Banking, Insurance and Financial Services
This domain covers how banks mobilise deposits and create credit, how the RBI controls them, how insurance transfers risk, and what other financial services exist. Definitions, principles and one small calculation are typical.
Banking essentials
- RBI was established on 1 April 1935 and nationalised in 1949; it issues notes under the minimum reserve system of ₹200 crore (since 1957), acts as banker to government and as lender of last resort, and controls credit through CRR, SLR, repo rate, bank rate and open market operations.
- Deposits: savings, current (no interest), fixed, recurring. Payments: cheque, demand draft, NEFT (no minimum), RTGS (minimum ₹2 lakh, no maximum), UPI.
Insurance principles
Insurable interest, utmost good faith, indemnity, subrogation, contribution and proximate cause. Life insurance is not a contract of indemnity - it pays a sum assured - while fire and marine insurance are.
Worked example (average clause)
A fire policy has sum insured ₹4,00,000 on property worth ₹5,00,000; loss by fire is ₹2,00,000. Under-insurance applies: claim = loss × (sum insured ÷ actual value) = 2,00,000 × 4/5 = ₹1,60,000. Had the property been insured for its full ₹5,00,000, the full ₹2,00,000 would be payable. The insured bears the shortfall for under-insuring.
Traps that cost marks
- Treating life insurance as indemnity; insurable interest in life is needed only at the time of the contract.
- Quoting RTGS as having a maximum limit, or NEFT as having a minimum.
- Confusing CRR (cash with RBI) with SLR (liquid assets with the bank itself).
- Calculating the claim on the loss alone and ignoring the average clause.