RBI and Banking System

🟢 Lite — Quick Review (1h–1d)

Rapid summary for last-minute revision before your exam.

• RBI (Reserve Bank of India) is India’s central bank; established 1935 under RBI Act 1934; Governor heads it
• Commercial Banks: Scheduled Commercial Banks (SCBs) + Unscheduled Banks
• Scheduled Commercial Banks: PSU Banks (SBI + 11 associates), Private Sector Banks (old + new), Foreign Banks, Regional Rural Banks (RRBs)
• Key institutions: NABARD (agriculture credit), SIDBI (MSME credit), EXIM Bank (exports/imports), NHB (housing)
• Cooperative banks: Primary Agricultural Credit Societies (PACS) → District Central Cooperative Banks → State Cooperative Banks
• ⚡ RRBs were created to serve rural areas; they are jointly owned by GOI and State Governments — important for financial inclusion

---

🟡 Standard — Regular Study (2d–2mo)

Standard content for students with a few days to months.

Indian Banking System and Structure

The Indian banking system is one of the largest and most complex in the world, with a deep reach into urban, semi-urban, and rural areas. Understanding its structure is fundamental for any banking exam aspirant.

Reserve Bank of India (RBI)

Genesis

• Established on April 1, 1935, under the Reserve Bank of India Act, 1934
• Nationalised on January 1, 1949 (post-independence)
• Its preamble commits it to: “to regulate the issue of bank notes and the supply of credit to the economy”

Management Structure

• Governor: Head of RBI; appointed by GOI (currently Sanjay Malhotra as of December 2024)
• Deputy Governors: Four; each responsible for specific functions (Monetary Policy, Financial Markets, Regulatory, and Corporate Services)
• Central Board: Directors from various fields; meets six times a year
• Local Boards: For regional oversight

Key Functions of RBI

1. Monetary Authority: Formulates and implements monetary policy (repo rate, reverse repo, CRR, SLR)
2. Issuer of Currency: Issues and manages all Indian currency notes (except ₹1 coin, issued by GOI)
3. Banker to Banks: Acts as banker to all scheduled commercial banks; maintains their accounts
4. Banker to Government: Acts as banker and fiscal agent to the Central and State Governments
5. Regulator and Supervisor: Regulates and supervises banks and financial institutions
6. Foreign Exchange Manager: Manages India’s foreign exchange reserves; administers FEMA
7. Developmental Role: Promotes financial inclusion, digital payments, financial literacy

Structure of Commercial Banks in India

Scheduled vs Unscheduled Banks

Scheduled Commercial Banks (SCBs) are those listed in the Second Schedule of the RBI Act, 1934. They must have a minimum paid-up capital of ₹5 lakhs.

Unscheduled Banks are those not listed in the Second Schedule — they cannot avail of RBI’s credit facilities.

SCBs are divided into:

1. Public Sector Banks (PSBs)

Majority ownership (more than 50%) held by the Government of India.

State Bank of India (SBI) Group:

• SBI (largest bank in India; market leader)
• 11 Associate Banks (now merged into SBI or privatised — e.g., SBI’s erstwhile associates like SBP, SBM, SBT have been merged)
• Total dominance of the Indian banking market (~23% of all bank assets)

Nationalised Banks (11 as of recent mergers):

• Punjab National Bank (merged with OBC and UNITED bank to form PNB)
• Bank of Baroda (merged with Dena Bank and Vijaya Bank)
• Canara Bank (merged with Syndicate Bank)
• Union Bank of India (merged with Andhra Bank and Corporation Bank)
• Bank of India, Central Bank of India, Indian Bank, Indian Overseas Bank, UCO Bank, Punjab & Sind Bank

Note: As of 2024, there were talks of further consolidation of PSBs.

2. Private Sector Banks

Old Private Sector Banks (established pre-independence):

• HDFC Bank (largest private sector bank)
• ICICI Bank
• Axis Bank
• Kotak Mahindra Bank
• IDBI Bank (partly private, partly government)
• Yes Bank (reconstructed in 2020 after RBI put it under moratorium)

New Private Sector Banks / Small Finance Banks / Payments Banks:

• Post-2016 RBI licensing: IDFC First Bank, AU Small Finance Bank, Equitas Small Finance Bank, Jana Small Finance Bank
• Paytm Payments Bank, India Post Payments Bank (payments bank category)

3. Foreign Banks

Operating in India through subsidiaries or branches: HSBC, Citibank, Standard Chartered, Deutsche Bank, etc. They operate under RBI’s regulatory framework and have restricted branch expansion.

4. Regional Rural Banks (RRBs)

• Established in 1975 under RRB Act 1976
• Ownership: 50% by GOI, 35% by State Government, 15% by Sponsor Bank
• Purpose: Serve rural agriculturalists, small farmers, artisans, and rural entrepreneurs
• Example: Pragati Bank, Karnataka Gramin Bank, Andhra Pradesh Gramin Bank
• Currently undergoing consolidation — several RRBs have been merged

Development Financial Institutions (DFIs)

NABARD (National Bank for Agriculture and Rural Development)

• Established 1982; apex institution for agricultural credit
• Refinances cooperative banks and RRBs
• Implements government schemes: KCC, PM-KISAN
• Supervises Cooperative banks and RRBs

SIDBI (Small Industries Development Bank of India)

• Apex institution for MSME sector
• Refinances and provides direct credit to MSMEs
• Works with Mudra loans, startup India

EXIM Bank (Export-Import Bank of India)

• Provides export credit and development finance
• Supports India’s foreign trade

NHB (National Housing Bank)

• Apex institution for housing finance
• Regulates and refinances housing finance companies

Cooperative Banking Structure

Short-Term Cooperative Credit Structure:

3-tier system:

1. Primary Agricultural Credit Societies (PACS): Village level; direct lending to farmers
2. District Central Cooperative Banks (DCCBs): District level; finance PACS
3. State Cooperative Banks (SCBs): State level; refinance DCCBs

Urban Cooperative Banks (UCBs):

• Cater to urban and semi-urban populations
• Regulated and supervised by RBI
• Include well-known banks like Saraswat Bank, Cosmos Bank, MS Co-op Bank

---

🔴 Extended — Deep Study (3mo+)

Comprehensive coverage for students on a longer study timeline.

Types of Bank Accounts

Based on Deposit Type:

• Current Account: Demand deposits; no interest paid; unlimited transactions; used by businesses
• Savings Bank Account: Interest-bearing; restrictions on withdrawals (post-III withdrawal rules removed)
• Fixed Deposit (Term Deposit): Deposit for fixed period; higher interest; premature withdrawal penalty
• Recurring Deposit: Fixed monthly deposit for a fixed period; used for regular savers

Based on Ownership:

• Single Account: One individual
• Joint Account: Two or more individuals; can be either-or-survivor or jointly operated

Basic Banking Terminology for Clerk Exam

• Cash Reserve Ratio (CRR): Percentage of NDTL that banks must maintain with RBI (no interest)
• Statutory Liquidity Ratio (SLR): Percentage of NDTL that banks must maintain in liquid assets (cash, gold, government securities)
• Repo Rate: Rate at which RBI lends to banks (short-term borrowing)
• Reverse Repo Rate: Rate at which RBI borrows from banks (excess liquidity absorption)
• Bank Rate: Long-term rate at which RBI provides loans to banks (now largely historical, replaced by MSF)
• Marginal Standing Facility (MSF): Rate at which banks can borrow from RBI overnight against government securities (above SLR)

Recent Banking Reforms and Changes

1. PSL (Priority Sector Lending) Guidelines: Banks must lend 40% of ADV to priority sectors (agriculture, MSMEs, education, housing, etc.)

2. KYC/AML Norms: Know Your Customer and Anti-Money Laundering guidelines mandatory for all accounts

3. Digital Banking: UPI becoming dominant payment mode; branch banking vs digital banking shift

4. Bank Mergers: Major consolidation of PSBs announced — aimed at creating stronger, globally competitive banks

5. Prompt Corrective Action (PCA): RBI can place banks under PCA for breaching capital, NPA, or profitability thresholds

---

Content adapted based on your selected roadmap duration. Switch tiers using the selector above.