General Awareness with special reference to Banking and Financial Sector
Scope
General Awareness with special reference to Banking and Financial Sector tests static banking knowledge plus recent developments. Expect RBI functions and monetary policy tools, types of banks and accounts, negotiable instruments, priority sector lending, financial inclusion, payment systems, capital markets, insurance, and government schemes. Current affairs should be studied through a banking lens.
Core rules
- RBI is the central bank: it issues currency, manages monetary policy, acts as banker to banks and government, and regulates banks. It does not finance long-term industrial projects directly.
- Repo rate is the rate at which banks borrow short-term funds from RBI against securities; reverse repo absorbs liquidity. CRR is the share of net demand and time liabilities kept with RBI; SLR is held in approved securities.
- Fiscal policy belongs to the government; monetary policy belongs to RBI.
- SEBI regulates securities markets, IRDAI insurance, PFRDA pensions.
Worked example
If RBI raises the repo rate, the cost of short-term bank funds rises. Banks typically pass this on by raising lending rates, which can reduce credit demand and moderate inflation. This is a contractionary monetary move. It is not a fiscal measure, because government spending and taxation are unchanged.
Traps
Confusing repo with reverse repo; labelling CRR as a lending rate; mixing SEBI and RBI jurisdictions; and memorising schemes without knowing the implementing agency.