Financial Institutions, Regulators and Government Financial Schemes
The RBI: milestones and what it does
The Reserve Bank of India is the central bank. It was created by the RBI Act, 1934 and began operating on 1 April 1935. Its central office was first at Calcutta and was permanently moved to Mumbai in 1937. It started as a shareholders' bank and was nationalised on 1 January 1949, after which the Government of India owned it entirely. Example: 1 April 1935 to 1 January 1949 is 13 years and 9 months of private ownership.
- Issuer of currency: the RBI issues banknotes (the one-rupee note and all coins come from the Government of India, not the RBI).
- Banker to the Government and banker to banks: it keeps the government's accounts and the banks' reserve balances.
- Monetary policy and bank regulation: policy rates, reserve ratios and licensing and supervision of banks and NBFCs.
- Manager of foreign exchange under the Foreign Exchange Management Act, 1999, and regulator of payment systems.
Development finance institutions: NABARD, SIDBI, NHB, EXIM
These four are apex lenders and refinancers for a sector, not general banks. Each is tied to one sector, which is the key the exam tests.
| Institution | Sector it serves | Law and start | Head office |
|---|---|---|---|
| NABARD | Agriculture, rural development, rural credit; refinances banks | Act of 1981; set up 12 July 1982 | Mumbai |
| SIDBI | Micro, small and medium enterprises | Act of 1989; set up 2 April 1990 | Lucknow |
| NHB | Housing finance | Act of 1987; set up 9 July 1988 | New Delhi |
| EXIM Bank | Foreign trade: exports and imports | Set up in 1982 | Mumbai |
NABARD was set up on the recommendation of the Shivaraman Committee and took over rural-credit work that had earlier sat inside the RBI. SIDBI began as a subsidiary of IDBI and was delinked from it in 2000. The regulation of housing finance companies, once with the NHB, moved to the RBI in 2019; the NHB still promotes and refinances housing.
NPCI, DICGC, CGTMSE and Regional Rural Banks
NPCI (National Payments Corporation of India) is the umbrella organisation for retail payments. It was incorporated in 2008 as a not-for-profit company under Section 25 of the Companies Act, 1956 (now Section 8 of the Companies Act, 2013), set up under RBI guidance with the Indian Banks' Association, and has its office in Mumbai. It runs RuPay, UPI and IMPS.
DICGC (Deposit Insurance and Credit Guarantee Corporation) was formed in 1978 and is a subsidiary of the RBI; it insures bank deposits. CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises), set up in 2000 by the Government of India and SIDBI, guarantees collateral-free loans that banks give to micro and small enterprises. One protects depositors; the other protects lenders.
Regional Rural Banks (RRBs) began on 2 October 1975 and are governed by the RRB Act, 1976. Each is owned by the Centre 50%, the State 15% and a sponsor bank 35%. Example: for a share capital of Rs 400 crore, the sponsor bank holds 35% = Rs 140 crore.
Financial-inclusion schemes
Financial inclusion means bringing every adult into the formal system: an account, credit, insurance and a pension. Learn each scheme by four fields: name, year, ministry or agency, purpose.
| Scheme | Year | Ministry or agency | Purpose |
|---|---|---|---|
| PM Jan Dhan Yojana (PMJDY) | 28 Aug 2014 | Finance Ministry (Department of Financial Services) | Basic zero-balance account for every household, with a RuPay debit card |
| PM MUDRA Yojana (PMMY) | 8 Apr 2015 | Finance Ministry | Collateral-free loans to micro enterprises through banks, RRBs, SFBs, MFIs |
| Stand-Up India | 5 Apr 2016 | Finance Ministry (Department of Financial Services) | Bank loans for first-time (greenfield) ventures of SC, ST and women entrepreneurs |
| PM SVANidhi | 1 June 2020 | Ministry of Housing and Urban Affairs | Working-capital loans for street vendors |
| Kisan Credit Card | 1998 | Model by NABARD; RBI asked banks to adopt it | Timely, flexible short-term crop credit for farmers |
MUDRA loan categories (as set at the 2015 launch; a higher "Tarun Plus" band was added in October 2024): Shishu up to Rs 50,000; Kishore above Rs 50,000 up to Rs 5 lakh; Tarun above Rs 5 lakh up to Rs 10 lakh. MUDRA is a refinancing agency and does not lend directly to the entrepreneur. Example: a loan of Rs 3,00,000 lies between Rs 50,000 and Rs 5 lakh, so it is Kishore.
Key takeaways
- A regulator makes rules: RBI for banks and payments, SEBI for securities and mutual funds, IRDAI for insurance, PFRDA for pensions. NPCI only operates payment systems.
- Head offices: Mumbai for RBI, SEBI, NABARD and EXIM; Hyderabad for IRDAI; New Delhi for PFRDA and NHB; Lucknow for SIDBI.
- RBI began work on 1 April 1935 under the 1934 Act, moved to Mumbai in 1937 and was nationalised on 1 January 1949.
- DICGC insures deposits; CGTMSE guarantees collateral-free loans to micro and small enterprises; RRBs are owned 50:15:35 by Centre, State and sponsor bank.
- PMJDY (Aug 2014), PMMY (Apr 2015), Stand-Up India (Apr 2016) and PM SVANidhi (June 2020, Housing and Urban Affairs) are inclusion and credit schemes; learn year, ministry and purpose together.
- PMJJBY covers death from any cause (18 to 50); PMSBY covers accident only (18 to 70); APY gives Rs 1,000 to Rs 5,000 a month from 60 (entry 18 to 40).
Practice questions (17)
Attempt each one before opening the answer. Every explanation names the tempting wrong option as well as the right one, because that is where marks are lost.
Which body regulates stock exchanges and mutual funds in India?
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Answer: B — SEBI, under the SEBI Act, 1992
SEBI is the securities-market regulator: exchanges, brokers and mutual funds. The RBI is the tempting answer because banks sell mutual funds, but selling a product does not make a bank its regulator. IRDAI supervises insurers and PFRDA supervises pensions.Which authority regulates the National Pension System (NPS) and the Atal Pension Yojana?
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Answer: C — Pension Fund Regulatory and Development Authority
The pension regulator is the PFRDA, which supervises the NPS and the Atal Pension Yojana. IRDAI is the likely distractor because a pension feels like insurance, but IRDAI regulates insurers only.NPCI was incorporated in 2008 as which kind of body?
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Answer: D — A not-for-profit company under Section 25 of the Companies Act, 1956
NPCI is a not-for-profit company (Section 25 of the 1956 Act, now Section 8 of the 2013 Act) set up with RBI guidance and the Indian Banks' Association. It is an operator, not a statutory regulator or an RBI department, which is why the regulator and RBI-department descriptions are wrong.Where is the head office of SIDBI?
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Answer: A — Lucknow
SIDBI's head office is at Lucknow. Mumbai is the tempting answer because NABARD and EXIM Bank are there, and Hyderabad is the home of IRDAI; neither is SIDBI's seat.Which pairing of institution and head-office city is NOT correct?
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Answer: B — SIDBI and Mumbai
SIDBI's head office is at Lucknow, so pairing it with Mumbai is the incorrect one. NABARD and SEBI have their head offices in Mumbai and PFRDA in New Delhi, so those pairs are correct.Consider these statements about the Reserve Bank of India.
P: It began operations on 1 April 1935 under the RBI Act, 1934.
Q: Its central office was permanently moved from Calcutta to Mumbai in 1937.
R: It was nationalised on 1 January 1949.
S: It was created by the Banking Regulation Act, 1949.
Which statements are correct?Show answer
Answer: C — P, Q and R only
P, Q and R are correct. S is wrong: the RBI was created by the RBI Act, 1934, not by the Banking Regulation Act, 1949, which regulates banks. The year 1949 is what makes S tempting.In which month and year was the Pradhan Mantri Jan Dhan Yojana launched?
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Answer: D — August 2014
PMJDY was launched on 28 August 2014. The other options are the launch dates of the MUDRA scheme (April 2015), the Jan Suraksha schemes (May 2015) and Stand-Up India (April 2016).As per the scheme design, which scheme pays Rs 2 lakh on accidental death or total permanent disability and is open to persons aged 18 to 70?
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Answer: A — Pradhan Mantri Suraksha Bima Yojana
PMSBY is the accident cover, with entry between 18 and 70. PMJJBY is the tempting distractor: it also gives Rs 2 lakh, but on death from any cause and for entry at 18 to 50.A person joins the Atal Pension Yojana at age 28 and contributes until the pension starts at age 60. For how many years does the person contribute before pension begins?
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Answer: B — 32 years
Pension starts at 60 and entry is at 28, so the period is 60 − 28 = 32 years; 28 lies within the 18 to 40 entry band. 22 years comes from wrongly subtracting from 50 and 42 from adding 14 to the entry age.Under the three loan categories fixed when PMMY was launched in 2015, a micro-entrepreneur takes a loan of Rs 4,20,000. Which category is it?
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Answer: C — Kishore, above Rs 50,000 and up to Rs 5 lakh
Rs 4,20,000 is more than Rs 50,000 and less than Rs 5 lakh, so it is Kishore. Tarun begins above Rs 5 lakh, and Tarun Plus, added later in 2024, is not part of the three original categories.Stand-Up India (launched 5 April 2016) was designed to give bank loans for first-time ventures of SC, ST and women entrepreneurs, between Rs 10 lakh and Rs 1 crore. Which applicant fits the scheme as designed at launch?
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Answer: B — A woman starting a new manufacturing unit and seeking Rs 40 lakh
The key is a new (greenfield) venture by a woman or an SC/ST entrepreneur with a loan within Rs 10 lakh to Rs 1 crore. The expansion of an old shop is not first-time; the general-category man is outside the target group; Rs 3 crore exceeds the ceiling.Which ministry launched PM SVANidhi in June 2020 as a working-capital scheme for street vendors?
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Answer: A — Ministry of Housing and Urban Affairs
PM SVANidhi was launched by the Ministry of Housing and Urban Affairs, with SIDBI engaged for implementation. The Finance Ministry option is tempting because PMJDY, MUDRA and Stand-Up India sit there, but street vendors are an urban-affairs subject.The Sukanya Samriddhi Yojana was launched on 22 January 2015 at Panipat as part of which campaign?
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Answer: C — Beti Bachao Beti Padhao
Sukanya Samriddhi was launched with the Beti Bachao Beti Padhao campaign at Panipat; an account can be opened for a girl child up to 10 years of age. PMJDY is a different 2014 scheme, and APY was launched in Kolkata in May 2015.The National Bank for Agriculture and Rural Development was set up on the recommendation of which committee?
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Answer: B — Shivaraman Committee
NABARD (set up 12 July 1982) followed the Shivaraman Committee's recommendation. The Narasimham, Tandon and Chakravarty committees dealt with banking reform, working-capital finance and the monetary system respectively, not rural credit.A Regional Rural Bank has issued share capital of Rs 400 crore, held in the standard ratio of Centre 50%, State 15% and sponsor bank 35%. How much does the sponsor bank hold?
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Answer: A — Rs 140 crore
Sponsor bank share = 35% of 400 = Rs 140 crore. Rs 60 crore is the State's 15% and Rs 200 crore is the Centre's 50%; these are the figures a candidate gets by taking the wrong share.Which pairing of institution and its core role is correct?
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Answer: D — National Housing Bank, apex institution for housing finance
The NHB is the apex housing finance institution. The other pairings swap roles: NABARD is for agriculture and rural credit, SIDBI is for small enterprises and EXIM Bank is for foreign trade.Which body guarantees collateral-free bank loans to micro and small enterprises, with the Government of India and SIDBI as its founders?
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Answer: B — CGTMSE
CGTMSE, set up in 2000 by the Government and SIDBI, guarantees collateral-free loans to micro and small enterprises. DICGC is the tempting distractor: it insures depositors' money when a bank fails and is an RBI subsidiary.
Social-security and pension schemes
Three schemes were launched together on 9 May 2015 from Kolkata, all under the Finance Ministry: the two insurance schemes and one pension scheme. The terms below are the scheme design; premiums are revised from time to time, so a question must not rest on a premium figure without its date.
The National Pension System (NPS) began on 1 January 2004 for new central government employees (except the armed forces) and was later opened to all citizens; PFRDA regulates it. Sukanya Samriddhi Yojana was launched on 22 January 2015 at Panipat as part of Beti Bachao Beti Padhao; an account can be opened for a girl child up to 10 years of age. Example: a person who joins APY at 28 contributes for 60 − 28 = 32 years before the pension starts.