Banking and RBI
The Reserve Bank of India (RBI) is the country's central banking institution, handling everything from issuing currency to setting monetary policy. REET asks factual questions on RBI's founding, its functions, and the government's financial-inclusion and skilling schemes.
- 1 question in REET 2024
- Class 6–8 level
- 12 min read
How REET asks this topic
REET 2024 asked, under this topic, when the 'Pradhan Mantri Kaushal Vikas Yojana' began — the correct answer was 2015. This shows that the 'Banking and RBI' section covers not just institutional facts about RBI, but also the years and objectives of government schemes tied to financial inclusion and skill-based employment.
RBI — basic facts
- Founded
- 1 April 1935, under the Reserve Bank of India Act, 1934
- Nationalisation
- Brought under the ownership of the Government of India in 1949
- Headquarters
- Mumbai
- Main role
- India's central bank — the 'bankers' bank'
RBI's main functions
| Function | Description |
|---|---|
| Currency issuer | Holds the sole right to issue all currency notes except the ₹1 note/coin |
| Banker to the government | Manages the banking and financial transactions of the central and state governments |
| Bankers' bank | Holds reserve funds for commercial banks and lends to them |
| Monetary policy authority | Controls the money supply and inflation |
| Banking regulator | Licenses banks and supervises them |
| Foreign exchange manager | Manages foreign exchange reserves to keep the rupee stable |
Main tools of monetary policy
| Tool | Meaning |
|---|---|
| Repo rate | The rate at which RBI lends short-term funds to commercial banks |
| Reverse repo rate | The rate at which banks earn interest by depositing their surplus funds with RBI |
| Cash reserve ratio (CRR) | The fixed percentage of their total deposits that banks must keep with RBI, in cash |
| Statutory liquidity ratio (SLR) | The fixed percentage of their deposits that banks must keep in cash, gold, or approved securities |
| Bank rate | The rate at which RBI gives banks long-term loans |
| Open market operations (OMO) | RBI buying and selling government securities to control the money supply in the market |
When the repo rate rises, loans become more expensive, which reduces the money supply and helps control inflation.
Financial-inclusion and skill-development schemes
To promote banking and financial inclusion, the Government of India has launched several schemes. The 'Pradhan Mantri Kaushal Vikas Yojana' (PMKVY) was launched on 15 July 2015 (World Youth Skills Day) — its aim is to give young people short-term skill training and make them employable, and it is run under the Ministry of Skill Development and Entrepreneurship.
Similarly, the Pradhan Mantri Jan-Dhan Yojana was launched to bring people without access to banking services into a bank account, so that Direct Benefit Transfer (DBT) and other financial services can reach ordinary citizens. For REET, it's worth remembering the launch year and objective of schemes such as these.
The history of bank nationalisation and financial inclusion
Two major steps were taken to put India's banking sector in the public interest — on 19 July 1969, the then government of Prime Minister Indira Gandhi nationalised 14 major private commercial banks, and 6 more banks were nationalised in 1980. Before this, the State Bank of India (then the Imperial Bank) had already been nationalised, in 1955. The goal was to take banking services to every village and to ordinary citizens.
In recent years, to give financial inclusion further momentum, the Pradhan Mantri Jan-Dhan Yojana (PMJDY) was launched in 2014, aiming to bring every family basic banking, insurance and pension services — its slogan is 'Mera Khata, Bhagya Vidhata' (my account, maker of my destiny).
Types of banks and financial institutions in India
- Commercial banks
- Public/private banks that take deposits from and lend to the general public, such as the State Bank of India
- Cooperative banks
- Cooperative institutions that lend locally to farmers and small businesses
- Regional Rural Banks (RRB)
- Banks set up to bring banking facilities to rural areas
- NABARD
- The apex institution for lending to agriculture and rural development, established in 1982
Beyond banking — insurance and cooperation
Besides banking, there are two other important pillars of financial security — insurance (life and general insurance, regulated by IRDA) and cooperation (the cooperative movement, which gives farmers and small businesses organised access to credit and services). Neither comes under RBI's direct oversight, yet both are just as essential as banking to India's overall financial system — we cover them in detail in the next REET topic, 'Insurance and Cooperatives'.
How to teach this to children
Classroom activity (savings bank)
Run a 'savings bank' activity in class where children deposit and withdraw using tokens or slips — this makes the basic process of deposit and withdrawal at a bank understandable through experience.
Teaching aid
Show children a bank passbook or a currency note and have them identify the RBI Governor's signature and the line 'I promise to pay the bearer the sum of ... rupees' — this gives a hands-on introduction to RBI's role in issuing notes.
Common misconception
Children often think every bank prints its own notes separately — clarify that in India, only RBI has the sole right to print currency notes (except the ₹1 note), no matter which bank an account is held at.
Assessment idea
Have children discuss and write out, step by step, the process of opening a savings account at a village or city bank branch — this checks the practical side of financial inclusion.
Memory trick / exam tip
A chain to remember RBI's facts: 'Founded 1935, nationalised 1949' — the gap between the two numbers is 14 years, so remember them as a pair. For monetary-policy tools, remember: 'repo up, loans dearer, money supply down' — that's the direct logic of inflation control.
REET 2024 question (with solution)
Question 133
When was the “Pradhan Mantri Kaushal Vikas Yojana” started ?
- A2013
- B2015
- C2017
- D2023
Explanation
प्रधानमंत्री कौशल विकास योजना (PMKVY) 15 जुलाई 2015 (विश्व युवा कौशल दिवस) को शुरू की गई थी। इसका उद्देश्य युवाओं को उद्योग से जुड़ा अल्पकालिक कौशल प्रशिक्षण देकर रोजगार योग्य बनाना है और यह कौशल विकास एवं उद्यमिता मंत्रालय के अंतर्गत संचालित है।
Practice questions
Question 1
In which year was the Reserve Bank of India (RBI) established?
- A1926
- B1935
- C1947
- D1949
Explanation
The Reserve Bank of India was established on 1 April 1935, under the Reserve Bank of India Act, 1934.
Question 2
In which year was the RBI nationalized?
- A1935
- B1947
- C1949
- D1955
Explanation
RBI was nationalised in 1949, after which it came fully under the ownership of the Government of India.
Question 3
What is the short-term lending rate at which RBI lends to commercial banks called?
- Aबैंक दर
- Bरेपो रेट
- Cरिवर्स रेपो रेट
- DCRR
Explanation
The repo rate is the rate at which RBI gives commercial banks short-term loans; it is the most prominent tool of monetary policy.
Question 4
What does Cash Reserve Ratio (CRR) mean?
- Aबैंकों द्वारा RBI से लिया गया ऋण
- Bबैंकों को अपनी जमाओं का एक हिस्सा RBI के पास नकद रूप में रखना अनिवार्य
- CRBI द्वारा जारी नोटों की मात्रा
- Dसरकार द्वारा RBI को दिया गया अनुदान
Explanation
The cash reserve ratio (CRR) is the percentage of their total deposits that banks are required to keep with RBI in cash.
Question 5
When was the 'Pradhan Mantri Kaushal Vikas Yojana' launched?
- A2013
- B2015
- C2017
- D2019
Explanation
The Pradhan Mantri Kaushal Vikas Yojana (PMKVY) was launched on 15 July 2015, on World Youth Skills Day.
Question 6
Which function of RBI makes it known as the 'Banker's Bank'?
- Aआम जनता से जमा स्वीकार करना
- Bव्यावसायिक बैंकों के लिए आरक्षित निधि रखना व उन्हें ऋण देना
- Cविदेशी निवेश आकर्षित करना
- Dशेयर बाज़ार की निगरानी करना
Explanation
RBI holds reserve funds for commercial banks and lends to them when needed — this is why it is called the 'bankers' bank'.
Question 7
Which of the following is NOT a function of RBI?
- Aकरेंसी नोट जारी करना
- Bमौद्रिक नीति तय करना
- Cआयकर वसूलना
- Dबैंकों का नियमन करना
Explanation
Collecting income tax is the job of the Income Tax Department (the Central Board of Direct Taxes), not RBI; RBI's work includes issuing notes, setting monetary policy, and regulating banks.
Question 8
When RBI increases the repo rate, what is the general effect on the market?
- Aऋण सस्ता हो जाता है
- Bऋण महँगा होता है व मुद्रा-आपूर्ति घटती है
- Cबैंकों की जमा दर घट जाती है
- Dकोई प्रभाव नहीं पड़ता
Explanation
When the repo rate rises, loans from RBI become costlier for banks, so they also lend to customers at a higher rate — this reduces the money supply in the market and helps control inflation.
Question 9
A teacher has Class 8 students do a 'savings bank' activity where they deposit and withdraw tokens. This activity mainly helps explain which concept?
- Aभूगोल का मानचित्र-कौशल
- Bबैंक में जमा व निकासी की बुनियादी प्रक्रिया
- Cविज्ञान के सूत्र
- Dव्याकरण के नियम
Explanation
Practical activities like 'savings bank' teach children the basic process of banking (deposit, withdrawal, saving) through experience, which is an effective way to simplify abstract economic concepts.
Question 10
Where is the headquarters of the Reserve Bank of India located?
- Aनई दिल्ली
- Bमुंबई
- Cकोलकाता
- Dचेन्नई
Explanation
The Reserve Bank of India (RBI) is headquartered in Mumbai.
Frequently asked questions
How many REET questions come from Banking and RBI?+
REET 2024 had 1 question from this topic (on the Pradhan Mantri Kaushal Vikas Yojana); RBI and financial schemes are a regular part of the Economics section.
When was RBI established?+
The Reserve Bank of India was established on 1 April 1935 under the Reserve Bank of India Act, 1934; it was nationalised in 1949.
What is the repo rate?+
The repo rate is the rate at which RBI lends short-term funds to commercial banks; when the repo rate rises, loans become more expensive in the market and the money supply falls.
When did the Pradhan Mantri Kaushal Vikas Yojana begin?+
The Pradhan Mantri Kaushal Vikas Yojana (PMKVY) began on 15 July 2015, to give young people short-term skill training and make them employable.
Where is RBI's headquarters?+
The Reserve Bank of India (RBI) is headquartered in Mumbai.
When were banks nationalised in India?+
14 major private banks were nationalised on 19 July 1969; 6 more banks were nationalised after that, in 1980.
When did the Pradhan Mantri Jan-Dhan Yojana begin?+
The Pradhan Mantri Jan-Dhan Yojana (PMJDY) began in August 2014, aiming to bring basic banking services to every family.
Does the insurance sector also fall under RBI?+
No, the insurance sector is regulated by the Insurance Regulatory and Development Authority (IRDA); RBI regulates only banking and monetary policy.
What is the difference between SLR (statutory liquidity ratio) and CRR?+
Under CRR, banks must keep a portion of their deposits in cash with RBI alone, while under SLR, banks must keep a portion of their deposits themselves, in cash, gold or approved government securities.
Read next
Official Sources
Change Log
- 17 September 2026 — English page published — mirrors the fact-checked Hindi page, independently bilingual-accuracy checked