General Awareness: Banking, RBI Policy and Financial Schemes
General Awareness with special reference to banking tests the Indian financial system, RBI policy, government schemes and current affairs with a banking angle.
Core rules
- RBI functions: monetary authority, issuer of currency, banker to banks and government, manager of forex under FEMA, lender of last resort.
- Policy rates: repo (RBI lends against securities), reverse repo (RBI absorbs liquidity), MSF and bank rate above repo, CRR and SLR as reserve requirements.
- Money multiplier ≈ 1/CRR; a higher CRR curbs credit creation.
- Priority sector lending target is 40% of ANBC, with 18% for agriculture.
- An account is an NPA if overdue beyond 90 days; recovery tools include SARFAESI and the IBC.
Worked example
CRR rises from 4% to 5%. The theoretical money multiplier falls from 1/0.04 = 25 to 1/0.05 = 20. On a fresh deposit of ₹1,000 crore, maximum deposit creation falls from ₹25,000 crore to ₹20,000 crore - a ₹5,000 crore squeeze on credit.
Traps
- Reversing repo and reverse repo directions.
- Treating the bank rate as the day-to-day liquidity tool (that is repo).
- Confusing fiscal policy (government budget, taxes) with monetary policy (RBI).
- Reading a percentage-point change as a percentage change in GDP or inflation.
- Mixing small finance banks, payment banks and regional rural banks in ownership questions.