RBI Grade B Officer Finance and Management (FM) Syllabus

What is a debenture and how does it differ from a share?

A debenture is a debt instrument representing borrowed money with a fixed interest (coupon), making the holder a creditor; a share represents ownership making the holder an owner with dividends. Debenture interest is paid before dividends.

What is the difference between an IPO and an FPO?

An IPO (Initial Public Offering) is the first sale of shares by a company to the public; an FPO (Follow-on Public Offering) is the issue of additional shares by an already-listed company.

What are mutual funds and how are open-ended and close-ended funds different?

Mutual funds pool money from investors to invest in securities. Open-ended funds allow entry/exit anytime at NAV with no fixed maturity; close-ended funds have a fixed maturity and a fixed number of units traded on exchanges.

What is a derivative and name its four main types?

A derivative is a contract whose value is derived from an underlying asset; the four main types are Forwards, Futures, Options, and Swaps.

What is credit risk in banking?

The risk that a borrower or counterparty will fail to meet its obligations (default), causing loss to the lender; it is the most significant risk for banks.

Differentiate market risk and operational risk.

Market risk is the risk of loss from movements in market prices (interest rates, exchange rates, equity, commodity prices); operational risk is the risk of loss from failed internal processes, people, systems, or external events.

What is liquidity risk for a bank?

The risk that a bank cannot meet its short-term financial obligations or fund increases in assets without incurring unacceptable losses, due to a mismatch between asset and liability maturities.

What does CRAR / Capital Adequacy Ratio measure and how is it calculated?

It measures a bank's capital relative to its risk-weighted assets to absorb losses. CRAR = (Tier 1 capital + Tier 2 capital) / Risk-Weighted Assets, expressed as a percentage.

Under Basel III in India, what is the minimum total capital adequacy requirement for banks?

9% minimum CRAR (against Basel's 8%), plus a Capital Conservation Buffer of 2.5%, taking the effective requirement to 11.5%.

What are the three pillars of the Basel III framework?

Pillar 1: Minimum Capital Requirements; Pillar 2: Supervisory Review Process; Pillar 3: Market Discipline (disclosure).

What is a Non-Performing Asset (NPA) and when is a loan classified as one?

An NPA is a loan or advance where principal or interest remains overdue for more than 90 days. NPAs are sub-classified as Sub-Standard, Doubtful, and Loss assets.

What is the purpose of the Insolvency and Bankruptcy Code (IBC), 2016?

It provides a time-bound (within ~330 days) process for resolving insolvency of companies and individuals, maximizing asset value and balancing stakeholder interests, with the NCLT as the adjudicating authority for corporates.

What is UPI (Unified Payments Interface)?

A real-time, mobile-based instant payment system developed by NPCI that allows transfer of funds between bank accounts using a Virtual Payment Address (VPA), available 24x7.

What is a Central Bank Digital Currency (CBDC) and what is India's version called?

A CBDC is a digital form of legal tender (sovereign currency) issued by the central bank; India's version is the e-Rupee (Digital Rupee), launched by the RBI in pilot form in 2022.

What is the principle of corporate governance in banks?

It is the system of rules, practices, and processes by which a bank is directed and controlled, balancing the interests of stakeholders (shareholders, depositors, regulators) through accountability, transparency, fairness, and responsibility.

What was the role of the Ganguly Committee in bank corporate governance?

The Ganguly Committee (2002) recommended 'fit and proper' criteria for bank directors, ensuring boards have requisite skills and integrity to strengthen corporate governance in banks.

What is the role of an Audit Committee of the Board in a bank?

It oversees the bank's financial reporting, internal controls, audit process, and compliance, ensuring accuracy and integrity of financial statements and strengthening corporate governance.

Name three major factors affecting the banking sector's performance.

Monetary policy and interest rate movements, asset quality / NPA levels, and macroeconomic conditions (GDP growth, inflation); regulatory changes and technology/competition are also key.

What is Net Interest Margin (NIM) and why is it important for banks?

NIM = (Interest income earned - Interest expended) / Average earning assets. It measures the profitability of a bank's core lending business; a higher NIM indicates more efficient interest-spread management.

What is the Union Budget and under which Article of the Constitution is it presented?

The Union Budget is the annual financial statement of the government's estimated receipts and expenditure for a financial year, presented under Article 112 of the Constitution.

What is the difference between Revenue Budget and Capital Budget?

The Revenue Budget covers revenue receipts (taxes, etc.) and revenue expenditure (recurring, non-asset-creating); the Capital Budget covers capital receipts (borrowings, disinvestment) and capital expenditure (asset creation, loan repayment).

Define Fiscal Deficit.

Fiscal Deficit = Total Expenditure - Total Receipts (excluding borrowings). It indicates the total borrowing requirement of the government in a financial year.

What is the difference between Fiscal Deficit, Revenue Deficit, and Primary Deficit?

Revenue Deficit = Revenue Expenditure - Revenue Receipts; Fiscal Deficit = Total Expenditure - Total Receipts excluding borrowings; Primary Deficit = Fiscal Deficit - Interest Payments.

What targets does the FRBM Act, 2003 set for fiscal management?

The Fiscal Responsibility and Budget Management Act aims to institutionalize fiscal discipline; it targeted reducing fiscal deficit to 3% of GDP and eliminating revenue deficit, with debt-to-GDP targets (e.g., 40% for the Centre).

What is the difference between direct and indirect taxes, with examples?

Direct taxes are levied on income/wealth and borne by the same person (e.g., Income Tax, Corporate Tax); indirect taxes are levied on goods/services and the burden can be shifted to consumers (e.g., GST, customs duty).

Define inflation and name its two main demand and cost types.

Inflation is a sustained rise in the general price level of goods and services over time. Demand-pull inflation arises from excess demand; cost-push inflation arises from rising input/production costs.

What is the difference between CPI and WPI?

CPI (Consumer Price Index) measures retail price changes of a basket of goods/services consumed by households and is India's official inflation measure for monetary policy; WPI (Wholesale Price Index) measures price changes at the wholesale/producer level.

What is the inflation target mandated to the RBI under the flexible inflation targeting framework?

4% CPI inflation, with a tolerance band of +/- 2% (i.e., 2% to 6%), set by the government in consultation with the RBI.

What is the Repo Rate and how does raising it control inflation?

The repo rate is the rate at which the RBI lends short-term funds to banks against securities. Raising it makes borrowing costlier, reduces money supply and demand, and thus helps curb inflation.

What are the quantitative tools of RBI's monetary policy?

Repo rate, Reverse repo rate, CRR, SLR, Bank Rate, Marginal Standing Facility (MSF), and Open Market Operations (OMOs).

Who decides the policy repo rate in India and what is its composition?

The Monetary Policy Committee (MPC), a 6-member body with 3 RBI members (including the Governor as chairperson) and 3 government-nominated external members; decisions are by majority vote with the Governor holding a casting vote.