Question on Some Banking Terminology
1. What is Sub-prime crisis? Borrowers are classified into two categories Prime and Sub-prime Prime borrowers are those with a good credit score Sub-prime borrowers are those with a less credit score Credit score is calculated based on number of factors like timely loan repayments (if previously taken),credit card limit. Lenders lend loans to sub-prime borrowers typically at the higher interest rates since the probability of defaults is high in such a case. 2. What is KYC? KYC means “Know Your Customer”. It is a process by which banks obtain information about the identity and address of the customers. This process helps to ensure that banks’ services are not misused. The KYC procedure is to be completed by the banks while opening accounts. Banks are also required to periodically update their customers’ KYC details. The KYC guidelines of RBI mandate banks to collect proofs from their customers. They are- 1. Proof of identity 2. Proof of address
