Banking awareness looks like a pile of numbers to memorise — repo, reverse repo, CRR, SLR, MSF, SDF — and most candidates learn them as a list and forget them by the exam. They become far easier to hold on to once you see that they are all doing the same job in different ways. This capsule explains that first, then gives you the rates, the dates, the regulators and the firsts, for IBPS and SBI PO and Clerk, RRB NTPC, SSC CGL, insurance exams and State PSC general awareness.
The One Idea Behind Every Rate
The RBI has one central job in monetary policy: controlling how much money is circulating in the economy. Too much money chasing the same goods pushes prices up; too little and business slows down. Every instrument you are asked about is a different tap on that same flow.
- Price levers change what money costs. Repo, SDF, MSF and the Bank Rate are all interest rates. Raise them and borrowing gets dearer, so less money moves.
- Quantity levers change how much banks are allowed to lend. CRR and SLR lock a share of every bank’s deposits away. Raise them and banks simply have less left to lend.
- Direct levers add or remove money outright — Open Market Operations, where the RBI buys or sells government securities in the market.
The sentence to carry into the exam: rate up means money tighter means inflation cooler; rate down means money easier means growth faster. Once you know which direction an instrument pushes, you can answer most questions without having memorised anything else about it. It also connects straight to the growth and inflation figures — see our explainer on what India’s 7.8% GDP number actually means.
The Policy Rates, and What Each One Does
| Instrument | Current | What It Actually Does |
|---|---|---|
| Repo Rate | 5.25% | The rate at which the RBI lends to banks against government securities. The headline policy rate. |
| Standing Deposit Facility (SDF) | 5.00% | The rate at which banks park surplus money with the RBI without giving collateral. The floor of the corridor. |
| Marginal Standing Facility (MSF) | 5.50% | Emergency overnight borrowing for banks, above the repo. The ceiling of the corridor. |
| Bank Rate | 5.50% | Long-term lending rate to banks without collateral; moves with the MSF. |
| Reverse Repo Rate | 3.35% | The older instrument for absorbing money against collateral — largely replaced in practice by the SDF. |
| Cash Reserve Ratio (CRR) | 3.00% | Share of deposits every bank must keep in cash with the RBI. Earns no interest. |
| Statutory Liquidity Ratio (SLR) | 18.00% | Share of deposits a bank must hold in its own safe assets — cash, gold or government securities. It does earn a return. |
The distinction most often got wrong: CRR is kept with the RBI and earns nothing; SLR is kept by the bank itself and earns a return. And the SDF, repo and MSF form a corridor — SDF at the bottom, repo in the middle, MSF on top.
The Monetary Policy Committee and the Inflation Target
- Policy rates are set by the Monetary Policy Committee (MPC), created by an amendment to the RBI Act in 2016.
- It has six members — three from the RBI, including the Governor, and three appointed by the central government.
- The Governor chairs it and holds a casting vote if the six split three-three.
- The target is 4% consumer price inflation, with a tolerance band of 2% to 6%. Missing that band for three consecutive quarters obliges the RBI to explain itself in writing to the government.
The RBI Itself — Dates and Firsts
| Fact | Answer |
|---|---|
| Established | 1 April 1935, under the RBI Act, 1934, on the recommendation of the Hilton Young Commission. |
| Nationalised | 1 January 1949 — it began life as a privately owned bank. |
| Original headquarters | Kolkata, shifted to Mumbai in 1937. |
| First Governor | Sir Osborne Smith (1935–37). |
| First Indian Governor | Sir C. D. Deshmukh (1943–49). |
| Current Governor | Sanjay Malhotra, the 26th Governor, in office since 12 December 2024. |
| Currency issued | All notes except the ₹1 note, which is issued by the Ministry of Finance and signed by the Finance Secretary. |
Banking Milestones You Must Know
| Year | Milestone |
|---|---|
| 1770 | Bank of Hindustan — the first bank in India (now defunct). |
| 1865 | Allahabad Bank founded — the oldest joint-stock bank, until it merged into Indian Bank in 2020. |
| 1894 | Punjab National Bank — the first bank started purely with Indian capital. |
| 1921 | The three presidency banks amalgamate into the Imperial Bank of India. |
| 1946 | Bank of India opens a London branch — the first Indian bank to open abroad. |
| 1 July 1955 | The Imperial Bank becomes the State Bank of India. |
| 19 July 1969 | 14 banks nationalised. |
| 15 April 1980 | 6 more banks nationalised. |
| 2008 | NPCI set up — later the home of IMPS (2010), RuPay (2012) and UPI (2016). |
| 2020 | Deposit insurance cover raised to ₹5 lakh per depositor per bank, under the DICGC. |
Regulators and What Each One Regulates
| Regulator | Regulates | Set Up / Headquarters |
|---|---|---|
| RBI | Banks, NBFCs, payment systems, monetary policy, currency | 1935 / Mumbai |
| SEBI | Securities markets — stock exchanges, brokers, mutual funds | 1988, statutory in 1992 / Mumbai |
| IRDAI | Insurance companies, life and general | 1999 / Hyderabad |
| PFRDA | Pensions and the National Pension System | Statutory in 2013 / New Delhi |
| IBBI | Insolvency and bankruptcy proceedings | 2016 / New Delhi |
Development Financial Institutions
| Institution | What It Finances |
|---|---|
| NABARD (1982) | Agriculture and rural development; set up on the recommendation of the Sivaraman Committee. Headquarters: Mumbai. |
| EXIM Bank (1982) | Export and import finance. Headquarters: Mumbai. |
| NHB (1988) | Housing finance. |
| SIDBI (1990) | Micro, small and medium enterprises. Headquarters: Lucknow. |
| NaBFID (2021) | Long-term infrastructure finance. |
Types of Banks — and the Rule That Defines Each
- Public sector banks — 12 after the mergers completed in 2020.
- Regional Rural Banks — set up from 1975, owned 50% by the Centre, 35% by the sponsor bank and 15% by the state. That 50:35:15 split is asked directly.
- Small Finance Banks — must lend 75% to the priority sector, and at least half their loan book must be loans of up to ₹25 lakh.
- Payments Banks — cannot lend at all. They take deposits up to ₹2 lakh per customer and issue cards; that inability to lend is their defining feature.
- Cooperative banks — dual regulation, by the RBI and by state or central cooperative law.
One-Line Facts That Keep Coming Back
- Priority Sector Lending target for commercial banks is 40% of adjusted net bank credit — within that, 18% to agriculture and 12% to weaker sections.
- Deposit insurance covers ₹5 lakh per depositor per bank, principal and interest together, through the DICGC — a wholly owned subsidiary of the RBI.
- The RBI’s minimum capital adequacy requirement (CRAR) for Indian banks is 9%, above the Basel III minimum of 8%.
- NEFT and RTGS run 24×7. RTGS is for high-value transfers with a ₹2 lakh minimum; NEFT has no minimum.
- SEBI, IRDAI and PFRDA are statutory bodies; NPCI is not a regulator — it is a not-for-profit company that runs retail payment systems.
- The RBI is often called the banker’s bank, the lender of last resort and the government’s banker — three different roles, all asked separately.
Practice Questions
Q1. Which of the following earns no interest for a bank?
(a) SLR (b) CRR (c) MSF (d) Repo
Answer: (b) CRR. It sits as cash with the RBI and earns nothing. SLR is held by the bank in its own securities and does earn a return — that is the whole distinction.
Q2. The Monetary Policy Committee has how many members?
(a) Four (b) Five (c) Six (d) Seven
Answer: (c) Six — three from the RBI and three nominated by the government, with the Governor holding a casting vote.
Q3. Which type of bank is not permitted to lend?
(a) Small Finance Bank (b) Payments Bank (c) Regional Rural Bank (d) Cooperative Bank
Answer: (b) Payments Bank. It may accept deposits up to ₹2 lakh per customer and issue cards, but it cannot give loans.
Q4. IRDAI is headquartered at:
(a) Mumbai (b) New Delhi (c) Hyderabad (d) Chennai
Answer: (c) Hyderabad. SEBI and the RBI are in Mumbai, PFRDA in New Delhi — the regulator-to-city pairing is the question.
Q5. If the RBI wants to reduce inflation, it is most likely to:
(a) Cut the repo rate (b) Raise the repo rate (c) Cut the CRR (d) Buy government securities
Answer: (b) Raise the repo rate. Dearer money means less borrowing and less spending. Options (a), (c) and (d) all add money to the system.
Common Mistakes to Avoid
- CRR versus SLR. CRR is cash with the RBI and earns nothing; SLR is held by the bank in its own approved assets and earns a return.
- Repo versus reverse repo. Repo is the RBI lending to banks; reverse repo is the RBI borrowing from them. The SDF has largely taken over the absorbing role.
- SEBI was set up in 1988 but became statutory in 1992. Both years are correct for different questions — read which one is being asked.
- The ₹1 note is not issued by the RBI. It comes from the Ministry of Finance and carries the Finance Secretary’s signature.
- NPCI is not a regulator. It operates UPI, IMPS and RuPay; the RBI regulates it.
- Rates change at every MPC meeting. The figures above are as published at the time of writing — always check the latest RBI release before an exam.
Test Yourself
Reading a capsule is not the same as recalling it under time pressure. Our Test Your Knowledge page carries free Static GK and current affairs quizzes, each with an explanation for every answer and a downloadable PDF for offline revision.
Sources: the Reserve Bank of India’s policy rate publications and the RBI Act, 1934; SEBI, IRDAI, PFRDA and IBBI statutes; DICGC deposit insurance rules; and NPCI product documentation. Policy rates are revised at bi-monthly MPC meetings and the figures here are as published at the time of writing. Last reviewed on the publication date of this post.
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