General Awareness with special reference to Banking, Treasury and Financial Markets
This section combines current banking and financial-market awareness with static concepts from RBI policy, money markets, government securities and treasury risk. Questions test precise definitions-issuer, tenor, instrument type-and the direction of policy effects.
Core rules
- Policy corridor: repo rate is the RBI's lending rate against securities; reverse repo and the Standing Deposit Facility absorb liquidity; MSF is the upper bound for bank borrowing. CRR is cash held with RBI and earns no interest; SLR is held in approved liquid assets and earns a return.
- MPC: six members (three RBI, three government-nominated), with the Governor holding a casting vote. Flexible inflation target: 4% CPI with a ±2% band.
- Money market: T-bills are zero-coupon, issued by the Government of India in 14, 91, 182 and 364-day tenors; commercial paper is unsecured corporate paper up to one year; certificates of deposit are issued by banks; call money is typically one-day funds.
- G-Secs: dated securities and SDLs; yields move inversely to prices. OMO purchases inject liquidity and support bond prices.
- Treasury risk: duration measures price sensitivity; LCR and NSFR are Basel III liquidity ratios.
Worked example
A 91-day T-bill with face value ₹100 trades at ₹98.50. Discount = ₹1.50. Yield = (1.50 / 98.50) × (365 / 91) × 100 ≈ 6.11% per annum.
Traps
Swapping CRR and SLR; reversing the repo and reverse repo directions; naming companies as T-bill issuers; confusing SDLs (states) with central government G-Secs; forgetting that rate cuts raise bond prices; relying on stale current-affairs cut-offs.