Banking and Financial Awareness: Regulators, Policy Tools and Payment Systems
Banking and financial awareness checks whether you know who regulates what, how policy rates transmit into lending rates, and which payment or inclusion scheme does which job - facts a credit officer uses daily without looking them up.
Regulator and statute map
- RBI (established 1935, nationalised 1949): currency issue, banker to government, lender of last resort, forex custodian, monetary authority.
- CRR flows from Section 42 of the RBI Act, 1934; SLR from Section 24 of the Banking Regulation Act, 1949; bank licensing under Section 22 of the BR Act.
- Monetary Policy Committee: six members, inflation target 4% with a ±2% tolerance band.
Policy and liquidity tools
Repo, reverse repo, Marginal Standing Facility (penal, above repo), Standing Deposit Facility (uncollateralised absorption, below repo), OMO, CRR, SLR and the LAF corridor that these rates define.
Institutions and schemes
Small Finance Banks (75% priority-sector obligation), Payments Banks (₹2 lakh deposit cap), RRBs, DICGC cover of ₹5 lakh per depositor per bank, CGTMSE guarantees, Mudra (Shishu/Kishor/Tarun), PMJDY, and NPCI rails - UPI, IMPS, AePS, NEFT (24x7, no minimum) and RTGS (₹2 lakh minimum, real time).
Worked example
A bank mobilises a ₹100 crore deposit. With CRR at 4% and SLR at 18%, ₹22 crore is locked with RBI or in approved securities, leaving ₹78 crore free to lend before the money multiplier works on it. Raise SLR by one percentage point and ₹1 crore of lending capacity disappears from that deposit.
Traps
- Reversing the direction of SDF and MSF.
- Believing RTGS has no minimum ticket - it is ₹2 lakh.
- Treating DICGC cover as ₹5 lakh per account rather than per depositor per bank.