Banking Awareness Capsule

5A.1 The Reserve Bank of India (RBI)

The RBI, established in 1935 and headquartered in Mumbai, is India's central bank. It is responsible for monetary policy, currency issuance, banking regulation, and maintaining financial stability. The RBI's key policy rates include the Repo Rate (the rate at which the RBI lends to commercial banks), the Reverse Repo Rate (the rate at which the RBI borrows from commercial banks), the Cash Reserve Ratio (CRR — the percentage of deposits banks must hold with the RBI), and the Statutory Liquidity Ratio (SLR — the percentage of deposits banks must maintain in liquid assets like cash, gold, or government securities).

5A.2 Types of Banks in India

India's banking structure includes the RBI (central bank), public sector banks (majority government-owned, such as the State Bank of India), private sector banks, regional rural banks (RRBs), cooperative banks, and payment banks (which cannot lend but can accept deposits and facilitate payments).

5A.3 Key Banking Terms

NPA (Non-Performing Asset) refers to a loan on which the borrower has stopped making interest or principal payments for a specified period. KYC (Know Your Customer) is the process banks use to verify customer identity. NEFT, RTGS, and IMPS are electronic fund transfer systems, differing mainly in settlement speed and transaction limits — RTGS is for high-value, real-time transfers, while NEFT is batch-settled and IMPS is instant, 24/7.

5A.4 Financial Inclusion Schemes

The Pradhan Mantri Jan Dhan Yojana (PMJDY) aims to provide universal access to banking services. The Pradhan Mantri Mudra Yojana (PMMY) provides collateral-free loans to small businesses. Atal Pension Yojana (APY) provides a pension scheme for workers in the unorganised sector.

5A.5 Monetary Policy Committee (MPC)

The Monetary Policy Committee, established in 2016, is responsible for setting the repo rate to control inflation and support growth. It is headed by the RBI Governor and includes six members, with decisions taken by majority vote.

5A.6 Practice Set (10 MCQs)

1. The Reserve Bank of India was established in which year?
   (a) 1935 (b) 1947 (c) 1950 (d) 1926
2. Which rate is the rate at which the RBI lends money to commercial banks?
   (a) Repo Rate (b) Reverse Repo Rate (c) Bank Rate (d) Base Rate
3. Which type of bank cannot lend money but can accept deposits?
   (a) Public sector bank (b) Payment bank (c) Regional rural bank (d) Cooperative bank
4. What does NPA stand for in banking?
   (a) Non-Performing Asset (b) Net Profit Amount (c) National Payment Authority (d) New Product Account
5. Which fund transfer system is used for real-time, high-value transactions?
   (a) NEFT (b) IMPS (c) RTGS (d) UPI
6. The Pradhan Mantri Jan Dhan Yojana primarily aims to:
   (a) Provide pension to senior citizens (b) Provide universal access to banking services (c) Provide collateral-free business loans (d) Provide health insurance
7. Which percentage of deposits must banks maintain with the RBI as CRR?
   (a) A percentage fixed by the RBI, revised periodically (b) A fixed 50% always (c) 100% (d) 0%, it is optional
8. The Monetary Policy Committee (MPC) was established in which year?
   (a) 2016 (b) 2010 (c) 2000 (d) 2020
9. Who heads the Monetary Policy Committee?
   (a) The RBI Governor (b) The Finance Minister (c) The Prime Minister (d) The SEBI Chairman
10. The Pradhan Mantri Mudra Yojana primarily provides:
    (a) Pension for the unorganised sector (b) Collateral-free loans to small businesses (c) Health insurance for the poor (d) Housing loans for farmers

Answer Key:

1.(a) The RBI was established in 1935.

2.(a) The Repo Rate is the rate at which the RBI lends to commercial banks.

3.(b) A payment bank can accept deposits and facilitate payments but cannot extend loans.

4.(a) NPA stands for Non-Performing Asset.

5.(c) RTGS (Real Time Gross Settlement) is used for real-time, high-value transactions.

6.(b) The PMJDY aims to provide universal access to banking services.

7.(a) The CRR percentage is fixed by the RBI and revised periodically based on monetary policy needs.

8.(a) The MPC was established in 2016.

9.(a) The RBI Governor heads the Monetary Policy Committee.

10.(b) The PMMY provides collateral-free loans to small and micro businesses.