Banking & RBI — Deep Dive

Indian Banking System Structure

RESERVE BANK OF INDIA (Central Bank)
    │
    ├── Scheduled Commercial Banks
    │   ├── Public Sector Banks (PSBs): SBI, PNB, Bank of Baroda, etc.
    │   ├── Private Banks: HDFC, ICICI, Axis, Kotak, Yes Bank, etc.
    │   ├── Foreign Banks: Citibank, HSBC, Deutsche, Standard Chartered
    │   └── Small Finance Banks: Equitas, Au SF Bank, etc.
    │
    ├── Cooperative Banks
    │   ├── Urban Cooperative Banks (UCBs)
    │   └── State Cooperative Banks (rural focus)
    │
    ├── Regional Rural Banks (RRBs) — joint ownership: Centre (50%), State (15%), Sponsor bank (35%)
    │
    ├── Development Finance Institutions
    │   ├── NABARD — agriculture & rural
    │   ├── SIDBI — small industries
    │   ├── NHB — housing finance
    │   └── EXIM Bank — export-import
    │
    └── Non-Banking Financial Companies (NBFCs) — regulated by RBI but not banks

RBI — Functions & Monetary Policy

Key Functions of RBI

1.Monetary authority: Controls money supply, inflation through monetary policy

2.Issuer of currency: Sole authority to issue notes (except ₹1 coin issued by Ministry of Finance)

3.Banker to government: Manages govt accounts, sells govt securities

4.Banker to banks: Maintains CRR, provides emergency liquidity (LOLR)

5.Regulator: Licenses banks, NBFCs, regulates foreign exchange (FEMA)

6.Manager of foreign exchange: Maintains forex reserves, manages INR

Monetary Policy Committee (MPC)

•6-member committee (3 RBI + 3 external, appointed by government)

•Meets every 2 months

•Targets: CPI inflation 4% (±2% band)

•Key rates:

Rate	Description	Current trend

|------|-------------|---------------|

Repo rate	Rate at which RBI lends to banks (overnight)	RBI's primary tool
Reverse repo	Rate at which RBI borrows from banks	= Repo - 25 bps typically
SLR	Statutory Liquidity Ratio — % of NDTL in liquid assets	~18%
CRR	Cash Reserve Ratio — % of NDTL as cash with RBI	~4%
MSF	Marginal Standing Facility — emergency overnight	= Repo + 25 bps
Bank Rate	Rate for rediscounting bills — long term	= MSF rate

Transmission mechanism: RBI ↓ Repo rate → Banks ↓ MCLR → Banks ↓ Lending rates → Corporates/consumers borrow more → Investment and consumption ↑ → GDP ↑

Banking Regulation — Key Provisions

Capital Adequacy — Basel III (RBI guidelines)

•CAR (Capital Adequacy Ratio): Minimum 10.5% (Total Capital/Risk-Weighted Assets)

- Tier 1 (Core): Equity + retained earnings ≥ 8%

- Tier 2 (Supplementary): Subordinated debt, provisions ≤ 2%

•CCB (Capital Conservation Buffer): 2.5% (all equity) — must be maintained above minimum CAR

•**LCR (Liquidity Coverag

Banking & RBI Deep Dive — Fundamentals