UPSC asks basic conceptual questions from the economy section.
Let's look at the key banking-related terms that you should know for prelims.
A thread🧵
Let's look at the key banking-related terms that you should know for prelims.
A thread🧵
1. Repo Rate:
- The rate at which the central bank (Reserve Bank of India in India) lends money to commercial banks, influencing interest rates and liquidity in the economy.
2. Reverse Repo Rate:
- The rate at which the central bank borrows money from commercial banks, providing a tool to manage money supply.
3. Cash Reserve Ratio (CRR):
- The percentage of a bank's total deposits that it must keep as reserves with the central bank, controlling liquidity.
- The rate at which the central bank (Reserve Bank of India in India) lends money to commercial banks, influencing interest rates and liquidity in the economy.
2. Reverse Repo Rate:
- The rate at which the central bank borrows money from commercial banks, providing a tool to manage money supply.
3. Cash Reserve Ratio (CRR):
- The percentage of a bank's total deposits that it must keep as reserves with the central bank, controlling liquidity.
4. Statutory Liquidity Ratio (SLR):
- The percentage of a bank's total deposits that it must invest in specified securities, ensuring financial stability and controlling the money supply.
5. Marginal Standing Facility (MSF):
- A facility provided by the central bank to scheduled commercial banks to borrow funds overnight against government securities.
6. Non-Performing Assets (NPAs):
- Loans or advances that have not been repaid for a specified number of days, indicating potential financial distress.
- The percentage of a bank's total deposits that it must invest in specified securities, ensuring financial stability and controlling the money supply.
5. Marginal Standing Facility (MSF):
- A facility provided by the central bank to scheduled commercial banks to borrow funds overnight against government securities.
6. Non-Performing Assets (NPAs):
- Loans or advances that have not been repaid for a specified number of days, indicating potential financial distress.
7. Base Rate:
- The minimum interest rate at which a bank can lend, determined by the central bank.
8. Prime Lending Rate (PLR):
- The interest rate at which a bank provides loans to its creditworthy customers, setting the benchmark for other interest rates.
9. Bank Rate:
- The rate at which the central bank provides long-term loans to commercial banks, affecting interest rates and credit expansion.
- The minimum interest rate at which a bank can lend, determined by the central bank.
8. Prime Lending Rate (PLR):
- The interest rate at which a bank provides loans to its creditworthy customers, setting the benchmark for other interest rates.
9. Bank Rate:
- The rate at which the central bank provides long-term loans to commercial banks, affecting interest rates and credit expansion.
10. Fixed Deposit (FD):
- A financial instrument where a sum of money is deposited with a bank for a specified period at a fixed interest rate.
11. Recurring Deposit (RD):
- A type of savings account where a fixed amount is deposited regularly for a predetermined period, earning interest.
12. Priority Sector Lending:
- Mandated lending by banks to specific sectors (agriculture, small-scale industries, etc.) to ensure inclusive growth.
- A financial instrument where a sum of money is deposited with a bank for a specified period at a fixed interest rate.
11. Recurring Deposit (RD):
- A type of savings account where a fixed amount is deposited regularly for a predetermined period, earning interest.
12. Priority Sector Lending:
- Mandated lending by banks to specific sectors (agriculture, small-scale industries, etc.) to ensure inclusive growth.
13. Microfinance:
- Financial services provided to low-income individuals or communities who lack access to traditional banking services.
14. Financial Inclusion:
- The provision of financial services to individuals and communities that are excluded from the formal banking sector.
15. Credit Default Swap (CDS):
- A financial derivative that allows an investor to "swap" or offset their credit risk with that of another investor.
- Financial services provided to low-income individuals or communities who lack access to traditional banking services.
14. Financial Inclusion:
- The provision of financial services to individuals and communities that are excluded from the formal banking sector.
15. Credit Default Swap (CDS):
- A financial derivative that allows an investor to "swap" or offset their credit risk with that of another investor.
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