to maximum Rs. 1,50,000 can be invested in
Fund (PPF)
one nancial year
INDUSTRY EXAMPLES

ICICI Bank recently launched the service to open PPF

account online.

WORD DEFINITION

- is a signicant decline in activity across the economy, lasting

longer than a few months
- technical indicator of a recession is two consecutive quarters of
negative economic growth
Recession - aside from the above mentioned, economists assess other metrics
to determine whether recession is imminent or already taking place
INDUSTRY EXAMPLES
The Great Recession of 2008-09 hammered the Indian economy,
but it bottomed out at 6.9%. We are below that bottom today.
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Top 50 Important Banking Terms

WORD DEFINITION

- it is a nationally recognized, well-established, and nancially

sound company
- are known to weather downturns and operate protably in the
face of adverse economic conditions
Blue Chip - thus, their shares considered to be a reliable investment
INDUSTRY EXAMPLES

Optimistic buying in blue-chip stocks ahead of release of IIP data

and retail ination data later this week also drove stocks higher.

WORD DEFINITION

- it is a part of a larger approach by the Centre towards

systematic resolution of all nancial rms
- provides for the setting up of a Resolution Corporation
FRDI - this will replace the existing Deposit Insurance and Credit
Bill Guarantee Corporation
2017 - also empowers a Corporation to bail-in the company
INDUSTRY EXAMPLES

The FRDI Bill, rst introduced in Lok Sabha in August this year,
is currently undergoing scrutiny by a joint parliamentary committee.
WORD DEFINITION
- is a tool used in monetary policy that allows banks to
borrow money through repurchase agreements
- it allows banks to respond to liquidity pressure
Liquidity - is used by governments to assure basic stability in the
Adjustment nancial markets
Facility (LAF) - it includes both repos and reverse repo agreements
INDUSTRY EXAMPLES
The six member Monetary Policy Committee (MPC) of Reserve Bank
of India (RBI) has decided to maintain status quo in policy rates by
keeping repo rate unchanged at 6.0% under liquidity adjustment
facility (LAF).
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Top 50 Important Banking Terms

WORD DEFINITION

- it is a window for banks to borrow from the Reserve Bank of India

in an emergency situation against government securities
Marginal - it is pegged 100 basis points or a percentage point above the
Standing repo rate
Facility (MSF) - it is very short term borrowing scheme for scheduled banks
Rate INDUSTRY EXAMPLES

Taking a cautious stand, the Reserve Bank of India (RBI) kept

the marginal standing facility (MSF) rate 6.25%.

WORD DEFINITION

- banking system based on the principles of Islamic law

- basic principles : sharing of prot and loss and, prohibition of the
collection and payment of interest
- to earn money without charging interest, Islamic banks use
Islamic equity-participation systems
Banking

INDUSTRY EXAMPLES

In a major move, the Reserve Bank of India (RBI) had decided not to
pursue a proposal for introduction of Islamic Banking in the country.

WORD DEFINITION

- minimum amount of deposit that the commercial banks have

to hold as reserves with the central bank
- one of the tools used by a central bank to control liquidity
- RBI uses CRR to drain out excessive money from system
Cash Reserve
Ratio (CRR) INDUSTRY EXAMPLES

The RBI kept the cash reserve ratio unchanged at 4%.

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Top 50 Important Banking Terms

WORD DEFINITION

- is a single window mobile payment system

- launched by the National Payments Corporation of India (NPCI)
Unied - eliminates the need to enter bank details or other sensitive
Payments information each time a customer initiates a transaction
INDUSTRY EXAMPLES
Interface (UPI)
From a tepid start in August 2016, the Unied Payments Interface
(UPI) has raced on through 2017 to cross the 100-million transactions
mark in November, overtaking Immediate Payment Service (IMPS).
WORD DEFINITION
- is a 20-digit unique code to identify parties to nancial transactions
worldwide
- has been conceived as key measure to improve quality and accuracy
of nancial data systems for better risk management.
- will help banks to effectively monitor debt exposure of corporate
Legal borrowers
Entity - will also enable banks in preventing multiple loans to companies
Identier against the same collateral
INDUSTRY EXAMPLES
According to RBI’s schedule, corporates having exposure
totalling Rs.1,000 crore and above to scheduled commercial banks
(SCBs) are required to obtain LEI by March 31, 2018.
WORD DEFINITION
- rate at which the central bank of a country borrows money from
commercial banks
- it is a monetary policy instrument which is used to control the
Reverse money supply in the country
- increase in the reverse repo rate will decrease the money supply
Repo
and vice-versa
Rate
INDUSTRY EXAMPLES
The 6-member Monetary Policy Committee (MPC), headed by
Reserve Bank of India (RBI) Governor Urjit Patel, in its 5th bi-monthly
review in the current scal, kept repo rate unchanged at 6% and
reverse repo at 5.75%.
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Top 50 Important Banking Terms

WORD DEFINITION

- is an integrated bill payment system offering interoperable and

accessible bill payment service
- aims to provide a major push to digital payments
Bharat - a customer will be able to pay several bills and receive instant
Bill conrmation once the payment is made
Payment - is a Reserve Bank of India (RBI) conceptualised system driven by
System National Payments Corporation of India (NPCI)
INDUSTRY EXAMPLES

Spice Digital Limited (SDL) has received the nal licence from
the Reserve Bank of India (RBI), allowing the company to process
bill payments as a Bharat Bill Payment Operating Unit (BBPOU) in
the Bharat Bill Payment System (BBPS).

WORD DEFINITION

- forum for bank customers for resolution of complaints relating to

certain services rendered by banks
- banking ombudsman is a senior ofcial appointed by the
Reserve Bank of India to redress customer complaints
Banking - as on date, twenty Banking Ombudsmen have been appointed
Ombudsman - all Scheduled Commercial Banks, Regional Rural Banks and
Scheme Scheduled Primary Co-operative Banks are covered under the
Scheme
INDUSTRY EXAMPLES

Bank consumer complaints at the central bank's Banking

Ombudsman increased 27.4 % to 1.3 lakh, with the highest coming
from New Delhi and Mumbai, said the Reserve Bank of India's
annual report of the Banking Ombudsman Scheme (BOS).

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Top 50 Important Banking Terms

WORD DEFINITION
- markets for buying and selling equity and debt instruments
- help channelise surplus funds from savers to institutions
which then invest them into productive use
Capital - consists of primary markets and secondary markets
Market INDUSTRY EXAMPLES
Foreign investors are ocking to the Indian capital markets in a big
way with a net inow of over USD 30 billion of so-called 'hot money'
in 2017, with equities alone getting over USD 8 billion -- an amount
bigger than the cumulative investment of the previous two years.

WORD DEFINITION

- process of determining the current worth of an asset or a company

- market value of a security is determined by what a buyer is willing
to pay a seller
- risk and return concept is used for determining the worth
Valuation
INDUSTRY EXAMPLES

Valuations are near a seven-year high and sagging

economic growth are taking the shine off Indian equities.

WORD DEFINITION

- involves trading a nancial instrument involving high risk, in

expectation of signicant returns
- motive is to take maximum advantage from uctuations in the
market
- prevalent in the markets where price movements of securities are
Speculation highly frequent and volatile
INDUSTRY EXAMPLES
Bitcoin and other cryptocurrencies are used by Indians mostly for
speculation and money making.

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Top 50 Important Banking Terms

WORD DEFINITION
- is when an organization, or individual, can no longer meet its
nancial obligations
- situation where the value of a company's liabilities exceeds its assets
Insolvency - can arise from poor cash management, a reduction in cash inow
forecasts or from an increase in expenses
INDUSTRY EXAMPLES
State Bank of India is set to initiate insolvency proceedings against
at least a dozen defaulting companies including Videocon Industries
after failing to recast their loans by the December deadline.

WORD DEFINITION

- minimum rate set by the Reserve Bank of India below which banks
are not allowed to lend to its customers
- decided in order to enhance transparency in the credit market and
ensure that banks pass on the lower cost of fund to their customers
Base Rate - loan pricing will is done by adding base rate and a suitable spread
depending on the credit risk premium
INDUSTRY EXAMPLES
State Bank of India (SBI) on Monday reduced its base rate by 30
basis points (bps) to 8.65% in response to a large number of its
older borrowers switching to the marginal cost of funds-based
lending rate (MCLR) regime.

WORD DEFINITION

- conceptualised by the RBI, it is a new model of banks

- accept restricted deposits (upto Rs. 1 lakh)
- cannot give loans / credit
Payments - both current and savings account can be operated
Bank
INDUSTRY EXAMPLES
Bharti Airtel launched India's rst live payments bank in March 2017;
Paytm followed the suit by launching it's payment bank in
November 2017.
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Top 50 Important Banking Terms

WORD DEFINITION

- it is the mechanism under which corrective actions are

undertaken on banks
- under PCA, RBI has put in place some trigger points to assess,
Prompt monitor and control weak banks
Corrective - once PCA is triggered by the regulator, the bank faces restrictions
Action on spending money on opening branches, recruiting staff and
(PCA) giving increments to employees
- tll date, there are 10 public sector banks that have come under PCA
INDUSTRY EXAMPLES
The RBI had revised the PCA framework on 13 April 2017. Since
then, ten Public Sector banks have been put under PCA.

WORD DEFINITION

- essentially an articial currency and is basket of national currencies

- created by the IMF and operates as a supplement to the existing
Special
reserves of member countries
Drawing
- SDRs augment international liquidity by supplementing the
Rights
standard reserve currencies
(SDR)
INDUSTRY EXAMPLES
The IMF said the yuan's inclusion will make the SDR more diverse
and representative of the international community.
WORD DEFINITION

- refers to the difference between the expected price of a trade and

the price at which the trade is actually executed
- often occurs during periods of higher volatility
Slippage - does not directly refer to a negative or positive movement

INDUSTRY EXAMPLES
Focus on recovery and control of slippages, says executive director
of Allahabad Bank

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Top 50 Important Banking Terms

WORD DEFINITION
- is a nancial security back by loan, lease or receivables against
assets other than real estate and mortgage-based securities
- gives its issuers a way to generate more cash, which, in turn, is
Asset-Backed used for more lending
Securities - gives investors the opportunity to invest in a wide variety of
(ABS) income-generating assets
INDUSTRY EXAMPLES
Moody's Investors Service says that India's structured nance market
will show a varied performance in 2018, with some stress evident in
asset-backed securities (ABS).

WORD DEFINITION

- dedicated bonds to be issued at the behest of the government for

recapitalizing the trouble hit Public Sector Banks
- money obtained from the sale of the bonds will be injected into
the PSBs as government equity funding
Recapitalisation - term recapitalisation means giving equity money to cover debt of
Bonds an entity
INDUSTRY EXAMPLES

The Lok Sabha last week gave its approval for Rs. 80,000 crore
recapitalisation bonds for strengthening public sector banks (PSBs).
WORD DEFINITION
- are bonds issued outside India but denominated in Indian Rupees,
rather than the local currency
- unlike dollar bonds, where the borrower takes the currency risk,
masala bonds make the investors bear the risk
Masala - In July 2016 HDFC raised 3,000 crore rupees from Masala bonds
Bonds and thereby became the rst Indian company to issue masala bonds
INDUSTRY EXAMPLES
A clutch of non-banking nance companies (NBFCs) have received
the Reserve Bank of India's (RBI) approval to sell masala bonds to
foreign investors abroad.
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Top 50 Important Banking Terms

WORD DEFINITION
- mechanism that central banks use when lending funds to primary
dealers
- ending facilities provide nancial institutions with access to funds
Lending in order to satisfy reserve requirements
Facility - also used to increase liquidity over longer periods
INDUSTRY EXAMPLES

China's central bank lent 398 billion yuan ($61.76 billion) to nancial
institutions on Monday via its 1-year medium-term lending facility,
citing a "relatively large" decrease in banking system liquidity.

WORD DEFINITION

- largely a fund raising tool for listed companies

- process which was introduced by SEBI so as to enable the listed
companies to raise nance through the issue of securities to
Qualied
qualied institutional buyers
Institutional
- allows an Indian-listed company to raise capital from its domestic
Placement
markets without the need to submit any pre-issue lings to market
regulators
INDUSTRY EXAMPLES

Domestic institutional investors pumped Rs 41,500 crore into

markets, but FIIs sold $3.2 billion of stocks.

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Top 50 Important Banking Terms

WORD DEFINITION

- is a monetary policy intervention by the RBI to withdraw excess

liquidity
- are special bonds oated on behalf of the government by the RBI
Market - are mostly shorter-tenure bonds, of less than six months maturity
Stabilisation - money raised under MSS is kept in a separate account called
Scheme (MSS) MSS account and not parked in the government account or utilised
Bonds to fund its expenditures
INDUSTRY EXAMPLES

When the demonetisation of Rs 500 and Rs 1,000 notes led to a

surge in deposits, the Reserve Bank of India asked banks to set
aside all deposits received between September 16, 2016 and
November 11, 2016 as cash reserve ratio or CRR. Later, market
stabilisation scheme (MSS) bonds were issued to manage the
excess liquidity.

WORD DEFINITION
- nation-wide payment system facilitating one-to-one funds transfer
- no limit – either minimum or maximum – on the amount of funds
that could be transferred using NEFT
- in NEFT, money is transferred in batches
Banking - settlements of fund transfer requests in NEFT system is done
Ombudsman on half-hourly basis
Scheme - there are twenty three half-hourly settlement batches run from
8 am to 7 pm on all working days of week (Except 2nd and 4th
Saturday of the month).
INDUSTRY EXAMPLES
As per the RBI directive, settlements of fund transfer requests in
NEFT system is now done on half-hourly basis.

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Top 50 Important Banking Terms

WORD DEFINITION

- type of gap nancing arrangement wherein the borrower can get

access to short-termloans for meeting short-term liquidity
requirements
Bridge - normally extended for a period of 12 months
Loan - provided at exorbitant rate of interest and are normally backed by
an asset collateral like equity, debentures etc
- loan to asset value ratio can be low depending on the risk
propensity of the lender
INDUSTRY EXAMPLES

According to a tender document, Air India was looking for bridge

loans worth up to $740 million to nance purchase of six Boeing
787-8 planes.

2018

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SBI PO IBPS PO RBI GRADE B IBPS CLERK IBPS SO NABARD SBI CLERK SIDBI
RBI ASSISTANT IPPB OFFICER IBPS RRB OFFICER IBPS RRB ASSISTANT LAKSHMI VILAS BANK

DENA BANK PO BOB MANIPAL BOM MANIPAL SYNDICATE BANK PO IDBI BANK PO

CAT CMAT XAT MHCET NMAT SNAP IIFT

UPSC SSC CGL LIC AAO UIIC AO RAILWAYS RRB LIC HFL UIIC Assistant NICL Assistant

OICL AO NICL AO NIACL AO IRDAI IB ACIO NIACL Assistant