Banking Awareness: Key Facts and 10 Solved MCQs

Banking and financial awareness is the section where preparation pays off fastest, because most of it is stable knowledge. This guide covers the facts that repeat across bank papers.

The Reserve Bank of India

• Set up in 1935 under the RBI Act and headquartered in Mumbai
• Issues currency notes (except the one-rupee note, which the Finance Ministry issues)
• Acts as banker to the government and to commercial banks
• Controls credit through the repo rate, reverse repo rate, CRR and SLR

Monetary policy terms

• Repo rate: the rate at which the RBI lends short-term money to banks
• Reverse repo rate: the rate at which the RBI borrows from banks
• CRR: the share of deposits a bank must keep with the RBI in cash
• SLR: the share of deposits a bank must keep with itself in liquid assets such as cash, gold and government securities

Regulators and institutions

• SEBI: the securities market
• IRDAI: insurance
• NABARD: agriculture and rural credit
• NPCI: retail payment systems such as UPI and RuPay

Types of banks in India

• Commercial banks: public sector, private sector and foreign banks. Fourteen large banks were nationalised in 1969 and six more in 1980
• Regional Rural Banks (RRBs): serve rural areas, owned jointly by the Centre, the state and a sponsor bank
• Co-operative banks: run on a co-operative basis, with urban and rural co-operatives
• Small finance banks and payments banks: serve small borrowers and accept small deposits, with payments banks not lending
• Development institutions: NABARD (1982) for agriculture and rural credit, SIDBI (1990) for small industry, and EXIM Bank (1982) for trade finance

Digital payments and money transfer

• UPI: an instant payment system run by NPCI, launched in 2016
• NEFT: transfers funds in batches, and it works round the clock since December 2019
• RTGS: real-time transfer for large amounts, with a minimum of ₹2 lakh
• IMPS: instant transfer at any time
• IFSC: an 11-character code that identifies a bank branch, with four letters, a zero and six characters

Financial inclusion

The Pradhan Mantri Jan Dhan Yojana, launched on 28 August 2014, aims to give every household a bank account. KYC, or Know Your Customer, is the process by which banks verify the identity of customers. Business correspondents and banking agents take services to remote areas, and these ideas feature often in the financial awareness section.

A worked example on CRR

If the CRR is 4% and a bank has deposits of ₹500 crore, it must keep 4% of ₹500 crore, or ₹20 crore, with the RBI in cash. A rise in the CRR reduces the money available for loans, so it tightens credit. A fall in the repo rate makes borrowing cheaper for banks and usually leads to lower loan rates.

Important terms

• NPA: a loan on which interest or principal has not been paid for 90 days
• Inflation: a general rise in prices
• Basel norms: international standards on the capital banks must hold
• Priority sector lending: lending to sectors such as agriculture, small business and housing

J&K Bank

Jammu and Kashmir Bank was founded in 1938 and has its headquarters in Srinagar. It is classified as a private sector bank, with the Union Territory government as the largest shareholder. Questions on the bank often ask for its founding year and head office.

Questions candidates ask

Are static facts or current affairs more important? Both matter. Static facts such as the RBI, regulators and monetary terms are stable, and current affairs change, so revise the last six months.

What is the difference between repo and reverse repo? Under repo, the RBI lends to banks. Under reverse repo, the RBI borrows from banks.

Which body regulates insurance? IRDAI.

One more point to remember

Keep a one-page sheet of rates and ratios, such as the repo rate, the reverse repo rate, the CRR and the SLR, and update it whenever the RBI announces a change.

Practise

Try the 10 MCQs below, then practise the General and Financial Awareness topics for J&K Bank PO. See the syllabus guide for the full plan.