Four things worth knowing from the Reserve Bank of India’s releases, and for each one the underlying concept that exams actually ask about. Every item links to the official release, so you can read the primary source rather than take our word for it.
A note on how to read this. We summarise what the release says and we do not extrapolate. Where a release states an action without stating a figure, you will find the action here and not a figure, because inventing the detail is exactly how a current affairs digest becomes useless.
Rabobank removed from the Second Schedule
The RBI has excluded Coöperatieve Rabobank U.A. from the Second Schedule to the Reserve Bank of India Act, 1934, and separately notified that it has ceased to be a banking company within the meaning of Section 36A(2) of the Banking Regulation Act, 1949.
The concept being tested. The Second Schedule to the RBI Act is the list of scheduled banks. Inclusion is not a formality: a bank must satisfy the conditions in Section 42(6) of the Act, which include a minimum paid-up capital and reserves and the requirement that its affairs are not conducted in a manner detrimental to depositors. Scheduled status brings obligations, chiefly maintaining the cash reserve ratio with the RBI, and privileges, including access to RBI refinance facilities, the clearing house and the liquidity adjustment facility.
The distinction most often asked is simply scheduled versus non-scheduled, and this release is a reminder that the list is live rather than fixed. When a foreign bank winds down its Indian banking operations, removal from the Second Schedule is the formal step that follows.
Draft securitisation amendment directions issued
The RBI has issued Draft (Securitisation Transactions) Amendment Directions for public comment.
The concept being tested. Securitisation is the process of pooling loans and issuing tradable securities backed by the cash flows from that pool. A bank uses it to move assets off its balance sheet, freeing capital for fresh lending and transferring credit risk to investors. The RBI’s framework governs what may be securitised, the minimum holding period before an asset can be pooled, and the minimum retention requirement, which forces the originating bank to keep some exposure so that it retains an interest in the quality of what it originated.
Two related terms are worth keeping straight, because they are confused constantly:
- Securitisation pools loans and issues securities against them.
- Direct assignment is a straightforward transfer of a loan or pool from one lender to another, with no securities issued.
Note also the process point. The RBI publishes draft directions for comment before issuing final ones. A draft is not yet in force, and questions occasionally exploit exactly that distinction.
Monetary penalties on four cooperative banks
The RBI has imposed monetary penalties on four cooperative banks:
- Raigad District Central Co-operative Bank, Maharashtra
- Sangli District Central Co-operative Bank, Maharashtra
- Jilla Sahakari Kendriya Bank Maryadit, Shajapur, Madhya Pradesh
- The Citizen Co-operative Bank, Bangalore, Karnataka
The concept being tested. Do not memorise the names or the amounts. What is asked is the mechanism. The RBI’s power to impose a monetary penalty on a bank comes from Section 47A of the Banking Regulation Act, 1949, and such penalties are imposed for deficiencies in regulatory compliance. The RBI’s standard formulation is that the penalty is not a pronouncement on the validity of any transaction or agreement between the bank and its customer, which is a distinction worth remembering.
Also worth knowing, because it recurs: cooperative banks are subject to dual regulation. The RBI regulates their banking functions, while the Registrar of Cooperative Societies of the state, or the Central Registrar for multi-state societies, governs their incorporation and management. The Banking Regulation (Amendment) Act, 2020 substantially strengthened the RBI’s supervisory powers over cooperative banks, and that amendment is itself a frequently asked fact.
Routine operations, and why they still matter
Two categories appear almost every day and are usually skipped, reasonably enough:
You do not need the individual numbers. You do need the vocabulary, because it turns up in questions:
Government securities are dated securities, meaning they carry a fixed maturity date, issued by the RBI on behalf of the government to borrow from the market. They are the principal instrument banks hold to meet the statutory liquidity ratio. Treasury bills are the short-term equivalent, issued at a discount with maturities of 91, 182 and 364 days.
Money market operations are the RBI’s daily liquidity management: the liquidity adjustment facility, comprising repo and the standing deposit facility, and the marginal standing facility as the ceiling of the corridor. The weighted average call rate reported in these releases is the operating target of monetary policy, which is a fact worth knowing because it is a cleaner exam answer than “the repo rate” to the question of what the RBI actually steers.
What to write in your notebook
Two lines, no more:
- Rabobank out of the Second Schedule. Scheduled status is conditional under Section 42(6) of the RBI Act and can be withdrawn.
- Penalties on four cooperative banks under Section 47A of the Banking Regulation Act. Cooperative banks are dually regulated; the 2020 amendment expanded RBI powers.
That is what will still be in your head in three months. For the concepts behind these items, see RBI and monetary policy basics.