UGC NET Commerce Banking and Financial Institutions Syllabus

Banking and Financial Institutions syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Banking and Financial Institutions in UGC NET Commerce, not a summary of it.

1. 1

   Overview of Indian financial system

   9 topics

   • Types of banks
     • Commercial banks
     • Regional Rural Banks (RRBs)
     • Foreign banks
     • Cooperative banks
   • Reserve Bank of India
     • Functions
     • Role and monetary policy management
   • Banking sector reforms in India
     • Basel norms
     • Risk management
     • NPA management
   • Financial markets
     • Money market
     • Capital market
     • Government securities market
   • Financial Institutions
     • Development Finance Institutions (DFIs)
     • Non-Banking Financial Companies (NBFCs)
     • Mutual Funds
     • Pension Funds
   • Financial Regulators in India
   • Financial sector reforms including financial inclusion
   • Digitisation of banking and other financial services
     • Internet banking
     • Mobile banking
     • Digital payments systems
   • Insurance
     • Types of insurance- Life and Non-life insurance
     • Risk classification and management
     • Factors limiting the insurability of risk
     • Re-insurance
     • Regulatory framework of insurance- IRDA and its role

Banking and Financial Institutions flashcards for UGC NET Commerce

21 of 51 cards from the Banking and Financial Institutions deck — real questions with worked answers.

1. What are the two broad categories of banks in India based on inclusion in the Reserve Bank of India Act's schedule?

   Scheduled banks (listed in the Second Schedule of the RBI Act, 1934) and non-scheduled banks (not listed). Scheduled banks must have paid-up capital and reserves of at least Rs 5 lakh and satisfy the RBI that their affairs are not conducted against depositors' interests.

2. Distinguish between commercial banks and cooperative banks.

   Commercial banks are profit-oriented joint-stock institutions regulated under the Banking Regulation Act, 1949, serving the general public. Cooperative banks are member-owned, operate on a no-profit-no-loss cooperative basis, serve agriculture and small borrowers, and are regulated jointly by RBI and state Registrars of Cooperative Societies.

3. What is a scheduled commercial bank (SCB) and what types does it include?

   An SCB is a bank listed in the Second Schedule of the RBI Act, 1934. It includes public sector banks, private sector banks, foreign banks, regional rural banks (RRBs), and small finance banks.

4. What are Regional Rural Banks (RRBs) and how is their shareholding distributed?

   RRBs are scheduled commercial banks set up under the RRB Act, 1976 to provide credit to rural and agricultural sectors. Shareholding is: Central Government 50%, sponsor bank 35%, and State Government 15%.

5. What is the difference between a small finance bank and a payments bank?

   Small finance banks accept deposits and lend (focus on priority sector, small borrowers), with 75% of credit to priority sectors. Payments banks accept deposits up to Rs 2 lakh per customer, offer remittances and payments, but cannot lend or issue credit cards.

6. What is a Non-Banking Financial Company (NBFC) and how does it differ from a bank?

   An NBFC is a company registered under the Companies Act engaged in financial activities like loans, investments, and leasing. Unlike banks, NBFCs cannot accept demand deposits, are not part of the payment and settlement system, and depositors do not have DICGC insurance cover.

7. When was the Reserve Bank of India established and when was it nationalised?

   The RBI was established on 1 April 1935 under the RBI Act, 1934, based on recommendations of the Hilton Young Commission. It was nationalised on 1 January 1949.

8. What are the main functions of the Reserve Bank of India?

   Issuing currency (note-issuing authority), banker to the government, banker's bank and lender of last resort, controller of credit and monetary policy, custodian of foreign exchange reserves, and regulation and supervision of the financial system.

9. Under which currency note-issue system does the RBI currently operate?

   The Minimum Reserve System (since 1956), under which the RBI must hold a minimum reserve of Rs 200 crore, of which Rs 115 crore is in gold and Rs 85 crore in foreign securities, while issuing any amount of currency.

10. What is the composition of the Monetary Policy Committee (MPC) of the RBI?

    The MPC has six members: three from the RBI (the Governor as chairperson, the Deputy Governor in charge of monetary policy, and one RBI officer) and three external members appointed by the Central Government. Decisions are by majority; the Governor has a casting vote in a tie.

11. What is the inflation target set for the RBI under the flexible inflation targeting framework?

    4% Consumer Price Index (CPI) inflation, with a tolerance band of +/- 2% (i.e., 2% to 6%).

12. Define Cash Reserve Ratio (CRR).

    CRR is the percentage of a bank's net demand and time liabilities (NDTL) that it must maintain as cash reserves with the RBI. No interest is paid on these balances; it is a tool to control liquidity.

13. Define Statutory Liquidity Ratio (SLR).

    SLR is the minimum percentage of net demand and time liabilities (NDTL) that a bank must maintain in the form of liquid assets such as cash, gold, or approved government securities, held with itself (not the RBI).

14. What is the repo rate and the reverse repo rate?

    The repo rate is the rate at which the RBI lends short-term funds to commercial banks against government securities. The reverse repo rate is the rate at which the RBI borrows from banks, absorbing liquidity from the system.

15. What is the Marginal Standing Facility (MSF)?

    MSF is a window through which scheduled commercial banks can borrow overnight funds from the RBI against approved securities (including dipping into SLR) at a rate higher than the repo rate, used in emergency liquidity situations.

16. What is the Liquidity Adjustment Facility (LAF)?

    LAF is a monetary policy tool that allows banks to manage day-to-day liquidity mismatches by borrowing from the RBI through repo or parking funds through reverse repo, against eligible securities.

17. What is Open Market Operations (OMO)?

    OMO refers to the buying and selling of government securities by the RBI in the open market to regulate money supply: selling securities absorbs liquidity, while buying securities injects liquidity.

18. What is the Bank Rate?

    The Bank Rate is the rate at which the RBI lends long-term funds to commercial banks without collateral of securities. It is a signaling tool; the MSF rate is aligned with the Bank Rate.

19. Which committee's recommendations launched the first generation of banking sector reforms in India in 1991?

    The Narasimham Committee I (1991) recommended the first phase of banking sector reforms, including reduction of CRR and SLR, deregulation of interest rates, prudential norms, and entry of private banks.

20. What did the Narasimham Committee II (1998) primarily recommend?

    It recommended strengthening the banking system through capital adequacy enhancement, asset classification and provisioning norms, mergers of strong banks, reduction of Non-Performing Assets (NPAs), and greater autonomy for banks.

21. What are prudential norms in banking?

    Prudential norms are RBI regulations on income recognition, asset classification, and provisioning, along with capital adequacy requirements, designed to ensure banks reflect their true financial health and maintain stability.

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