Introduction to Banking and Financial Services
Introduction to Banking and Financial Services
This domain tests how well you can place banks inside India’s financial system and distinguish their functions from those of other financial institutions. Expect questions on the role of RBI, types of banks, and the services that support saving, borrowing, payments and risk transfer.
Core rules and concepts
- A financial system links savers, borrowers, investors and regulators through institutions and markets.
- Commercial banks accept demand deposits, lend, and provide payment services; cooperative banks are member-focused; regional rural banks serve rural credit; small finance banks lend to small borrowers; payments banks accept deposits and provide payments but cannot lend or issue credit cards.
- RBI regulates banks, money supply and payment systems; it does not regulate insurance companies, which are regulated by IRDAI.
- Financial services include insurance, mutual funds, pensions, NBFC lending, stock broking and payment services.
Worked example
A customer wants a savings account, a fixed deposit and a ₹1 lakh personal loan from one institution. A payments bank can open the account and accept the deposit, subject to its per-customer deposit limit, but cannot sanction the loan. The correct route is a commercial bank, small finance bank or NBFC for the credit need. Reasoning: the suitability test is not only whether it accepts deposits but whether lending is permitted by its licence.
Traps that cost marks
- Calling every financial institution a bank.
- Saying RBI regulates insurance.
- Ignoring licence restrictions on payments banks and small finance banks.
- Treating NBFCs as banks: they cannot accept demand deposits or issue cheques as banks do.