General / Banking Awareness: Institutions and Rates
What the section tests
General/Banking Awareness tests the institutional framework of Indian banking - who regulates what, which rate does what, and how money moves. It overlaps with current affairs but rewards stable facts more than headlines.
Core rules
- RBI (established 1935, nationalised 1949) regulates banks, issues currency and conducts monetary policy. The Banking Regulation Act, 1949 governs banking companies.
- Policy rates: repo is RBI lending to banks against securities; reverse repo is RBI borrowing; CRR is cash parked with RBI earning no interest; SLR is liquid assets the bank holds itself. Raising CRR or repo tightens liquidity.
- Priority Sector Lending: 40% of Adjusted Net Bank Credit for domestic commercial banks, with 18% for agriculture.
- Payment systems: RTGS is high-value and real-time (minimum ₹2 lakh); NEFT works in batches; IMPS runs 24×7; UPI uses a virtual payment address; CTS clears cheques by image.
- DICGC insures deposits up to ₹5 lakh per depositor per bank.
Worked example
RBI raises the repo rate from 6.50% to 6.75%. What follows? Repo is the rate at which banks borrow short-term funds from RBI, so a 25 bps hike raises their marginal cost of funds. Lending rates linked to an external benchmark reset, deposit rates typically follow, borrowing becomes costlier, loan demand cools and inflation pressure moderates. Reverse repo, CRR and SLR have not changed - do not claim they moved.
Traps that cost marks
Swapping repo and reverse repo; saying CRR earns interest; mixing fiscal policy (government, taxes) with monetary policy (RBI); confusing NEFT with RTGS on settlement timing; and dating the RBI to 1949 instead of 1935.