Banking and Financial Services - Study Guide
This domain tests how banks mobilise deposits, lend, manage reserves and provide financial services. Expect questions on CRR/SLR, NPA classification, payment systems and non-fund services.
Core ideas
- Banks accept demand deposits and time deposits and create credit; NBFCs cannot accept demand deposits.
- CRR is the share of net demand and time liabilities kept as cash with RBI; SLR is held in approved liquid assets such as government securities.
- A loan becomes an NPA when interest or principal is overdue for more than 90 days, subject to RBI norms.
- CASA = current account plus savings account deposits; it is a low-cost funding source.
- Payment systems include RTGS (high-value, real-time), NEFT (batch, any value) and UPI (instant retail payments).
- Financial services include leasing, factoring, merchant banking, credit rating, mutual funds and insurance distribution.
Worked example
A bank has net demand and time liabilities of ₹100 crore. CRR is 4% and SLR is 18%. It must keep ₹4 crore as cash with RBI and hold ₹18 crore in approved securities. The remaining funds are not automatically all lendable: the bank also needs cash for withdrawals, capital and loan demand. If a ₹10 lakh loan is overdue for 100 days, it is classified as an NPA, and the bank must make provisioning as per norms.
Traps
CRR balances with RBI do not earn interest, while SLR securities generally do. Do not say a bank can lend every rupee above CRR and SLR. NPA classification depends on overdue days, not only on security. RTGS is not the same as NEFT. UPI is a payment interface, not a bank.