Banking, Insurance and Financial Services
This domain tests what banks do, types of accounts and payment channels, the principles of insurance, and the main financial services and regulators.
Banking
A bank accepts deposits from the public and lends. Primary functions: accepting deposits (savings, current, fixed, recurring) and lending (cash credit, overdraft, term loans). Secondary functions: agency work (cheque collection, standing orders) and general utility (lockers, drafts, forex).
Types: commercial banks (public and private), cooperative banks, regional rural banks, payment banks and small finance banks. The Reserve Bank of India regulates banking, using tools such as the repo rate, CRR and SLR. NEFT, RTGS and UPI are payment systems, and KYC is compulsory.
Insurance
Insurance transfers risk to an insurer for a premium. Principles: insurable interest, utmost good faith, indemnity, subrogation, contribution and proximate cause. Life insurance is not a contract of indemnity - a fixed sum assured is paid - while fire, marine, health and motor insurance are. IRDAI regulates insurance.
Financial services
Mutual funds pool savings and invest them; SEBI regulates securities markets; NPS and post-office schemes support long-term saving; NBFCs lend but cannot accept demand deposits.
Worked example
A house worth ₹20 lakh insured for ₹20 lakh suffers ₹5 lakh fire damage. Indemnity means the claim is ₹5 lakh (the actual loss), not the sum insured. If life cover of ₹20 lakh is held, death under a covered cause pays ₹20 lakh, because life cannot be measured in money.
Traps
Treating life insurance as indemnity; expecting profit from a general insurance claim; calling payment banks full-service lenders (they cannot lend or issue credit cards); mixing the roles of RBI and IRDAI.