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Banking Awareness
For Bank Exams

FOR RBI Grade B EXAM

Complete Guide + Advanced Concepts
Banking Awareness for Bank Exams

Banking Awareness for Bank Exams: Complete Guide +

Advanced Concepts
Banking Awareness is one of the most important and scoring sections in competitive
exams like SBI PO, IBPS Clerk/PO, RBI Grade B, and other financial sector
recruitment tests. A clear understanding of the Indian banking system, regulatory
institutions like the RBI, various payment mechanisms, financial reforms, and digital
initiatives is essential—not only to crack the objective questions but also to perform
well in interviews and group discussions.

This comprehensive guide has been divided into two structured parts. Part A covers
the foundational concepts that every aspirant must master, while Part B focuses on
advanced topics that are often tested in mains-level exams or asked during
interviews. This two-part structure ensures complete coverage, from basic definitions
to recent developments in the banking and financial sector.

Part A – Fundamentals of Banking Awareness

• History of Banking in India
• RBI Overview
• Types of Banks
• Banking Acts
• RBI Monetary Tools
• Fund Transfer Systems (NEFT, RTGS, IMPS, UPI)
• NPCI and Digital Payments
• Government Schemes (intro)

Part B – Advanced Banking Awareness

• RBI Functions (Monetary, Regulatory, Supervisory)
• NPAs and Recovery Mechanisms
• Basel Norms
• Important Committees
• Recent Mergers
• Financial Market Overview
• Expanded Digital Banking Tools (AEPS, CBDC, etc.)
• Government Schemes (in detail)
• Current Affairs tips
Banking Awareness for Bank Exams

Part A – Fundamentals of Banking Awareness

Banking Awareness is more than just facts—it's about understanding how the
system operates. From RBI’s regulatory role to real-time digital payments, this
domain touches every aspect of modern banking. A strong grasp of these topics not
only helps in exams but also in interviews and real-world banking roles.

History and Evolution of Indian Banking

The Indian banking system has evolved significantly from the colonial era to the
present digital age. Understanding its historical trajectory provides context to current
financial reforms and structures.

The journey began in 1770 with the establishment of the Bank of Hindustan, which is
considered India’s first bank. It was followed by the formation of Presidency Banks—
Bank of Bengal (1806), Bank of Bombay (1840), and Bank of Madras (1843). These
were later merged in 1921 to form the Imperial Bank of India. The Reserve Bank of
India (RBI), India’s central banking authority, was established in 1935 under the RBI
Act of 1934. The post-independence period saw a major push towards nationalizing
banks to increase financial inclusion. In 1949, RBI was nationalized, followed by the
nationalization of 14 major banks in 1969 and six more in 1980.

After the economic reforms of 1991, private banks like HDFC and ICICI emerged. In
recent years, financial inclusion schemes like Jan Dhan Yojana (2014) and the rise
of digital payments (2016 onward) have further reshaped the banking sector.

Reserve Bank of India: The Apex Bank

The Reserve Bank of India (RBI) plays a central role in regulating and stabilizing the
Indian financial system. It was established on April 1, 1935, in Kolkata and later
shifted to Mumbai in 1937.

Initially a privately-owned institution, the RBI was nationalized in 1949 under the
Banking Regulation Act. The RBI now operates under the Ministry of Finance and is
responsible for formulating monetary policy, regulating banks, controlling inflation,
and issuing currency.

RBI’s primary objective is to maintain monetary stability in the country and ensure
the smooth functioning of the banking system. It acts as the banker to the
government and commercial banks, regulates credit, manages forex reserves, and
monitors inflation through monetary policy instruments.
Banking Awareness for Bank Exams

Structure and Hierarchy of RBI

The organizational structure of the RBI includes the Governor (appointed by the
Government of India), Deputy Governors, Executive Directors, and various regional
and department heads. Below these senior roles are officers in Grade B, Assistant
Managers, Managers, and support staff. The RBI functions through its central office
in Mumbai and 31 regional offices spread across the country.

Commercial Banks and Their Types

Commercial banks operate for profit and are categorized into:

• Public Sector Banks: Owned by the government (e.g., State Bank of India,
Bank of Baroda).
• Private Sector Banks: Majority ownership held by private entities (e.g.,
HDFC Bank, ICICI Bank).
• Foreign Banks: Operate as branches of overseas banks (e.g., Citibank,
HSBC).
• Regional Rural Banks (RRBs): Serve rural areas with basic banking
services.
• Cooperative Banks: Provide services to small businesses and rural
customers.
• Small Finance Banks: Serve unbanked and underserved sections (e.g., AU
Small Finance Bank).
• Payments Banks: Offer digital transactions with limited services (e.g., Paytm
Payments Bank).

Each bank type plays a specific role in promoting financial inclusion and serving
different customer segments.

Key Banking Acts and Regulatory Framework

To regulate the banking sector, various acts and guidelines have been enacted over
the decades:
1. Reserve Bank of India Act, 1934 – Framework for RBI’s creation and
powers.
2. Banking Regulation Act, 1949 – Governs commercial banks’ functioning and
gives RBI supervisory powers.
3. Negotiable Instruments Act, 1881 – Governs cheques, promissory notes,
bills of exchange.
4. SARFAESI Act, 2002 – Empowers banks to recover non-performing assets
(NPAs).
5. PMLA, 2002 (Prevention of Money Laundering Act) – Deals with illegal
money activities and KYC compliance.

RBI’s Monetary Policy Tools

Banking Awareness for Bank Exams

The RBI controls liquidity, inflation, and economic growth through various monetary
tools:
• CRR (Cash Reserve Ratio): Banks must keep a certain percentage of
deposits with RBI.
• SLR (Statutory Liquidity Ratio): Banks must invest a portion of their net
demand and time liabilities in government securities.
• Repo Rate: The rate at which banks borrow from the RBI. Lower repo rates
encourage borrowing.
• Reverse Repo Rate: Rate at which banks lend to RBI, used to absorb excess
liquidity.
• Bank Rate: Long-term interest rate for borrowing from RBI.
• MSF (Marginal Standing Facility): Overnight emergency funds provided to
banks against approved government securities.

Understanding these tools is crucial for interpreting inflation trends and economic
policies.

Payment Systems in India

India has a robust digital payment infrastructure. Here’s a breakdown of key systems
used for fund transfers:

NEFT (National Electronic Funds Transfer)

NEFT allows one-to-one funds transfer between banks. It operates on a half-hourly
batch system and is ideal for non-urgent, planned transfers like salary disbursement
or vendor payments. There is no minimum or maximum transaction limit. It is
available 24x7.
Transactions are settled in 48 half-hourly batches during the day. NEFT is best
suited for routine banking transactions.

RTGS (Real-Time Gross Settlement)

RTGS is used for large-value and time-sensitive transactions, typically above ₹2

lakh. It enables immediate clearing and settlement of transactions on a gross basis
(without batching). RTGS is available round the clock and is preferred for corporate
payments, property transactions, or high-value business dealings.

IMPS (Immediate Payment Service)

IMPS is suitable for real-time fund transfers of lower value, especially for individuals
and small businesses. It allows fund transfers via mobile, internet banking, or ATM.
The typical transaction limit is up to ₹2 lakh (bank-dependent). It is commonly used
for emergency transfers, small merchant payments, and peer-to-peer payments.

UPI (Unified Payments Interface)

Banking Awareness for Bank Exams

UPI is a revolutionary mobile-based payment system that facilitates instant fund

transfers 24x7. Developed by NPCI, UPI links bank accounts to mobile numbers,
allowing transactions without entering bank details.

Introduced in 2016, UPI became especially popular post-demonetization. Apps like

Google Pay, PhonePe, Paytm use UPI rails for seamless transactions. UPI has
further evolved with variants like UPI Lite, UPI 123PAY (for feature phones), and
supports QR payments, bill payments, and P2P transfers.

Comparative Analysis of Payment Systems

Understanding the use case of each system is important. For example, NEFT is
suitable for regular transfers, RTGS for high-value transactions, IMPS for emergency
small payments, and UPI for everyday retail use.

Feature NEFT RTGS IMPS UPI

Deferred (30-min
Settlement Real-time Real-time Real-time
batches)
Availability 24x7 24x7 24x7 24x7
Min Limit No minimum ₹2 lakh No minimum No minimum
Max Limit No limit No limit ~₹2 lakh (varies) ₹1 lakh (varies)
Retail and
Scheduled High-value Urgent low-value
Ideal For personal
transfers, salaries urgent payments payments
payments
₹10–₹20 ₹2–₹10 (bank-
Charges Minimal/Nil Free (usually)
(approx) dependent)

National Payments Corporation of India (NPCI)

NPCI is the umbrella body that manages India’s digital payment infrastructure. It was
founded in 2008 and is promoted by the RBI and Indian Banks’ Association (IBA).
NPCI is responsible for operating and innovating systems such as:
• UPI (Unified Payments Interface)
• IMPS (Immediate Payment Service)
• RuPay Card network
• BHIM app
• Bharat BillPay System (BBPS)
• Aadhaar Enabled Payment System (AEPS)

Financial Inclusion and Government Initiatives

Banking Awareness for Bank Exams

Financial inclusion is at the core of India’s banking reforms. Major government

initiatives include:

• Pradhan Mantri Jan Dhan Yojana (PMJDY): Launched in 2014 to provide

zero-balance bank accounts to every household.
• Direct Benefit Transfer (DBT): Government subsidies transferred directly to
beneficiaries’ bank accounts.
• Mudra Yojana: Financial support to micro and small enterprises.
• Digital India Campaign: Promotes cashless payments and e-governance.

Recent Trends in Banking Sector

These trends show how technology and regulation are converging to transform the
banking landscape.

• Bank Mergers: Major public sector banks merged to improve efficiency. For
example, PNB merged with Oriental Bank of Commerce and United Bank of
India.
• Rise of Fintech: Apps like PhonePe, Razorpay, and Cred have disrupted
traditional banking with user-friendly interfaces.
• AI and Chatbots: Banks now use artificial intelligence for fraud detection,
customer service, and personalization.
• Digital KYC: eKYC and Video KYC have made onboarding easier.
• Account Aggregator Framework: Introduced for secure data-sharing
between financial institutions.

Part B – Advanced Banking Awareness

While foundational banking concepts like NEFT, RTGS, UPI, and RBI's overview are
essential, many exams go deeper. This article summarizes advanced but frequently
asked topics in Banking Awareness to give you an extra edge in SBI, IBPS, RBI, and
NABARD exams.

Functions of the Reserve Bank of India (RBI)

The RBI performs multiple roles to maintain monetary and financial stability in India.
These are categorized as:
1. Monetary Functions
• Formulates and implements monetary policy.
• Controls inflation through tools like repo rate and CRR.
2. Regulatory Functions
• Regulates and supervises commercial banks, NBFCs, and cooperative banks.
• Issues bank licenses and sets prudential norms.
3. Supervisory Functions
• Conducts audits and inspections under the Banking Regulation Act.
• Ensures adherence to KYC/AML guidelines.
Banking Awareness for Bank Exams

4. Developmental Functions
• Promotes financial inclusion.
• Supports priority sector lending.
• Facilitates innovations like UPI, RuPay, and CBDC.

Types of Bank Accounts and Deposits

Understanding the basic deposit types is crucial:

• Savings Account: Earns interest, limited withdrawals.
• Current Account: Meant for businesses; no interest; unlimited transactions.
• Fixed Deposit (FD): Time-bound deposit with higher interest.
• Recurring Deposit (RD): Monthly fixed savings.
• NRO/NRE Accounts: For NRIs to manage income in India or abroad.

Major Committees in Banking Reforms

Questions often arise from these influential committees:

• Narasimham Committee (I & II): Recommended bank capital norms, NPA
classification.
• Nachiket Mor Committee: Focused on financial inclusion via small banks.
• Raghuram Rajan Committee: Advocated for reforms in financial sector
regulation.
• Usha Thorat Committee: Emphasized small finance and payment banks.

Non-Performing Assets (NPAs)

NPAs are loans where interest or principal is overdue for 90+ days.
Classification:
• Substandard Asset: <12 months overdue • Doubtful Asset: >12 months
overdue
• Loss Asset: Identified as non-recoverable
RBI mandates banks to provision funds for NPAs and reduce them using tools like:
• SARFAESI Act • Insolvency and Bankruptcy Code (IBC)

Basel Norms (I, II, III)

These are global banking guidelines by the Basel Committee on Banking

Supervision:
• Basel I: Focused on capital adequacy.
• Basel II: Added risk management and supervision.
• Basel III: Introduced post-2008 crisis reforms like leverage ratio, capital
buffers, and liquidity coverage ratio.

Recent Bank Mergers

Banking Awareness for Bank Exams

These Bank Mergers aimed to create stronger, more efficient banks:

Merged Banks Merged Into Year

Dena + Vijaya + BoB Bank of Baroda 2019
PNB + OBC + UBI Punjab National Bank 2020
Indian Bank + Allahabad Bank Indian Bank 2020
Syndicate + Canara Bank Canara Bank 2020

Emerging Digital Banking Tools

In addition to UPI and IMPS, modern systems include:

• AEPS: Aadhaar-based ATM-less transactions.
• BBPS: Bill payment service by NPCI.
• FASTag: Toll payments via RFID.
• CBDC (e₹): India’s digital rupee launched by RBI for wholesale and retail use.

Financial Market Basics

Banking exams test your understanding of market structures:

• Money Market: Short-term funds (<1 year); includes T-Bills, call money.
• Capital Market: Long-term funds; includes stocks, bonds.
• Regulators:
o SEBI: Securities and capital markets
o IRDAI: Insurance sector o PFRDA:
Pension sector o RBI: Monetary policy
and banking

Government Schemes in Banking

Include these in your last-minute revision:

• PM Jan Dhan Yojana (2014): Zero-balance accounts
• PM Mudra Yojana: Loans to micro-enterprises
• Stand Up India: Loans for SC/ST and women entrepreneurs
• Atal Pension Yojana: Pension for unorganized sector
• Sukanya Samriddhi Yojana: Savings for girl child

Current Affairs for Banking Exams

Stay updated on:

• RBI’s latest policy rates (repo, reverse repo)
• Bank merger news
• Launch of new payment platforms
• Changes in UPI limits or charges
• CBDC updates and Digital India initiatives
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