Indian Banking System

Indian banking is governed by RBI (apex bank, est. April 1, 1935; nationalised Jan 1, 1949). Scheduled banks = listed in the 2nd Schedule of RBI Act 1934 (need paid-up capital + reserves >= Rs 5 lakh and operations not detrimental to depositors). They split into Scheduled Commercial Banks (SCBs) and Scheduled Cooperative Banks. SCBs = Public Sector Banks (PSBs), Private Sector Banks, Foreign Banks, Regional Rural Banks (RRBs), and Small Finance Banks. Memory aid: 'Scheduled banks get RBI loans + clearing-house access.' Non-scheduled banks (rare today) are not in the 2nd Schedule. SARFAESI, CRR/SLR apply to scheduled banks. Speed tip: any question naming the '2nd Schedule' refers to RBI Act 1934, NOT the Banking Regulation Act 1949.

Key dates to lock in: Imperial Bank of India became State Bank of India on July 1, 1955 (under SBI Act 1955, on Hilton-Young/All India Rural Credit Survey recommendation). First wave of bank nationalisation: 14 banks on July 19, 1969 (deposits >= Rs 50 crore). Second wave: 6 banks on April 15, 1980 (deposits >= Rs 200 crore). Total = 20 banks nationalised. RRBs created Oct 2, 1975 (Narasimham Committee 1975) under RRB Act 1976. NABARD set up July 12, 1982. Memory trick: '69-fourteen, 80-six' and 'SBI fifties (1955), RRB seventy-five.' After mega-mergers (2017-2020), India now has 12 PSBs (down from 27).

Committee names recur heavily in SBI PO. Narasimham Committee I (1991) — financial sector reforms, prudential norms, reduce SLR/CRR. Narasimham Committee II (1998) — banking sector reforms, NPA management, Asset Reconstruction Companies, CAR to 9%+. Other high-yield mappings: Khan Committee (universal banking), Vaghul Committee (money market), Damodaran Committee (customer service), Nachiket Mor Committee (financial inclusion, led to Payments Banks & Small Finance Banks), Bimal Jalan Committee (RBI economic capital framework). Memory aid: 'Narasimham = banking reforms; Nachiket Mor = inclusion (Payments/SFB); Bimal Jalan = RBI reserves transfer.'

RBI's monetary tools split into Quantitative (affect overall money supply) and Qualitative (selective/credit control). Quantitative: CRR, SLR, Repo, Reverse Repo, MSF, Bank Rate, OMO. Qualitative: margin requirements, moral suasion, credit rationing, consumer-credit regulation, direct action. Memory aid: 'Quantitative = QUANTITY of money; Qualitative = direction/QUALITY of credit.' Key numbers to memorise (note: rates change, but relationships are fixed): MSF rate = Repo + 0.25%; Bank Rate = MSF rate (aligned). Reverse Repo < Repo. CRR is a % of NDTL kept as cash with RBI earning NO interest; SLR is kept in liquid assets (gold, cash, approved securities) by the bank ITSELF. To FIGHT INFLATION, RBI raises Repo/CRR/SLR (contractionary).

The Liquidity Adjustment Facility (LAF) corridor structure: MSF (upper bound/ceiling) > Repo Rate (policy/middle rate) > SDF or Reverse Repo (lower bound/floor). SDF (Standing Deposit Facility, introduced April 2022) replaced fixed reverse repo as the floor and absorbs liquidity WITHOUT collateral. Formula relationships: MSF = Repo + 0.25%; SDF = Repo - 0.25%. So the corridor width is 50 bps (0.25% on each side). The MPC (Monetary Policy Committee) — 6 members (3 RBI incl. Governor as chair + 3 government-nominated) — sets the repo rate; decisions by majority, Governor has casting vote. Inflation target: 4% CPI (+/- 2%, i.e., 2%-6% band) under the flexible inflation targeting framework.

High-frequency distinction. CRR (Cash Reserve Ratio): portion of NDTL banks keep as CASH with RBI; NO interest earned; maintained with RBI; affects liquidity directly. SLR (Statutory Liquidity Ratio): portion of NDTL kept by the bank ITSELF in liquid form — cash, gold, or approved (G-Sec) securities; bank earns return on G-Secs. Statutory limits: CRR has no floor/ceiling now (RBI's discretion); SLR maximum is 40% under the Banking Regulation Act. Trick: 'CRR = Cash with RBI (no income); SLR = Self-held liquid Securities (earns income).' A cut in CRR/SLR releases lendable funds (expansionary); a hike absorbs liquidity (contractionary, anti-inflation).

A Non-Performing Asset (NPA) is a loan where interest/principal is overdue for more than 90 days. Classification stages: (1) Standard Asset — performing; (2) Sub-Standard — NPA for up to 12 months; (3) Doubtful — NPA beyond 12 months; (4) Loss Asset — uncollectible, identified by bank/auditor/RBI. Memory aid: 'Sub-standard = first year of trouble; Doubtful = doubt grows after 1 year; Loss = written off.' SMA (Special Mention Accounts) flag early stress BEFORE NPA: SMA-0 (1-30 days overdue), SMA-1 (31-60 days), SMA-2 (61-90 days). Provisioning increases as asset quality worsens. Gross NPA includes all; Net NPA = Gross NPA minus provisions.

SARFAESI Act 2002 (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) lets banks/FIs recover NPAs WITHOUT court intervention by seizing and selling secured assets. Key points: applies to secured loans above Rs 1 lakh where NPA exceeds 20% of principal+interest; gives 60 days' notice to defaulter; does NOT apply to agricultural land, unsecured loans, or loans below Rs 1 lakh. Enables Asset Reconstruction Companies (ARCs) and a Central Registry (CERSAI). Appeals go to DRT (Debts Recovery Tribunal), then DRAT. Memory trick: 'SARFAESI = Seize Assets Rapidly For Enforcing Security Interest — no court needed, but not on farm land.'

Three main recovery routes for stressed assets: (1) Lok Adalat — small loans, amicable settlement; (2) DRT (Debts Recovery Tribunal) under RDDBFI Act 1993 — for dues above Rs 20 lakh; (3) SARFAESI 2002 — asset seizure without court. The Insolvency and Bankruptcy Code (IBC) 2016 is the modern umbrella: time-bound resolution (330 days max including litigation), adjudicated by NCLT (companies) / DRT (individuals). NCLT admits cases; a Resolution Professional runs the company; the Committee of Creditors (CoC) decides on the resolution plan (75% earlier, now 66% voting threshold). Liquidation waterfall puts secured creditors and workmen's dues high. Memory aid: 'IBC = time-bound, creditor-in-control via CoC at NCLT.'

Basel norms are issued by the BCBS (Basel Committee on Banking Supervision) under the BIS (Bank for International Settlements), Basel, Switzerland. Basel III (post-2008 crisis) rests on Three Pillars: Pillar 1 — Minimum Capital Requirements; Pillar 2 — Supervisory Review; Pillar 3 — Market Discipline (disclosure). Key Basel III ratios: minimum CRAR/CAR = 8% (BCBS) but RBI mandates 9% + Capital Conservation Buffer (CCB) 2.5%, so effectively 11.5%. Tier 1 capital >= 6%, of which Common Equity Tier 1 (CET1) >= 4.5%. New additions vs Basel II: Leverage Ratio (>=3%/3.5%), Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR), and counter-cyclical buffers. Memory aid: 'Basel III added Liquidity + Leverage + Buffers.'

Capital to Risk-weighted Assets Ratio (CRAR), also called Capital Adequacy Ratio (CAR): CRAR = (Tier 1 Capital + Tier 2 Capital) / Risk-Weighted Assets x 100. Tier 1 (core/going-concern capital) = paid-up equity + disclosed reserves + CET1 instruments. Tier 2 (supplementary/gone-concern) = undisclosed reserves, revaluation reserves, subordinated debt, general provisions. Risk weights: cash/G-Secs = 0%, home loans ~35-50%, personal/corporate loans = 100%+. Example: if Tier 1 = Rs 600 cr, Tier 2 = Rs 300 cr, RWA = Rs 9,000 cr, then CRAR = (600+300)/9000 x 100 = 10%. Speed tip: higher risk weight assets demand more capital backing.

High-yield financial inclusion facts. PMJDY (Pradhan Mantri Jan Dhan Yojana, Aug 28, 2014) — zero-balance accounts, RuPay debit card, Rs 2 lakh accident insurance (revised), overdraft up to Rs 10,000. Social security trio launched May 2015: PMJJBY (life cover Rs 2 lakh, premium Rs 436/yr, age 18-50), PMSBY (accident cover Rs 2 lakh, premium Rs 20/yr, age 18-70), APY (Atal Pension Yojana — guaranteed pension Rs 1,000-5,000, age 18-40). MUDRA (2015): Shishu (up to Rs 50k), Kishore (50k-5 lakh), Tarun (5-10 lakh). BSBDA = Basic Savings Bank Deposit Account (no min balance). Memory aid: 'JJBY = Jeevan (life); SBY = Suraksha (accident); APY = Pension.'