This section is the best-value part of IBPS PO mains. Forty questions, no arithmetic, and a syllabus that is genuinely finite. What follows is organised the way the exam asks about it rather than the way an economics textbook would teach it.
One important note on figures: every specific rate and limit in this area is revised periodically. The concepts below are stable; the numbers are not. Learn the mechanisms now and check the current values on the Reserve Bank of India’s website in the weeks before your exam.
The Reserve Bank of India
Established on 1 April 1935 under the Reserve Bank of India Act, 1934, on the recommendation of the Hilton Young Commission. Originally a shareholders’ bank; nationalised on 1 January 1949. Headquarters in Mumbai, having moved from Kolkata in 1937.
Its functions, which is the most reliably asked list:
- Note issuing authority. Issues all currency notes except the one rupee note and coins, which are issued by the Government of India. Notes are issued under the minimum reserve system, requiring reserves of at least ₹200 crore, of which ₹115 crore in gold.
- Banker to the government, both central and state, managing their accounts and public debt.
- Banker to banks, maintaining their current accounts and acting as lender of last resort.
- Regulator and supervisor of banks and non-banking financial companies.
- Manager of foreign exchange under the Foreign Exchange Management Act, 1999, and custodian of the foreign exchange reserves.
- Monetary authority, formulating and implementing monetary policy.
- Developmental and promotional functions, including financial inclusion and payment system development.
The Governor is appointed by the central government, supported by up to four Deputy Governors. The Central Board of Directors is the governing body.
The policy rates
Understanding what each rate does matters more than remembering its value, because “which rate would the RBI change to reduce inflation” is a more common question format than “what is the current repo rate”.
Repo rate. The rate at which the RBI lends short-term funds to banks against government securities, under a repurchase agreement. This is the policy rate. Raising it makes borrowing costlier, which is the standard response to high inflation.
Reverse repo rate. The rate at which the RBI absorbs liquidity by borrowing from banks. Note that the operating framework now uses the standing deposit facility as the main absorption tool, which unlike reverse repo does not require the RBI to provide collateral.
Standing deposit facility and marginal standing facility. These form the corridor around the repo rate. The marginal standing facility is the ceiling, at which banks borrow overnight against their statutory liquidity ratio holdings, and it sits above the repo rate. The standing deposit facility is the floor, and sits below it.
Bank rate. The rate at which the RBI would buy or rediscount bills of exchange. Now aligned with the marginal standing facility rate and used mainly for penal purposes rather than as an active instrument.
Cash reserve ratio. The proportion of a bank’s net demand and time liabilities that must be kept as cash with the RBI. No interest is paid on it. Raising it directly withdraws lendable funds from the system.
Statutory liquidity ratio. The proportion of net demand and time liabilities that banks must hold in specified liquid assets, chiefly government securities. Unlike the cash reserve ratio, banks earn a return on these holdings.
The distinction most often tested: the cash reserve ratio is cash held with the RBI and earns nothing; the statutory liquidity ratio is securities held by the bank itself and earns a return.
The Monetary Policy Committee
Constituted under the amended RBI Act following the 2016 framework agreement. Six members: three from the RBI, being the Governor as chairperson, the Deputy Governor in charge of monetary policy, and an officer nominated by the Central Board; and three external members appointed by the central government for four years, not eligible for reappointment.
Decisions are by majority, and the Governor holds a casting vote in the event of a tie. The committee meets at least four times a year and in practice bi-monthly. Minutes are published, with each member’s vote and statement, on the fourteenth day after the meeting.
The inflation target is set by the central government in consultation with the RBI for a five-year period: 4 per cent consumer price index inflation, with a tolerance band of plus or minus 2 per cent. A failure is defined as inflation outside that band for three consecutive quarters, upon which the RBI must report to the government explaining the reasons and the remedial actions proposed.
Banking structure
Scheduled and non-scheduled banks. Scheduled banks are those in the second schedule of the RBI Act, which requires meeting specified criteria and confers benefits including access to RBI refinance.
Categories. Public sector banks, private sector banks, foreign banks, regional rural banks established under the Regional Rural Banks Act, 1976 with shareholding split between the central government, the sponsor bank and the state government, cooperative banks, small finance banks, and payments banks. Payments banks may accept deposits up to a specified limit per customer but cannot lend, which is the distinction most often asked.
Development finance and refinance institutions. NABARD for agriculture and rural development, SIDBI for small industries, EXIM Bank for foreign trade, and the National Bank for Financing Infrastructure and Development.
Priority sector lending
Banks must direct a specified share of adjusted net bank credit to priority sectors. The categories: agriculture, micro small and medium enterprises, export credit, education, housing, social infrastructure, renewable energy, and others including weaker sections. Sub-targets apply, notably for small and marginal farmers and for micro enterprises. Where a bank cannot meet the target it invests in Rural Infrastructure Development Fund deposits or buys priority sector lending certificates.
Asset classification and non-performing assets
An advance becomes a non-performing asset when interest or principal remains overdue for more than 90 days. Classification then proceeds:
- Standard: performing.
- Sub-standard: non-performing for up to 12 months.
- Doubtful: sub-standard for more than 12 months.
- Loss asset: identified as uncollectible.
Related concepts: provisioning, being the amount set aside against expected loss; gross and net NPA, the latter after deducting provisions; SARFAESI Act, 2002, allowing secured creditors to enforce security without court intervention; the Insolvency and Bankruptcy Code, 2016 with resolution timelines; and asset reconstruction companies.
Payment systems
NEFT, deferred net settlement in half-hourly batches, available round the clock. RTGS, real-time gross settlement for large value transactions, with a minimum threshold of ₹2 lakh and no upper limit, also available round the clock. IMPS, immediate mobile-based transfer operated by the National Payments Corporation of India. UPI, unified payments interface, also NPCI, enabling instant transfer using a virtual payment address. Cheque truncation system, clearing cheques by image rather than physical movement. Bharat Bill Payment System and NACH for bulk and recurring transactions.
The National Payments Corporation of India is an umbrella organisation set up by the RBI and the Indian Banks’ Association, and it operates UPI, IMPS, RuPay, NACH, AePS and FASTag.
Deposit insurance
The Deposit Insurance and Credit Guarantee Corporation, a wholly owned subsidiary of the RBI, insures bank deposits up to ₹5 lakh per depositor per bank, covering principal and interest together. Cover applies across all branches of the same bank taken together, not per branch and not per account, which is a favourite examination distinction.
The other regulators
SEBI, securities markets, established 1988 and given statutory powers in 1992, headquartered in Mumbai. IRDAI, insurance, established 1999, headquartered in Hyderabad. PFRDA, pensions, headquartered in New Delhi. NABARD, agriculture and rural development refinance. IFSCA, the International Financial Services Centres Authority, at GIFT City, Gandhinagar.
How to study this section
Do not read it linearly like a textbook. Do this instead:
- Learn the mechanisms first, which do not change: what each rate does, what makes an asset non-performing, which regulator governs what. This is the part that is stable and most of the marks.
- Layer current affairs on top, from one source daily. Six months of banking and finance news is the other half of the section.
- Update the numbers last, in the fortnight before the exam, from the RBI website.
Then test it. Reading this section feels productive in a way that does not always translate into marks, so verify with a mock test rather than trusting the feeling.
Frequently asked questions
How much of IBPS PO mains is banking awareness?
The general, economy and banking awareness section is forty questions for forty marks in thirty-five minutes. Roughly half is current affairs and the rest is banking, economy and static awareness. Since it requires no calculation, it is the highest scoring rate per minute of any section in the exam.
Do I need to memorise the current policy rates?
Know what each rate is and how it works, which does not change. Memorise the current values only close to the exam, because they are revised at the bi-monthly policy meeting and a value you learn six months out will probably be wrong by the time you sit. Always check the RBI website for the current figures.
Is banking awareness asked in RRB NTPC?
A little, inside the economy portion of general awareness, and at a much more basic level: what the RBI is, who the governor is, what the repo rate means. The depth described here is for banking exams. For railways, breadth across history, polity, geography and science matters more.
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