Banking in UPSC Prelims: 20 questions on who can do what, and who is in charge

Most aspirants prepare banking by learning ratio values and the year each reform came in. The past papers suggest that’s the wrong bet. UPSC rarely asks for a number. It asks what a kind of bank is allowed to do, who regulates it, and what a banking term actually means.

This post looks at the 20 banking questions asked from 2016 to 2026 and turns them into a plan. Questions on the RBI’s interest rates and money supply are a separate area, so they are not counted here.

What the numbers say

Three things stand out.

It almost never skips a year. Ten of the 11 papers had at least one banking question. Only 2025 had none, and 2026 came back with 3.

It was bigger in the early years. 14 of the 20 questions came between 2016 and 2021, with a peak of 4 in 2019. From 2022 to 2024 there was just one a year. The 2026 paper may be the start of a return, but one year is not a trend.

Most questions are statement sets. 13 of the 20 gave you a set of statements to judge. Another 6 were one-line questions with four options, and 3 of those came in 2019 alone. The only “How many of the above are correct?” question came in 2023. In a statement set, knowing the topic roughly is not enough, because each statement has to be judged on its own.

What UPSC is really testing

By our count, the 20 questions fall into four groups:

• What one type of lender can and cannot do: 6 questions. Can Payment Banks lend? What are Small Finance Banks for? Who regulates Urban Cooperative Banks? Can NBFCs (non-banking financial companies, which lend but are not banks) take deposits you can withdraw any time? What rules apply to a foreign bank’s Indian subsidiary? What does M1xchange do for small firms?
• What a banking term means: 5. Core Banking Solutions, Capital Adequacy Ratio, Interest Coverage Ratio, the three parts of the RBI’s Financial Inclusion Index, and which items count as a bank’s assets.
• Public sector banks and bad loans: 5. Who selects the heads of public sector banks (asked twice), the merger of associate banks with SBI, and two plans for dealing with large stressed loans: S4A and the Inter-Creditor Agreement.
• Rural and group credit: 4. The Lead Bank Scheme, District Central Cooperative Banks, Self-Help Groups and WaterCredit.

The largest group is about the limits of each kind of lender. These are rules, not news, and they don’t change much from year to year.

The level of detail is also lower than many books suggest. Only one question turned on a specific figure, the ₹500 crore minimum capital for a foreign bank’s subsidiary, and even there the harder statement was about board rules. No question asked you to state the Capital Adequacy Ratio itself. UPSC tests whether you know what each body does, not whether you memorised its numbers.

The trap most questions share

Most wrong statements give a body a power or a role it doesn’t have. Payment Banks can issue debit cards, so you are tempted to think they can issue credit cards too. NBFCs lend like banks, so you assume they can issue cheques and must all register with the RBI. Banks hold the capital, so you think each bank sets its own Capital Adequacy Ratio. The Banks Board Bureau deals with banks, so you assume the RBI Governor chairs it. SBI is the biggest bank, so you guess it started the Self-Help Group programme. NABARD did.

When a statement feels right because the body is big or close to the topic, slow down. Ask whether it actually has that power. That is usually where UPSC has set the trap.

How to prepare

1. Make one card per bank or body. Payment Bank, Small Finance Bank, Urban Cooperative Bank, NBFC, Regional Rural Bank, District Central Cooperative Bank, Banks Board Bureau. This covers the largest group and much of the public sector banks group.

2. Give each card four fields. For each one, note:

• who regulates it
• what it can do
• what it cannot do
• what it is often confused with

The third field matters most. Payment Banks cannot lend or issue credit cards. NBFCs cannot take demand deposits or issue cheques drawn on themselves, and their deposits are not covered by DICGC deposit insurance.

3. Learn terms by what they tell you. For each term, know in one line what it measures and which way is good. A higher Interest Coverage Ratio means a firm can pay its interest more easily, not less. Deposits are money a bank owes its customers, so they are liabilities, not assets.

4. Draw the rural credit chain once. NABARD started the SHG-bank linkage programme in 1992. District Central Cooperative Banks fund the Primary Agricultural Credit Societies at the village level. Commercial banks, not cooperatives, give the most short-term farm credit. The Service Area Approach worked under the Lead Bank Scheme.

5. Solve the past questions before reading more. They show exactly how deep UPSC goes. Once you have seen a body handed a power it lacks, you will start spotting the same trick in new statements.

What to skip: memorising ratio values such as the minimum Capital Adequacy Ratio, and long lists of bank merger dates. The questions asked what a ratio means and who sets it, not its value.

Two questions that show the pattern

2016 · What a lender can do. Three statements on Payment Banks. Resident-controlled mobile phone companies and supermarket chains could promote them, and they cannot lend. The wrong statement said they can issue both credit and debit cards. They can only issue debit cards. See the question

2022 · Who is in charge. Three statements on the Banks Board Bureau. It recommends heads for public sector banks and helps them with strategy and capital-raising plans. The wrong statement said the RBI Governor chairs it. The Bureau has its own chairperson. The same body had come up in 2019, when the question was simply who selects public sector bank chairmen. See the question

You can browse all banking questions or the full list of must-do areas. For another area where the trap is a famous name in the wrong place, see our post on species questions.