Risk Management interview preparation

Questions

100

Traced to a firm

37

Firms

12

Updated

September 2026

Asked at

All firmsUBS14MSCI7BLBlackRock5FTFranklin Templeton3Oaktree Capital Management2Scotiabank2Jane Street1Moody's1Neuberger Berman1PIMCO1SSState Street1TSTruist Securities1

Topic

All topicsMarket risk and VaR14Tail risk and stress testing5Greeks and sensitivities5Credit risk11Counterparty risk and CVA6Operational risk5Model risk and validation6Regulatory capital7Liquidity risk and ALM6Statistics and quant foundations7Indian regulation7Risk governance and appetite4Markets and macro9Fit and career8

Level

AnyCoreIntermediateHard

Type

AnyTechnicalCaseBrainteaserMarket viewFit

1. 073Walk me through how an Indian bank classifies a loan as non-performing under the IRAC norms.Indian regulationIntermediatetechnicalIndian bank risk and treasuryGlobal capability centres

   Say this

   Under RBI's income recognition and asset classification norms, an account becomes non-performing when principal or interest is overdue for more than 90 days. Before that it sits in special mention accounts, and after that it ages from substandard to doubtful to loss, with provisioning rising at each step.

   Then walk it

   1. Before default: SMA-0 is up to 30 days overdue, SMA-1 is 31 to 60 days, SMA-2 is 61 to 90. These are reported to the Central Repository of Information on Large Credits, so the whole system can see a large borrower slipping. That transparency is a genuinely good feature of the Indian framework.
   2. At 90 days past due the account is an NPA. For cash credit and overdrafts the trigger is the account being out of order, meaning continuously in excess of the limit or with insufficient credits to cover interest, for 90 days.
   3. Then ageing. Substandard for up to 12 months as an NPA. Doubtful after that, sub-divided by how long it's been doubtful. Loss when it's considered unrecoverable.
   4. Provisioning rises with the ageing: 15 percent on secured substandard and 25 percent on unsecured, then doubtful provisioning stepping up on the secured portion from 25 to 40 to 100 percent depending on the duration, with the unsecured portion at 100 percent throughout, and 100 percent for loss assets.
   5. Two things that catch people out. Income recognition stops: interest on an NPA can't be taken to the P&L unless actually received, and previously accrued unrealised interest has to be reversed. And borrower-level classification means all facilities of that borrower go NPA together, not just the delinquent one.
   6. Then the 2021 clarification on daily overdue recognition and on upgrading. An account can only be upgraded out of NPA when the entire arrears of interest and principal are paid, which stopped the practice of a token payment moving an account back to standard.
   7. The reason the framework is so prescriptive: rule-based and time-based classification removes management discretion. It's deliberately less judgemental than IFRS 9, and that's the trade-off, less economic sensitivity in exchange for far less gaming.
   8. Worth knowing the scale: gross NPAs in the Indian banking system peaked around 11 percent in 2018 and have fallen to the low single digits, and the asset quality review of 2015 to 2016 was what forced the recognition.

   Where candidates lose it

   Saying '90 days' and stopping. The interviewer wants the SMA buckets before it, the substandard-doubtful-loss ageing after it, the provisioning percentages, and the income reversal rule. For any India-based risk role, this is the most basic credit question there is and vagueness is fatal.

   Expect next

   • What are the SMA buckets and why do they exist?
   • What provisioning applies to a secured doubtful asset after two years?
   • When can an NPA be upgraded to standard?
2. 074How does RBI's implementation of Basel III differ from the global standard?Indian regulationIntermediatetechnicalIndian bank risk and treasuryRegulatory reporting

   Say this

   RBI is more conservative on capital and more cautious on internal models. Minimum CET1 is 5.5 percent rather than 4.5, so with the 2.5 percent conservation buffer minimum CRAR is 11.5 percent against Basel's 10.5. And most Indian banks remain on the standardised approach for credit risk.

   Then walk it

   1. Capital: CET1 at 5.5 percent, Tier 1 at 7, total at 9 percent before buffers, plus the 2.5 percent conservation buffer. So the effective minimum total capital is 11.5 percent, a full point above Basel's minimum, and that extra point is deliberate given the Indian credit cycle.
   2. D-SIB surcharges apply to SBI, HDFC Bank and ICICI Bank, in buckets, and the countercyclical capital buffer framework exists but has never been activated.
   3. Internal models: RBI has been slow to grant IRB approvals, so the system runs largely on standardised credit risk. The stated reason is data quality and model governance maturity. It costs Indian banks capital and it removes a whole class of model risk.
   4. Liquidity: LCR from 2015 and NSFR from 2021, both at 100 percent. The Indian twist is the interaction with the statutory liquidity ratio, since banks already hold large government bond portfolios, and RBI has allowed portions of SLR holdings to count as HQLA through facilities like the marginal standing facility carve-out.
   5. Asset classification is where the divergence is largest. India runs the rule-based IRAC 90-day framework with prescribed provisioning rather than IFRS 9 expected credit loss, so provisioning is time-based rather than forward-looking. RBI has published a draft framework to move to ECL, but implementation has been repeatedly deferred.
   6. Leverage ratio: 4 percent for D-SIBs and 3.5 percent for other banks, again above the Basel 3 percent minimum.
   7. Market risk: India has not implemented FRTB, and RBI issued draft directions on minimum capital for market risk that broadly track the sensitivities-based standardised approach. Trading books in Indian banks are dominated by government securities, so the AFS, HFT and HTM classification rules and the investment fluctuation reserve matter more in practice than FRTB would.
   8. The strategic read: RBI has consistently traded risk sensitivity for simplicity and conservatism, and it has been vindicated in the sense that the 2008 crisis barely touched Indian banks. The cost is that capital is less aligned to actual risk and banks have weaker internal modelling capability than European peers.

   Where candidates lose it

   Knowing the global numbers and not the Indian ones. For any India-based role the specific figures, CET1 5.5, CRAR 11.5, are expected. And the substantive point is that India runs IRAC rather than IFRS 9 and mostly standardised rather than IRB, which is a bigger difference than the ratios.

   Expect next

   • Why hasn't RBI granted many IRB approvals?
   • Which Indian banks are D-SIBs?
   • What would moving to ECL do to Indian bank provisions?
3. 075RBI has proposed moving Indian banks to an expected credit loss framework. What changes, and what are the risks?Indian regulationIntermediatesuperdayIndian bank risk and treasuryBank credit risk

   Say this

   It replaces rule-based, backward-looking IRAC provisioning with forward-looking modelled expected loss. Banks would have to provide for losses they expect rather than losses that have aged past 90 days, which front-loads provisions and makes them model-dependent for the first time.

   Then walk it

   1. What changes mechanically: three-stage staging instead of substandard, doubtful and loss; twelve-month expected loss on performing exposures and lifetime on deteriorated ones; and provisions from models rather than from a prescribed percentage table.
   2. The day-one impact is a step increase in provisions, because you start providing on the entire performing book rather than only on accounts already 90 days overdue. RBI's discussion paper flagged a transitional glide path over several years precisely to stop that hitting CET1 all at once.
   3. Who is affected most: banks with long-tenor retail and infrastructure books, because lifetime loss on a twenty-year exposure is a much larger number than a 15 percent substandard provision. Public sector banks with thinner capital buffers feel it more.
   4. The capability requirement is the real project. You need PD term structures, LGD estimates with Indian recovery data, EAD modelling, macroeconomic scenario models linked to GDP, inflation and sector variables, a model validation function, and audit-ready documentation. Most Indian banks are building that from a standing start.
   5. The risks. First, model risk becomes systemic: provisions are now an output of models nobody has validated through a full cycle, and Indian recovery data is thin and distorted by the IBC transition. Second, comparability falls, because two banks with identical books will report different provisions.
   6. Third, procyclicality. Forward-looking provisions rise when the macro forecast deteriorates, which hits capital in a downturn, and the Stage 1 to Stage 2 cliff makes the movement lumpy. That's the criticism IFRS 9 has attracted globally.
   7. Fourth, and it's the honest one for the Indian context: ECL introduces management judgement into a framework that was deliberately mechanical because judgement had been abused. IRAC exists because provisioning discretion produced evergreening. A supervisor moving to ECL has to build a challenge capability at the same time.
   8. My view if asked: it's the right direction because provisioning should reflect expected economics, but the sequencing matters more than the date. Model governance and supervisory challenge capacity have to be in place first, and a floor keeping IRAC-style minimum provisioning alongside ECL for a transition period is a sensible belt-and-braces.

   Where candidates lose it

   Describing IFRS 9 mechanics without the India-specific problem. The distinctive risk here is that IRAC's rigidity was a deliberate response to evergreening and provisioning discretion, so introducing judgement is a governance question, not just a modelling upgrade. Say that and you're clearly thinking about the Indian system rather than reciting an accounting standard.

   Expect next

   • Which banks would be hit hardest?
   • Would you keep a floor based on IRAC?
   • What data do Indian banks lack for this?
4. 076Explain SEBI's margin framework for cash and derivatives, and what problem peak margin reporting solved.Indian regulationIntermediatetechnicalClearing and marginIndian bank risk and treasury

   Say this

   SEBI requires margin to be collected upfront from the client before the trade, and it polices this by measuring margin at four random intraday snapshots and taking the peak, not the end-of-day figure. It was introduced because brokers were funding client positions intraday and showing a clean book at the close.

   Then walk it

   1. The components: SPAN margin, a portfolio-based initial margin from the clearing corporation's risk model, plus exposure margin or the extreme loss margin, plus mark-to-market. In the cash segment it's VaR margin plus extreme loss margin, with the VaR margin scaled by the stock's own volatility category.
   2. The peak margin rule: the clearing corporation takes four random snapshots during the day and the highest margin requirement of those is the one you must have collected. That killed the practice of building an intraday position on broker funding and squaring off before the close.
   3. Why it mattered: the Karvy and similar episodes showed brokers pledging client securities and running unfunded client exposure. Peak margin plus the separate rules on client securities pledging and the move to a margin pledge and re-pledge system in the depository were all part of the same response.
   4. Upfront collection changes the economics of intraday trading materially. Leverage available to a retail trader fell sharply, and the industry complained loudly, which is usually a sign a rule is biting.
   5. Then the T+1 settlement move, completed across Indian equities in 2023, which cut settlement risk and the margin required against it. India moved ahead of the US and Europe on this, and that's worth knowing because it's a genuine example of Indian market infrastructure leading.
   6. The risk-management logic underneath all of it: exchange-traded margin systems are designed so the clearing corporation survives a member default using only that member's collateral. Peak margin closes the gap between what was collected and the worst exposure during the day, which is when a default would actually happen.
   7. The trade-off to name: higher margin means less liquidity and higher cost for genuine hedgers, and it pushes activity toward products with lower margin, which is why there was a large shift into weekly index options. Margin rules change behaviour, not just risk.

   Where candidates lose it

   Talking about margin generically without the peak-margin snapshot mechanism, which is the distinctive Indian feature. And if you can't say what problem it solved, broker-funded intraday leverage and misuse of client collateral, you've learned the rule without the reason.

   Expect next

   • What's the difference between SPAN and exposure margin?
   • How did the industry respond to peak margin?
   • What did T+1 settlement change for risk?
5. 077What is RBI's prompt corrective action framework, and when does a bank go into it?Indian regulationIntermediatetechnicalIndian bank risk and treasuryRegulatory reporting

   Say this

   PCA is a supervisory ladder of automatic restrictions triggered when a bank breaches thresholds on capital, asset quality or leverage. The point is to force intervention early and by rule rather than by negotiation, so supervisory forbearance doesn't let a weak bank keep growing.

   Then walk it

   1. Three indicators in the revised 2021 framework: capital, meaning CRAR and CET1 against the regulatory minimum plus buffer; asset quality, meaning net NPA ratio; and leverage ratio. Profitability, previously an indicator through return on assets, was dropped as a trigger.
   2. Three risk thresholds, escalating. Threshold 1 brings restrictions on dividend distribution and promoter capital remittance. Threshold 2 adds a branch expansion restriction. Threshold 3 adds restrictions on capital expenditure and effectively puts the bank's growth and management under supervisory control.
   3. Across all thresholds there are mandatory actions plus discretionary ones RBI can add: restrictions on lending to certain segments, on deposit rates, on entry into new business lines, and management changes.
   4. The exit condition: no breaches for four continuous quarterly results, one of which must be audited, plus a supervisory comfort judgement on sustainability. So it's not automatic on one good quarter.
   5. History gives it credibility. Eleven public sector banks were in PCA around 2018, at the peak of the NPA cycle. Most have exited after recapitalisation and cleanup, and the framework has been extended in a modified form to government-owned NBFCs and to primary urban co-operative banks.
   6. The design argument for it: forbearance is the default failure mode of bank supervision everywhere, because acting early looks like causing the problem. Rule-based triggers take that discretion away, which is the same logic as the capital conservation buffer restricting dividends automatically.
   7. The criticism to volunteer: restricting lending at a weak bank is procyclical and can turn a capital problem into a franchise problem, and the market treats PCA entry as a stigma that accelerates deposit outflow. So the design has to balance early action against triggering the failure it's trying to prevent.

   Where candidates lose it

   Vagueness. This is a factual question and either you know the three indicators and three thresholds or you don't. If you only half-know it, say which indicators you're confident about rather than guessing the thresholds, because an Indian bank interviewer will know the framework cold.

   Expect next

   • Why was return on assets dropped as a trigger?
   • How does a bank exit PCA?
   • Is restricting lending at a weak bank the right response?
6. 078What is the large exposures framework, and how does RBI apply it?Indian regulationIntermediatetechnicalIndian bank risk and treasuryBank credit risk

   Say this

   It caps how much a bank can lend to one counterparty or connected group, measured against Tier 1 capital rather than total capital. In India the limit is 20 percent of eligible Tier 1 for a single counterparty, extendable to 25 with board approval, and 25 percent for a group of connected counterparties.

   Then walk it

   1. The key design choice is the denominator. Basel's LEX framework moved the base from total capital to Tier 1, which is a tighter constraint, and it counts exposure gross of most credit risk mitigation with only recognised substitution effects allowed.
   2. Connected counterparty definition does the real work. Control relationships and economic interdependence both count, so a promoter group's operating companies aggregate even without cross-guarantees. Indian corporate structures with layered holding companies made this genuinely difficult and genuinely necessary.
   3. Interbank exposures are captured too, and a global systemically important bank faces a tighter 15 percent limit on exposure to another G-SIB, which is the systemic contagion channel.
   4. Why it matters in India specifically: the 2013 to 2018 NPA cycle was substantially a concentration story. A handful of infrastructure and metals groups accounted for a large share of stressed assets across the system, and consortium lending meant every bank had the same names. A single-borrower limit alone doesn't fix a system-wide concentration.
   5. So the complementary tools: RBI's sector-specific prudential limits, the specific framework on large corporate borrowers requiring a share of incremental funding to come from the market rather than banks, and the CRILC reporting system that makes large exposures visible across lenders.
   6. From a risk-management seat, the limit is a floor not a target. Your internal single-name limit should be well inside 20 percent of Tier 1 and should be set off your own risk appetite and the capital impact, with sub-limits by sector and by tenor.
   7. The gap worth naming: the framework constrains direct credit exposure well and indirect exposure poorly. Common suppliers, common collateral, and common macro drivers create concentration that no counterparty limit catches, which is why stress testing has to sit alongside limits.

   Where candidates lose it

   Quoting the limit against total capital rather than Tier 1, or forgetting that connected counterparties aggregate on economic interdependence and not just on legal control. Group aggregation is the part with judgement in it and the part interviewers probe.

   Expect next

   • How do you decide whether two borrowers are connected?
   • What limit would you set internally, and why?
   • How do you manage concentration a counterparty limit can't see?

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.