Judiciary — Structure, Functions & Justice System

Why This Chapter Matters

Since you are preparing for RRB NTPC, this chapter carries a double weight. Banking and RBI questions show up in every RRB and SSC General Awareness paper, typically 3 to 4 marks, and the Railway Budget angle is one examiners specifically like to test on railway recruitment papers because it is your own organisation's financial history. A candidate who cannot explain why the separate Railway Budget disappeared after 92 years is a candidate who has not read the fine print of the exam they are sitting for.

The biggest trap in this chapter is treating repo rate, reverse repo rate, CRR, and SLR as four interchangeable "RBI numbers" to memorise without understanding what each one actually locks up or releases. They move for different reasons and in different directions, and examiners build entire questions around a single word swap between two of them. This chapter walks through the RBI's structure, the different types of banks operating in India, the exact mechanics of each monetary policy tool, the Union Budget process with the Railway Budget's merger story, and the financial inclusion schemes that turned banking into something available to nearly every Indian household in the last decade.

The Reserve Bank of India — Structure and Functions

The Reserve Bank of India (RBI) is India's central bank, established on April 1, 1935, under the Reserve Bank of India Act, 1934, following the recommendations of the Hilton Young Commission. It began as a privately owned institution and was nationalised on January 1, 1949, becoming fully government-owned, a fact that surprises many students who assume it was always a public institution.

The RBI's headquarters is in Mumbai, and it is headed by a Governor, supported by Deputy Governors. Sir Osborne Smith was the first Governor, and C.D. Deshmukh was the first Indian Governor. The RBI's core job is to act as the guardian of the country's monetary and financial system, and its functions fall into a few clear buckets that exams test individually.

As the note-issuing authority, the RBI has the sole right to issue currency notes in India, except the one-rupee note and coins, which are issued by the Government of India (though the RBI puts even these into circulation on the government's behalf). Exam trap: students often say the RBI issues all currency including the one-rupee note; it does not — the one-rupee note is signed by the Finance Secretary, Government of India, not the RBI Governor.

As banker to the government, the RBI manages the government's banking transactions, handles public debt, and advises on financial matters. As banker's bank, the RBI holds reserves for commercial banks, lends to them when needed, and acts as the lender of last resort during a liquidity crunch, exactly like how a wholesale market keeper keeps emergency stock for retail shopkeepers who run short mid-day. As the custodian of foreign exchange reserves, the RBI manages India's forex reserves and regulates the foreign exchange market under the Foreign Exchange Management Act (FEMA), 1999. And as the regulator of the banking and credit system, the RBI licenses banks, supervises their operations, and sets monetary policy to control inflation and support growth.

The RBI's decisions on interest rates come from the Monetary Policy Committee (MPC), a six-member body set up in 2016, with three members from the RBI (including the Governor, who chairs it) and three external members appointed by the government. The MPC meets periodically to decide the repo rate based on its assessment of inflation and growth, replacing what used to be a purely internal RBI call before 2016.

Types of Banks in India

Understanding the bank landscape means sorting institutions by what they do and who owns them, not just their names.

The central bank is the RBI itself — it does not do retail banking with the public; it regulates the banks that do.

Commercial banks are the ones you and I use daily for deposits, loans, and payments. These split further into public sector banks (majority government-owned, like State Bank of India and Punjab National Bank), private sector banks (like HDFC Bank and ICICI Bank), foreign banks (like Citibank, operating in India but headquartered abroad), and regional rural banks (RRBs), set up specifically to serve rural and semi-urban credit needs, sponsored jointly by a central bank, a state government, and a public sector bank.

Exam trap: RRBs are a distinct legal category, established under the Regional Rural Banks Act, 1976, not merely a "rural branch" of a commercial bank. The first RRB, Prathama Grameen Bank, was set up in Moradabad, Uttar Pradesh, in 1975.

Cooperative banks operate on a cooperative basis, owned and run by their members, serving agriculture and small-scale needs at the state, district, and village level. They split into urban cooperative banks and rural cooperative credit institutions.

Payments banks, a newer category approved by the RBI from 2015 onward, can accept deposits (up to a limit) and offer payment and remittance services, but cannot issue loans or credit cards — a frequently tested restriction. India Post Payments Bank and Airtel Payments Bank are examples.

Small finance banks are another newer category, aimed at extending credit to underserved sections like small businesses, farmers, and micro-industries; unlike payments banks, they can lend, but they operate at a smaller scale than full commercial banks. AU Small Finance Bank and Ujjivan Small Finance Bank are examples.

Development banks, like NABARD (agriculture and rural development), SIDBI (small industries), and EXIM Bank (export-import finance), do not take public deposits the way commercial banks do; instead they provide long-term project finance and refinance to specific sectors.

Memory hook: Think of India's bank types as a hospital's departments. The RBI is the hospital's chief administrator, setting rules for everyone but not treating patients directly. Commercial banks are the general wards, handling everyday cases. Cooperative banks are the community health centres, member-run and local. Payments banks are the triage desk — they can register you and handle basic transactions but cannot perform surgery, meaning they cannot lend. Development banks are the specialist wings, like a dedicated cardiac unit, focused on one sector's deep, long-term needs.

Monetary Policy Tools — CRR, SLR, and Repo Rate

This is the section where students lose the most marks from simple confusion. Read slowly, and notice which tool moves money in which direction.

Cash Reserve Ratio (CRR)

CRR is the percentage of a bank's total deposits that it must keep with the RBI in cash form, earning no interest on it. If CRR is 4%, a bank holding ₹1,000 crore in deposits must park ₹40 crore with the RBI, untouched. When the RBI raises CRR, banks have less money left to lend, which tightens liquidity in the economy and helps control inflation. When the RBI lowers CRR, banks have more money to lend, which loosens liquidity and can boost growth.

Statutory Liquidity Ratio (SLR)

SLR is the percentage of a bank's total deposits that it must maintain in the form of liquid assets — cash, gold, or approved government securities — but crucially, these assets stay with the bank itself, not with the RBI. This is the single most tested difference between CRR and SLR.

Exam trap: CRR money sits with the RBI in cash and earns nothing; SLR assets sit with the bank itself and can include interest-earning government securities. Students frequently reverse this. Remember it as: CRR leaves the bank, SLR stays in the bank.

Repo Rate and Reverse Repo Rate

Repo rate is the interest rate at which the RBI lends short-term money to commercial banks against government securities as collateral. When the RBI raises the repo rate, borrowing becomes costlier for banks, so banks in turn charge higher interest on loans to customers, which cools down spending and inflation. When the RBI cuts the repo rate, borrowing becomes cheaper, encouraging banks to lend more and boosting economic activity.

Reverse repo rate is the mirror image: the interest rate the RBI pays commercial banks when banks park their surplus funds with the RBI. A higher reverse repo rate encourages banks to park more money with the RBI (since they earn more for doing so), pulling money out of circulation; a lower reverse repo rate discourages parking, pushing banks to lend that money out instead.

Picture repo rate as the interest you pay when you borrow money from a moneylender to run your shop, and reverse repo rate as the interest a bank offers you for depositing your shop's surplus cash overnight. When the moneylender (RBI) raises what it charges shopkeepers (banks) to borrow, shopkeepers borrow less and are choosier about lending it onward at higher rates — that cools the market down. That is the repo rate mechanism in one sentence.

Bank rate is another related but distinct tool: the rate at which the RBI lends long-term funds to banks, without any collateral requirement, unlike repo rate which requires government securities as collateral. Bank rate moves in the same direction as repo rate typically but is used less actively as a day-to-day policy tool today.

Marginal Standing Facility (MSF) is a window that lets banks borrow overnight funds from the RBI against government securities, usually at a rate slightly higher than the repo rate, meant as an emergency liquidity source when interbank lending options are exhausted.

Memory hook: For the CRR/SLR/Repo trio, remember "Lock, Keep, Borrow." CRR locks cash away at the RBI. SLR makes the bank keep liquid assets with itself. Repo rate is what the RBI charges when a bank needs to borrow from it. Three different verbs, three different tools, and none of them interchangeable on an answer sheet.

Open Market Operations (OMO)

Beyond these headline rates, the RBI also conducts Open Market Operations — buying and selling government securities in the open market to manage liquidity. When the RBI sells securities, it pulls money out of the banking system; when it buys securities, it injects money in. This tool works alongside CRR, SLR, and repo rate as part of the RBI's broader monetary policy toolkit.

The Union Budget and the Railway Budget's Merger

What the Union Budget Is

The Union Budget is the annual financial statement of the Government of India's estimated receipts and expenditures for the coming financial year (April 1 to March 31 in India). It is presented in Parliament by the Finance Minister, under Article 112 of the Constitution, which requires this "Annual Financial Statement" to be laid before both Houses each year.

The Union Budget traditionally gets presented on February 1, a date fixed from 2017 onward; before that, it was presented on the last working day of February. Presenting it a month earlier gives Parliament more time to pass it before the new financial year begins on April 1, and it lets ministries start spending on schemes right from day one of the new fiscal year instead of losing the first month to a stopgap "vote on account."

The Budget has two broad parts: revenue budget (revenue receipts like tax collections, and revenue expenditure like salaries and interest payments) and capital budget (capital receipts like loans and disinvestment proceeds, and capital expenditure like infrastructure and asset creation). A fiscal deficit occurs when total expenditure exceeds total receipts (excluding borrowings) in a year, meaning the government must borrow to cover the gap — a number every Budget-day newspaper headline reports the next morning.

The Railway Budget's Long History and Its Merger

For 92 years, India presented a separate Railway Budget, distinct from the general Union Budget, presented a day or two earlier in Parliament by the Railway Minister. This tradition traced back to the Acworth Committee (1920-21), a British-era body that recommended separating railway finances from the general government budget because railways were, by far, the largest commercial undertaking of the government and needed dedicated, businesslike financial planning rather than being buried inside general government accounts. The practice formally began in 1924.

Exam trap: Students often think the Railway Budget's separate presentation began at independence in 1947. It did not — it predates independence by over two decades, starting in 1924 based on the Acworth Committee's recommendation.

This separation continued through independent India for decades, giving railway ministers a high-profile annual moment to announce new trains, fare changes, and infrastructure plans separately from the rest of government finance. But in 2017, the government under Finance Minister Arun Jaitley merged the Railway Budget back into the Union Budget, ending the 92-year-old tradition. The last separate Railway Budget was presented in 2016 (for the 2016-17 financial year) by then Railway Minister Suresh Prabhu; the first merged Budget, covering railway finances within the general Union Budget, was presented on February 1, 2017.

The government's stated reasons for the merger included reducing the artificial distinction between railway finance and general government finance, giving the Railways access to the Finance Ministry's broader resource pool without the earlier requirement of paying a fixed annual "dividend" to the general government for capital it had borrowed, and simplifying the overall budgeting process. Since the merger, the Railways still gets its own detailed allocation and plan within the Union Budget documents, and Parliament still scrutinises railway finances closely, but there is no separate standalone Railway Budget speech anymore.

Think of it like a large joint family that used to keep the eldest son's shop accounts in a completely separate ledger from the household's main accounts, even though both drew from the same family wealth. Eventually the family decided to merge both ledgers into one book for simplicity, while still tracking the shop's expenses as a clearly marked section within that single book. That is exactly what happened to Railway finances in 2017 — still tracked in detail, just inside one consolidated document instead of a separate one.

Fiscal Responsibility and Budget Management (FRBM) Act

The FRBM Act, 2003 set targets for the government to reduce fiscal deficit and revenue deficit over time, aiming for greater fiscal discipline and transparency. It has been amended over the years to adjust deficit targets in response to changing economic conditions, including flexibility clauses that allow deviation from targets during exceptional circumstances like a war, a national calamity, or a major economic shock.

Financial Inclusion Schemes

Financial inclusion means ensuring that every individual, including those in rural and low-income segments, has access to formal financial services — a bank account, credit, insurance, and pension — rather than depending on informal and often exploitative sources like local moneylenders.

The flagship scheme here is the Pradhan Mantri Jan Dhan Yojana (PMJDY), launched on August 28, 2014, aiming to give every unbanked household access to a basic bank account with zero balance requirement, a RuPay debit card, and access to overdraft facilities and insurance cover linked to the account. It set a Guinness World Record for the highest number of bank accounts opened in a single week during its launch phase, and it remains the backbone of India's direct benefit transfer (DBT) system, letting government subsidies reach beneficiaries directly instead of leaking through middlemen.

Exam trap: PMJDY accounts require zero minimum balance, unlike regular savings accounts, which is precisely why it succeeded in bringing in rural and low-income account holders who could not otherwise maintain a minimum balance requirement.

Alongside PMJDY sit three insurance and pension schemes, all launched around May 9, 2015, that examiners frequently bundle together in a single question:

The Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) is a life insurance scheme offering ₹2 lakh cover in case of death for a small annual premium, available to individuals aged 18-50.

The Pradhan Mantri Suraksha Bima Yojana (PMSBY) is an accident insurance scheme offering ₹2 lakh cover for accidental death or full disability (and a lower amount for partial disability), for an even smaller annual premium, available to individuals aged 18-70.

The Atal Pension Yojana (APY) is a pension scheme targeted at workers in the unorganised sector, guaranteeing a fixed monthly pension between ₹1,000 and ₹5,000 after age 60, depending on the contribution amount and the age at which a subscriber joins.

Memory hook: Remember these three as "Life, Accident, Old Age" — PMJJBY covers life (death), PMSBY covers accident, and APY covers old age income. Same launch window, three different life stages covered.

Two more schemes round out the financial inclusion picture. MUDRA Yojana (Micro Units Development and Refinance Agency), launched in 2015, provides collateral-free loans up to ₹10 lakh to small and micro businesses, categorised into three tiers by loan size: Shishu (up to ₹50,000), Kishor (₹50,000 to ₹5 lakh), and Tarun (₹5 lakh to ₹10 lakh) — a naming pattern (infant, adolescent, youth) that mirrors the growth stage of the business being funded, and one exams like to test by asking which tier matches which loan range.

Stand-Up India, launched in 2016, supports bank loans between ₹10 lakh and ₹1 crore to at least one Scheduled Caste or Scheduled Tribe borrower and at least one woman borrower per bank branch, specifically to promote entrepreneurship among historically underrepresented groups.

Together, these schemes turned India's financial inclusion story from a policy aspiration into a working system within a single decade, and they remain some of the most frequently tested "scheme name, launch year, benefit amount" facts across every competitive exam that touches General Awareness.

Quick Revision — One-Line Facts

• The RBI was established on April 1, 1935, and nationalised on January 1, 1949.
• The RBI's headquarters is in Mumbai; its first Indian Governor was C.D. Deshmukh.
• The RBI issues all currency notes except the one-rupee note, which is issued by the Government of India.
• The Monetary Policy Committee (MPC), formed in 2016, has six members and decides the repo rate.
• Regional Rural Banks (RRBs) were established under the RRB Act, 1976; the first was Prathama Grameen Bank, Moradabad (1975).
• Payments banks can accept deposits but cannot issue loans or credit cards.
• CRR money is held with the RBI in cash form and earns no interest.
• SLR assets are held by the bank itself in liquid form, including interest-earning government securities.
• Repo rate is what the RBI charges banks for short-term borrowing.
• Reverse repo rate is what the RBI pays banks for parking surplus funds with it.
• Bank rate is for long-term lending by the RBI, without collateral, unlike repo rate.
• MSF lets banks borrow overnight from the RBI, usually above the repo rate, as an emergency window.
• The Union Budget is presented under Article 112 of the Constitution.
• India's financial year runs from April 1 to March 31.
• The Union Budget has been presented on February 1 since 2017, moved up from the last day of February.
• The Railway Budget's separate presentation began in 1924, based on the Acworth Committee (1920-21).
• The Railway Budget was merged into the Union Budget in 2017, ending a 92-year tradition.
• The last separate Railway Budget (2016-17) was presented by Suresh Prabhu in 2016.
• The FRBM Act, 2003 sets targets for fiscal and revenue deficit reduction.
• PMJDY was launched on August 28, 2014, offering zero-balance bank accounts with a RuPay card.
• PMJJBY offers ₹2 lakh life insurance cover; PMSBY offers ₹2 lakh accident insurance cover.
• Atal Pension Yojana guarantees a monthly pension of ₹1,000 to ₹5,000 after age 60.
• MUDRA Yojana (2015) offers collateral-free loans up to ₹10 lakh in three tiers: Shishu, Kishor, Tarun.
• Stand-Up India (2016) supports loans of ₹10 lakh to ₹1 crore for SC/ST and women entrepreneurs.

Memory Tables

Table 1: Monetary Policy Tools at a Glance

Tool	What It Controls	Held Where
CRR	% of deposits in cash	With the RBI
SLR	% of deposits in liquid assets	With the bank itself
Repo Rate	Rate RBI charges to lend to banks (short-term, with collateral)	—
Reverse Repo Rate	Rate RBI pays banks for parking surplus funds	—
Bank Rate	Rate RBI charges for long-term lending, no collateral	—
MSF	Emergency overnight borrowing window, above repo rate	—

Table 2: Financial Inclusion Schemes

Scheme	Launch Year	Core Benefit
PMJDY	2014	Zero-balance bank account + RuPay card
PMJJBY	2015	₹2 lakh life insurance
PMSBY	2015	₹2 lakh accident insurance
Atal Pension Yojana	2015	₹1,000-5,000 monthly pension after 60
MUDRA Yojana	2015	Collateral-free loans up to ₹10 lakh
Stand-Up India	2016	₹10 lakh-1 crore loans for SC/ST and women

Table 3: Types of Banks in India

Bank Type	Key Feature
Central Bank (RBI)	Regulates, does not do retail banking
Commercial Banks	Public, private, foreign — everyday retail banking
Regional Rural Banks	Rural credit, jointly sponsored (est. 1976)
Cooperative Banks	Member-owned, local/state level
Payments Banks	Accept deposits, cannot lend
Small Finance Banks	Lend to underserved sectors, smaller scale
Development Banks	NABARD, SIDBI, EXIM — long-term project finance

Practice MCQs

Q1. The Reserve Bank of India was nationalised in which year? (a) 1935 (b) 1949 (c) 1955 (d) 1969

Q2. Who among the following was the first Indian Governor of the RBI? (a) Osborne Smith (b) C.D. Deshmukh (c) Manmohan Singh (d) Raghuram Rajan

Q3. Which authority issues India's one-rupee note? (a) Reserve Bank of India (b) State Bank of India (c) Government of India (d) NITI Aayog

Q4. The Monetary Policy Committee, which decides the repo rate, was constituted in: (a) 2010 (b) 2014 (c) 2016 (d) 2019

Q5. Which of the following bank types is legally barred from issuing loans or credit cards? (a) Small finance banks (b) Regional rural banks (c) Payments banks (d) Cooperative banks

Q6. Under CRR, the reserve amount is held: (a) With the bank itself, in government securities (b) With the RBI, in cash form (c) With the Finance Ministry, in gold (d) With NABARD, in bonds

Q7. Which statement correctly distinguishes SLR from CRR? (a) SLR is held with the RBI in cash; CRR is held with the bank in securities (b) SLR is held with the bank itself in liquid assets; CRR is held with the RBI in cash (c) Both SLR and CRR are held with the RBI in cash (d) Both SLR and CRR are held with the bank itself

Q8. When the RBI raises the repo rate, the immediate effect on bank lending is typically: (a) Loans become cheaper, boosting spending (b) Loans become costlier, cooling spending and inflation (c) No effect on lending rates (d) Banks are forced to close

Q9. The Union Budget is presented in Parliament under which Article of the Constitution? (a) Article 110 (b) Article 112 (c) Article 280 (d) Article 356

Q10. Since which year has the Union Budget been presented on February 1 instead of the last working day of February? (a) 2014 (b) 2016 (c) 2017 (d) 2019

Q11. The separate Railway Budget tradition began in 1924 based on the recommendations of which committee? (a) Acworth Committee (b) Bhore Committee (c) Sarkaria Commission (d) Narasimham Committee

Q12. The Railway Budget was merged into the Union Budget in which year, ending a 92-year-old tradition? (a) 2014 (b) 2015 (c) 2016 (d) 2017

Q13. Pradhan Mantri Jan Dhan Yojana, launched in 2014, is best known for offering: (a) Loans up to ₹1 crore for entrepreneurs (b) Zero-balance bank accounts with a RuPay debit card (c) A monthly pension after retirement (d) Crop insurance for farmers

Q14. Under MUDRA Yojana, a loan of ₹3 lakh to a small business would fall under which category? (a) Shishu (b) Kishor (c) Tarun (d) Vriddhi

Q15. Stand-Up India, launched in 2016, specifically supports bank loans for: (a) Any citizen without restriction (b) At least one SC/ST borrower and one woman borrower per bank branch (c) Only government employees (d) Only urban cooperative societies

Answer Key

Q	Answer	Reason
1	(b)	The RBI was established in 1935 but nationalised, becoming government-owned, on 1 January 1949.
2	(b)	C.D. Deshmukh was the RBI's first Indian Governor; Osborne Smith was its first Governor overall.
3	(c)	The one-rupee note is issued by the Government of India, the sole exception to RBI's currency-issuing monopoly.
4	(c)	The MPC was set up in 2016, taking rate-setting out of the RBI's sole discretion and into a six-member committee.
5	(c)	Payments banks can accept deposits but are barred from lending or issuing credit cards, unlike small finance banks.
6	(b)	CRR requires banks to park a percentage of deposits with the RBI in pure cash form, earning no interest.
7	(b)	The core distinction: SLR stays with the bank in liquid assets, CRR leaves the bank and sits with the RBI in cash.
8	(b)	A higher repo rate raises banks' own borrowing cost, which they pass on as costlier loans, cooling demand and inflation.
9	(b)	Article 112 mandates the Annual Financial Statement (Union Budget) be laid before Parliament each year.
10	(c)	The Budget date moved to February 1 starting 2017, giving Parliament more time before the new fiscal year.
11	(a)	The Acworth Committee (1920-21) recommended separating railway finance, leading to the first separate Railway Budget in 1924.
12	(d)	The Railway Budget merged into the Union Budget in 2017, ending the practice that began in 1924.
13	(b)	PMJDY's signature feature is a zero-balance account bundled with a RuPay card and DBT access.
14	(b)	The Kishor tier covers loans from ₹50,000 to ₹5 lakh, so ₹3 lakh falls within it.
15	(b)	Stand-Up India mandates at least one SC/ST and one woman borrower per bank branch to promote inclusive entrepreneurship.