🎯 What is Banking Awareness & Why It Matters

Banking Awareness is one of the most crucial subjects for IBPS (Institute of Banking Personnel Selection) and private bank examinations. It forms a significant portion of the General Awareness section and is also essential for interviews and descriptive papers. Understanding banking concepts, terminology, and current developments in the financial sector is mandatory for anyone aspiring to build a career in banking.

Why Banking Awareness is Critical for Bank Exams

In IBPS PO, Clerk, and SO examinations, as well as SBI PO, Clerk, and RBI Grade B exams, Banking Awareness typically carries 40-50 questions out of 50 in the General Awareness section. This makes it the highest-weighted topic in the exam. Moreover, questions from Banking Awareness are often more scoring than general current affairs because they are based on fixed concepts and can be prepared systematically.

Key Topics Covered in Banking Awareness

Banking Awareness encompasses a wide range of topics that can be broadly categorized into the following areas:

• Reserve Bank of India (RBI): Structure, functions, governors, monetary policy, tools of credit control
• Banking System: Types of banks, commercial banks, cooperative banks, development banks
• Banking Terms: NPA, CRR, SLR, Repo Rate, Base Rate, MCLR, and 100+ other terms
• Payment Systems: NEFT, RTGS, UPI, IMPS, credit cards, debit cards, mobile banking
• Financial Inclusion: Jan Dhan Yojana, Mudra Yojana, priority sector lending
• Banking Regulations: Banking Regulation Act, RBI Act, SARFAESI Act, DICGC
• Current Banking Affairs: Latest RBI policies, bank mergers, interest rate changes
• International Banking: World Bank, IMF, ADB, Basel Norms

How Banking Awareness Questions Appear in Exams

Banking Awareness questions in competitive exams can be divided into several types:

Preparation Strategy for Maximum Marks

To excel in Banking Awareness and score maximum marks, follow this comprehensive preparation strategy:

1. Build Strong Foundation: Start with basic concepts like RBI structure, types of banks, and fundamental banking terms. Don\’t rush into advanced topics without understanding basics.
2. Create Subject-wise Notes: Maintain separate sections for RBI, monetary policy, payment systems, schemes, etc. Use colorful diagrams and flowcharts.
3. Stay Updated with Current Affairs: Read financial newspapers daily (Business Standard, Economic Times). Follow RBI official website for policy updates.
4. Practice Previous Year Questions: Solve last 5-10 years\’ Banking Awareness questions from all major bank exams to understand question patterns.
5. Monthly Revision: Banking concepts tend to get forgotten. Revise your complete notes at least once every month.
6. Join Online Test Series: Regular mock tests help identify weak areas and improve time management.

Time Investment for Banking Awareness Preparation

A realistic timeline for comprehensive Banking Awareness preparation is 2-3 months with dedicated daily study. Here\’s a suggested breakdown:

Remember, Banking Awareness is not just an exam subject – it\’s essential knowledge for your entire banking career. The concepts you learn now will be applied throughout your professional life in the banking sector. Approach it with genuine interest and curiosity, not just as exam preparation.

🏛️ RBI Structure & Functions

The Reserve Bank of India (RBI) is the central banking institution of India and plays a pivotal role in the country\’s monetary and financial system. Understanding RBI\’s structure, functions, and operations is fundamental to Banking Awareness. Questions related to RBI appear in almost every bank exam.

Historical Background of RBI

The Reserve Bank of India was established on the recommendations of the Hilton-Young Commission (Royal Commission on Indian Currency and Finance). It started operations during British rule and became a government-owned institution after independence.

RBI Organizational Structure – Hierarchy Diagram

Central Board of Directors

The Central Board of Directors is the main governing body of RBI. The composition of the Central Board is as follows:

• Official Directors: Governor and up to 4 Deputy Governors
• Nominated Directors: 10 directors nominated by the Central Government from various fields
• Government Officials: 2 government officials nominated by the Central Government
• Tenure: Nominated directors serve for 4 years

The Governor of RBI

The Governor is the chief executive of RBI and is appointed by the Government of India for a period of 3 years. The Governor can be reappointed. Sanjay Malhotra is the current (26th) Governor of RBI, having taken office in December 2023.

Four Deputy Governors of RBI

RBI has 4 Deputy Governors who assist the Governor in various functions. Their portfolios are typically divided as:

1. Deputy Governor 1: Monetary Policy, Economic Research, Statistics
2. Deputy Governor 2: Banking Regulation, Financial Stability
3. Deputy Governor 3: Currency Management, Payment Systems, Government Banking
4. Deputy Governor 4: External Affairs, Foreign Exchange Management

Major Functions of Reserve Bank of India

RBI performs multifaceted functions as India\’s central bank. These can be categorized into several key areas:

1. Monetary Authority

RBI formulates and implements monetary policy to maintain price stability while keeping in mind the objective of growth. Key responsibilities include:

• Controlling inflation through various policy tools
• Setting key interest rates (Repo Rate, Reverse Repo Rate)
• Managing money supply in the economy
• Conducting open market operations (OMO)

2. Regulator and Supervisor of the Financial System

RBI regulates and supervises the entire banking and financial system to ensure stability:

• Issues licenses to banks to operate in India
• Regulates banking operations and ensures compliance
• Conducts regular inspections and audits of banks
• Enforces banking laws and regulations
• Protects depositor interests through regulations
• Prescribes capital adequacy norms (Basel norms)

3. Manager of Foreign Exchange

RBI manages India\’s foreign exchange reserves and regulates foreign exchange transactions:

• Manages Foreign Exchange Management Act (FEMA), 1999
• Maintains adequate foreign exchange reserves
• Intervenes in forex markets to stabilize the rupee
• Regulates foreign investment flows
• Controls capital account transactions

4. Issuer of Currency

RBI has the sole right to issue currency notes in India (except ₹1 notes which are issued by Government of India):

• Issues and distributes currency notes and coins
• Designs currency with security features
• Manages currency chests across the country
• Withdraws damaged or soiled notes from circulation
• Introduces new currency denominations as needed

5. Banker to the Government

RBI acts as the banker, agent, and financial advisor to the Government of India and state governments:

• Manages government accounts
• Receives and makes payments on behalf of the government
• Manages government borrowing through bond auctions
• Advises government on financial and economic policies
• Manages public debt

6. Banker\’s Bank

RBI acts as the banker to all commercial banks in India:

• Maintains accounts of commercial banks
• Provides short-term loans to banks
• Acts as lender of last resort
• Facilitates inter-bank transactions and settlements
• Provides clearing house facilities

7. Developmental Role

RBI promotes economic development and financial inclusion:

• Promotes priority sector lending
• Supports financial inclusion initiatives
• Develops rural credit infrastructure
• Promotes digital payment systems
• Supports MSME financing

Monetary Policy Committee (MPC)

The Monetary Policy Committee is a six-member committee constituted by the Government of India to determine the policy interest rate required to achieve the inflation target.

The MPC was established in 2016 under Section 45ZB of the RBI Act, 1934. It brought a more transparent and accountable framework for monetary policy decisions in India.

RBI Regional Structure

RBI has a wide network across India to perform its various functions effectively:

🏦 Banking System Structure in India

The Indian banking system is one of the most diverse and comprehensive banking systems in the world. It has evolved significantly since independence and now consists of various types of banks serving different segments of the economy. Understanding the structure and classification of banks is essential for banking awareness.

Complete Banking System Hierarchy

1. Commercial Banks

Commercial banks are the primary financial institutions that accept deposits, lend money, and provide various banking services to individuals and businesses. They form the backbone of India\’s banking system.

A. Public Sector Banks (PSBs)

Public Sector Banks are banks where the majority stake (more than 50%) is held by the Government of India. After several mergers in 2019-2020, India currently has 12 Public Sector Banks.

Key Characteristics of PSBs:

• Government holds majority ownership (51% or more)
• Focuses on social banking and financial inclusion
• Large branch network, especially in rural areas
• Priority sector lending targets are mandatory
• Government provides capital support when needed
• Employees are often recruited through IBPS or bank-specific exams

B. Private Sector Banks

Private Sector Banks are banks where the majority stake is held by private entities or individuals. They can be further classified into Old Private Sector Banks (established before 1991) and New Private Sector Banks (established after 1991 liberalization).

Key Characteristics of Private Banks:

• Privately owned by individuals or corporate entities
• Focus on profit maximization and efficiency
• Better technology adoption and digital services
• Premium customer service experience
• Higher charges and fees compared to PSBs
• Aggressive marketing and cross-selling practices
• Performance-based culture with higher salaries

C. Foreign Banks

Foreign Banks are banks that have their headquarters outside India but operate in India through branches. They primarily serve large corporations and high net-worth individuals.

Key Characteristics of Foreign Banks:

• Limited branch network in India (mostly metros)
• Focus on corporate banking and high net-worth clients
• Advanced technology and international banking services
• Strict regulations on expansion by RBI
• Higher service standards and charges

D. Regional Rural Banks (RRBs)

Regional Rural Banks were established in 1975 under the Regional Rural Banks Act, 1976, to provide credit and banking facilities to small farmers, agricultural laborers, and rural artisans.

2. Cooperative Banks

Cooperative banks are financial institutions based on the cooperative principle of mutual assistance. They provide banking services primarily to small borrowers, farmers, and small businesses.

Structure of Cooperative Banks

Additionally, there are Urban Cooperative Banks (UCBs) operating in urban and semi-urban areas.

3. Development Banks / Financial Institutions

Development banks are specialized financial institutions that provide long-term credit for development purposes. They don\’t accept deposits from the public but raise funds through bonds and borrowings.

Comparison: Public vs Private vs Foreign Banks

💳 Types of Bank Accounts

Understanding different types of bank accounts is fundamental to banking awareness. Each account type serves specific purposes and has distinct features, advantages, and limitations. Banks offer various account types to cater to different customer needs.

1. Savings Account

A savings account is the most common type of bank account used by individuals to deposit money and earn interest. It encourages the habit of saving among people.

Types of Savings Accounts:

• Regular Savings Account: Standard account for individuals
• Senior Citizen Savings Account: Higher interest rates for citizens aged 60+
• Women\’s Savings Account: Special features and benefits for women
• Minor\’s Savings Account: For children below 18 years (operated by guardian)
• Salary Account: Zero-balance account for salaried employees
• Basic Savings Account: No-frills account with minimal requirements

2. Current Account

Current accounts are designed for businessmen, firms, companies, and organizations that need to conduct numerous transactions daily. These accounts facilitate business operations.

Who Needs Current Account:

• Business owners and traders
• Companies and corporations
• Partnership firms
• LLPs and proprietorship firms
• Professionals with high transaction volumes

3. Fixed Deposit (FD) Account

Fixed Deposit or Term Deposit is an investment account where money is deposited for a fixed period at a predetermined interest rate. It offers higher interest rates than savings accounts.

Current FD Interest Rates 2025 (Indicative)

4. Recurring Deposit (RD) Account

Recurring Deposit is an account where customers deposit a fixed amount regularly (monthly) for a predetermined period and earn interest on it.

5. No-Frills Account (Basic Savings Bank Deposit Account – BSBD)

No-frills account or Basic Savings Bank Deposit Account is a zero-balance account designed for financial inclusion, especially for economically weaker sections.

Comparison: Types of Bank Accounts

📚 Banking Terminology A-Z (30+ Essential Terms)

Banking terminology forms a significant part of Banking Awareness questions. Understanding these terms is crucial for both objective and descriptive exams, as well as interviews. Here\’s a comprehensive list of 30+ essential banking terms with definitions and examples.

1. NPA (Non-Performing Asset)

A Non-Performing Asset is a loan or advance where interest and/or principal amount remains unpaid for more than 90 days. Detailed explanation in the NPA section below.

2. Repo Rate

Definition: Repo Rate is the rate at which RBI lends money to commercial banks in the event of any shortfall of funds.

Current Rate (June 2025): 5.50%

Impact: When RBI increases Repo Rate, borrowing becomes expensive for banks, which leads to higher interest rates for customers. This helps control inflation.

3. Reverse Repo Rate

Definition: Reverse Repo Rate is the rate at which RBI borrows money from commercial banks. Banks park their surplus funds with RBI.

Current Rate (June 2025): 3.35%

Impact: Higher Reverse Repo Rate incentivizes banks to keep money with RBI rather than lending, reducing money supply in the economy.

4. CRR (Cash Reserve Ratio)

Definition: CRR is the percentage of total deposits that banks must keep with RBI in the form of cash reserves. No interest is paid on this amount.

Current Rate (June 2025): 3.00%

Example: If a bank has deposits worth ₹100 crore and CRR is 3%, the bank must keep ₹3 crore with RBI.

5. SLR (Statutory Liquidity Ratio)

Definition: SLR is the percentage of Net Demand and Time Liabilities (NDTL) that banks must maintain in the form of liquid assets like gold, cash, or approved securities.

Current Rate (June 2025): 18.00%

Purpose: Ensures solvency of banks and controls credit expansion.

6. MSF (Marginal Standing Facility)

Definition: MSF is a facility under which banks can borrow overnight funds from RBI against government securities in emergency situations.

Current Rate (June 2025): 5.75% (usually Repo Rate + 0.25%)

7. Bank Rate

Definition: Bank Rate is the rate at which RBI lends money to commercial banks for long-term needs without any security.

Current Rate (June 2025): 5.75%

8. Base Rate

Definition: Base Rate is the minimum rate below which banks cannot lend (except in certain cases). It was replaced by MCLR in 2016 for new loans.

9. MCLR (Marginal Cost of Funds Based Lending Rate)

Definition: MCLR is the minimum lending rate below which a bank is not permitted to lend. It is calculated based on marginal cost of funds, operating costs, and tenor premium.

Example: If bank\’s 1-year MCLR is 8%, it cannot lend below this rate for 1-year tenure loans.

10. CASA (Current Account Savings Account) Ratio

Definition: CASA Ratio indicates the proportion of deposits a bank has in low-cost current and savings accounts compared to total deposits.

Formula: CASA Ratio = (Current Account Deposits + Savings Account Deposits) / Total Deposits × 100

Importance: Higher CASA ratio is better as these deposits cost less to banks.

11. Priority Sector Lending (PSL)

Definition: Priority Sector Lending refers to lending to sectors considered important for development but may not get adequate credit otherwise – agriculture, MSMEs, education, housing, etc.

Target for Commercial Banks: 40% of Adjusted Net Bank Credit (ANBC)

Target for Foreign Banks: 40% of ANBC (for banks with 20+ branches)

12. DICGC (Deposit Insurance and Credit Guarantee Corporation)

Definition: DICGC is a subsidiary of RBI that provides insurance coverage to bank depositors.

Insurance Cover: ₹5 lakh per depositor per bank

Coverage: Covers principal and interest up to ₹5 lakh

13. KYC (Know Your Customer)

Definition: KYC is the process of identifying and verifying the identity of customers to prevent identity theft, financial fraud, money laundering, and terrorist financing.

Documents Required: Identity proof (Aadhaar, PAN), Address proof, Photograph

14. AML (Anti-Money Laundering)

Definition: AML refers to laws, regulations, and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income.

15. EMI (Equated Monthly Installment)

Definition: EMI is a fixed payment amount paid by a borrower to a lender at a specified date each month. It includes both principal and interest components.

Formula: EMI = [P x R x (1+R)^N] / [(1+R)^N-1]
Where P = Principal, R = Monthly interest rate, N = Number of months

16. Overdraft

Definition: Overdraft is a facility that allows account holders to withdraw more money than available in their account up to a sanctioned limit.

Interest: Charged only on the overdrawn amount and for the period it\’s used

17. Letter of Credit (LC)

Definition: LC is a document issued by a bank guaranteeing payment to a seller on behalf of the buyer, provided the seller meets specified terms and conditions.

Use: Commonly used in international trade transactions

18. IFSC Code (Indian Financial System Code)

Definition: IFSC is an 11-digit alphanumeric code used to identify bank branches participating in electronic fund transfer systems (NEFT, RTGS, IMPS).

Format: First 4 characters: Bank code, 5th character: 0 (reserved), Last 6 characters: Branch code

19. MICR Code (Magnetic Ink Character Recognition)

Definition: MICR is a 9-digit code printed on cheques that helps in faster processing and clearing of cheques.

Format: First 3 digits: City code, Next 3 digits: Bank code, Last 3 digits: Branch code

20. Bancassurance

Definition: Bancassurance is the distribution of insurance products through bank\’s distribution channels.

Example: Banks selling life insurance and general insurance policies to their customers

21. Credit Rating

Definition: Credit rating is an assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation.

Rating Agencies in India: CRISIL, ICRA, CARE, Fitch India

22. Subprime Lending

Definition: Subprime lending is the practice of lending to borrowers who may have difficulty maintaining repayment schedules (high-risk borrowers).

23. Micro Credit

Definition: Micro credit refers to small loans provided to low-income individuals or groups who lack access to banking services.

Example: Loans under PM MUDRA Yojana

24. Financial Inclusion

Definition: Financial inclusion means ensuring access to financial services and adequate credit where needed by vulnerable groups at an affordable cost.

Initiatives: PMJDY, Aadhaar-enabled payments, Jan Dhan accounts

25. Ombudsman

Definition: Banking Ombudsman is a senior official appointed by RBI to redress customer complaints against deficiency in banking services.

Coverage: Free of cost dispute resolution mechanism for bank customers

26. Net Banking

Definition: Net Banking or Internet Banking is an electronic payment system that enables customers to conduct financial transactions through the bank\’s website.

27. Mobile Banking

Definition: Mobile Banking allows customers to conduct financial transactions using mobile devices like smartphones or tablets.

28. Digital Wallet

Definition: Digital Wallet is an electronic device or online service that allows individuals to make electronic transactions.

Examples: Paytm, PhonePe, Google Pay, Amazon Pay

29. Cryptocurreny

Definition: Cryptocurrency is a digital or virtual currency that uses cryptography for security.

Note: Currently not recognized as legal tender in India

30. CBDC (Central Bank Digital Currency)

Definition: CBDC is a digital form of fiat currency issued by the central bank.

In India: RBI launched Digital Rupee (e₹) pilot in 2022-23

📊 RBI Monetary Policy & Interest Rates 2025

Monetary Policy is one of the most important topics in Banking Awareness. It refers to the policy adopted by the monetary authority (RBI in India) to control the money supply and achieve macroeconomic goals like controlling inflation, managing exchange rates, and promoting economic growth.

What is Monetary Policy?

Monetary Policy is the process by which RBI manages money supply and interest rates in the economy to achieve specific objectives. The primary objective of India\’s monetary policy is to maintain price stability while keeping in mind the objective of growth.

Current Monetary Policy Rates (June 2025)

Types of Monetary Policy

1. Expansionary Monetary Policy (Easy Money Policy)

When RBI wants to increase money supply in the economy to boost economic growth, it adopts expansionary policy.

Measures:

• Decrease Repo Rate – Makes borrowing cheaper
• Decrease CRR/SLR – Increases lendable funds with banks
• Buy government securities (OMO) – Injects money into system

When Used: During recession or economic slowdown

2. Contractionary Monetary Policy (Tight Money Policy)

When RBI wants to reduce money supply to control inflation, it adopts contractionary policy.

Measures:

• Increase Repo Rate – Makes borrowing expensive
• Increase CRR/SLR – Reduces lendable funds
• Sell government securities (OMO) – Absorbs excess money

When Used: During high inflation periods

Tools of Monetary Policy

Quantitative Tools (General Tools)

Qualitative Tools (Selective Tools)

• Margin Requirements: Minimum down payment required for loans
• Credit Rationing: Limiting credit available to certain sectors
• Moral Suasion: RBI\’s suggestions/advice to banks (not mandatory)
• Direct Action: Penalizing banks not complying with RBI directives
• Selective Credit Control: Regulating credit for specific purposes

How Monetary Policy Impacts Common Man

Monetary Policy Committee (MPC) – Detailed

The Monetary Policy Committee was constituted under Section 45ZB of the amended RBI Act, 1934. It is a six-member committee responsible for fixing the benchmark policy interest rate.

MPC Composition:

1. RBI Governor (Chairperson)
2. RBI Deputy Governor in charge of Monetary Policy
3. One officer nominated by RBI Central Board
4. Three external members appointed by Central Government

Inflation Targeting Framework

India adopted a flexible inflation targeting framework in 2015, with 4% Consumer Price Index (CPI) inflation as the target, with a band of +/- 2%.