General Awareness and Banking Awareness: RBI Framework and Institutional Facts
This domain tests static banking knowledge, the RBI's operating framework, financial institutions, and flagship government schemes. It rewards precise recall rather than opinion, and most marks are lost through half-remembered numbers.
Monetary policy instruments
- Cash Reserve Ratio (CRR), under Section 42 of the RBI Act, 1934, is the share of Net Demand and Time Liabilities (NDTL) held as cash with the RBI. It earns no interest.
- Statutory Liquidity Ratio (SLR), under Section 24 of the Banking Regulation Act, 1949, is held in cash, gold or approved securities, and does earn a return.
- Repo is the rate at which the RBI lends to banks against government securities. The Standing Deposit Facility (SDF) and reverse repo absorb liquidity at the corridor floor; the Marginal Standing Facility is the ceiling.
- The Monetary Policy Committee has six members, three from the RBI and three nominated by the Government, meets at least four times a year, and targets CPI inflation of 4% within a band of plus or minus 2%.
Institutions to anchor
Central Bank of India was founded in 1911 as the first commercial bank wholly owned and managed by Indians, and was nationalised in 1969 in the first round of 14 banks; its head office is in Mumbai. Deposit insurance through DICGC covers up to 5 lakh rupees per depositor per bank, covering principal plus interest.
Worked example
Suppose the repo rate is cut by 25 basis points while CRR is unchanged. Banks' marginal cost of funds falls, so rates on fresh loans can decline; deposit rates adjust with a lag, temporarily supporting net interest margin. Because CRR balances earn nothing, an unchanged CRR causes no direct income loss.
Traps that cost marks
Reverse repo and SDF absorb liquidity; they are not lending windows. CRR earns no interest while SLR securities do. The Bank Rate is the penal rate aligned near the MSF, not the policy repo rate.