Banking and Economy Passages

SBI RC passages lean heavily on RBI/monetary themes—know the terms so jargon doesn't slow you. REPO RATE: rate at which RBI lends to banks (raising it = tighter money, curbs inflation). REVERSE REPO: rate RBI pays banks for parking funds. CRR (Cash Reserve Ratio): % of deposits banks keep with RBI as cash, no interest. SLR (Statutory Liquidity Ratio): % held in liquid assets (gold/G-secs). MSF: emergency overnight borrowing above repo. OMO (Open Market Operations): RBI buys/sells G-secs to manage liquidity. The MPC (Monetary Policy Committee, 6 members) sets repo to target CPI inflation at 4% (+/-2%). Memory aid: 'Repo up = loans dear = demand cools = inflation falls.' Recognising these lets you focus on the author's ARGUMENT, not definitions.

Open any SBI PO Reading Comprehension paper from the last three years and you will almost certainly meet a passage about "stressed assets," "bad loans," or "banking sector reforms." If you don't know the technical vocabulary, you will lose two or three sure-shot marks not because your English is weak, but because the passage uses banker's shorthand that nowhere appears in your Wren & Martin. This lesson decodes that shorthand once and for all.

Definition: A Non-Performing Asset (NPA) is a loan or advance on which the borrower has not paid interest or principal for 90 days or more.
Definition: The SARFAESI Act, 2002 is a law that allows banks and notified financial institutions to seize and sell a defaulter's secured collateral without going to court.
Definition: A Bad Bank is a specialised institution that buys stressed assets from regular banks so the banks' balance sheets look clean and lending can restart.

Why "banking stress" matters to a PO aspirant

A passage in SBI PO will not test economics for its own sake. It tests whether you can read business journalism at the speed of a banker. Every term in this lesson appears in The Hindu BusinessLine, Economic Times, and RBI press releases. Once you have the keyword map in your head, you can read a 600-word passage at 250 words per minute, answer inference questions, and still finish vocabulary questions on time.

When a borrower stops paying, the loan becomes a stressed asset. Three things must then happen for the bank to stay healthy: classify it correctly (NPA), recover what you can (SARFAESI, IBC, NARCL), and hold enough capital to absorb the shock (Basel III, PCA). The vocabulary below maps each of these three actions.

NPA: the trigger point

When a borrower misses payments for 90 consecutive days, the loan is reclassified as an NPA. NPAs are further graded as sub-standard (up to 12 months as NPA), doubtful (more than 12 months), and loss (largely unrecoverable). Banks must set aside extra capital ("provisioning") against each NPA, which directly hits profits. That is why a sudden spike in NPAs makes bank share prices fall and the RBI step in.

Gross NPA is the total stressed amount; Net NPA is gross minus provisioning already made. Passages often mix these up to test careful reading.

SARFAESI 2002: seizing collateral without a courtroom

Before SARFAESI, a bank chasing a defaulter had to file a civil suit and wait years. SARFAESI changed that. If a loan is secured against an asset (factory, machinery, flat), the bank can issue a 60-day notice, then directly take possession and auction the asset. Disputes go to the Debts Recovery Tribunal (DRT), not regular courts.

SARFAESI also created Asset Reconstruction Companies (ARCs), private firms that buy bundled bad loans from banks at a discount and try to recover from defaulters. ARCIL, Edelweiss ARC and JM Financial ARC are well-known names.

Why it matters: SARFAESI works only for secured loans. Unsecured personal loans, education loans without collateral, and credit-card dues fall outside its reach — a common comprehension trap.

NARCL: India's "bad bank"

Announced in Budget 2021, the National Asset Reconstruction Company Limited (NARCL) is majority-owned by public-sector banks. NARCL buys legacy stressed assets above ₹500 crore, pays 15% upfront in cash and 85% in government-guaranteed Security Receipts, and hands resolution to a partner agency, IDRCL (India Debt Resolution Company Ltd.). The aim: clean up bank balance sheets quickly so banks can focus on fresh lending.

IBC 2016: time-bound resolution

Definition: The Insolvency and Bankruptcy Code, 2016 is a single law that consolidated several older insolvency statutes and set a strict 330-day deadline (including litigation) for resolving stressed companies.

Cases go to the National Company Law Tribunal (NCLT). A Committee of Creditors votes on the resolution plan; if no plan is approved, the company goes to liquidation. The Essar Steel resolution (ArcelorMittal won the bid in 2019) and Bhushan Steel (Tata Steel, 2018) are textbook NCLT successes that frequently feature in passages.

Basel III: capital, liquidity and leverage buffers

Definition: Basel III is a global set of bank-regulation norms issued by the Basel Committee on Banking Supervision after the 2008 crisis, prescribing higher quality capital, liquidity buffers, and limits on leverage.

The headline number is the Capital Adequacy Ratio (CAR) — capital as a percentage of risk-weighted assets. Basel III sets a global minimum of 8%; the RBI mandates 9% for Indian banks plus a 2.5% Capital Conservation Buffer. Two other Basel III metrics show up often: the Liquidity Coverage Ratio (LCR) ensures a bank holds enough high-quality liquid assets to survive 30 days of stress, and the Net Stable Funding Ratio (NSFR) matches long-term assets with long-term funding.

Why it matters: A higher CAR means a bank can absorb losses without taxpayer rescue. Passages often link "rising NPAs" to "capital adequacy concerns" — now you know the chain.

PCA: when RBI puts a bank on probation

Definition: The Prompt Corrective Action (PCA) framework is an RBI rulebook that imposes restrictions on weak banks that breach thresholds on capital, NPA ratio or leverage.

Once a bank is under PCA, it may face curbs on dividends, branch expansion, fresh lending to risky sectors, and management compensation. It is not a death sentence — IDBI Bank and several public sector banks have exited PCA after cleaning up.

Real-world example: In 2017, RBI placed IDBI Bank under PCA following high gross NPAs (above 14%) and capital shortfalls. By 2021, after LIC's capital infusion and recovery efforts, IDBI exited PCA — a story that appeared in passages across SBI PO 2022 mocks.

Common misconception: Students often think SARFAESI lets banks "arrest" defaulters or "send them to jail." It does not. SARFAESI is purely about taking and selling pledged collateral; criminal action requires separate proceedings under the IPC or the new Bharatiya Nyaya Sanhita.

Question: In an SBI PO passage you read, "After being placed under PCA, XYZ Bank could not declare dividends or open new branches, even though its CAR finally crossed 11.5%." Which inference is most accurate — (a) PCA was triggered by inadequate capital, (b) the bank had already exited PCA, (c) the bank's CAR is below Basel III minimum?
Solution:
Step 1: Recall the RBI Basel III CAR floor of 9% plus 2.5% buffer = 11.5%.
Step 2: A CAR of 11.5% just touches the buffer line, not "below minimum," so (c) is wrong.
Step 3: The sentence says it "could not declare dividends" — present tense — so the bank is still under PCA, ruling out (b).
Step 4: PCA is triggered by capital, NPA, or leverage breaches; the passage mentions capital recovery, supporting (a).
Conclusion: Option (a) is the correct inference.

Passage: 'When the RBI raised the repo rate by 50 bps, lenders swiftly repriced loans, yet deposit rates lagged—widening net interest margins but stirring depositor discontent.' Inference question: Who benefited short-term? Reason: loans repriced UP fast (borrowers pay more), deposits lagged (savers gained little), so the BANK'S spread (net interest margin) widened—banks benefit short-term. A trap option says 'depositors benefited most' (contradicted by 'deposit rates lagged' and 'discontent'). Lesson: in economy passages, trace the CAUSE-EFFECT chain (rate up to loans up to margin up) and match it to the question. Always test options against explicit cue words like 'lagged' and 'discontent' which point to who loses.

Cover the answer, recall, then check. 11 cards on tackling banking and economy reading passages in SBI PO.

Q1. Why does SBI favour banking/economy passages?
A1. They fit the job context and let setters combine dense data with inference; familiarity with the terms saves reading time.

Q2. What is the "repo rate"?
A2. The rate at which the RBI lends to commercial banks; a rise usually cools inflation and pushes loan rates up.

Q3. What is an "NPA"?
A3. A Non-Performing Asset — a loan on which interest or principal is overdue (typically 90+ days); high NPAs signal bank stress.

Q4. What is "CRR"?
A4. Cash Reserve Ratio — the share of deposits banks must keep with the RBI as cash; raising it reduces lendable funds.

Q5. Inflation vs deflation in a passage?
A5. Inflation is a general rise in prices (money loses value); deflation is a general fall in prices — opposite directions.

Q6. How do you handle a data-heavy economy paragraph?
A6. Do not memorise every figure; note what each statistic supports and return to it only if a question asks.

Q7. What is a "fiscal deficit"?
A7. The gap between the government's total expenditure and its total non-borrowed receipts in a year — funded by borrowing.

Q8. What does "liquidity" mean in a banking context?
A8. The ease of converting assets to cash / availability of cash in the system; "tight liquidity" means cash is scarce.

Q9. How does knowing terms help accuracy, not just speed?
A9. It lets you catch when an option misstates a concept (e.g. confusing repo with reverse repo), so you reject the distractor confidently.

Q10. Monetary policy vs fiscal policy?
A10. Monetary policy is the RBI's control of money supply and interest rates; fiscal policy is the government's taxation and spending decisions.

Q11. Reading strategy for a policy-argument passage?
A11. Track the author's stance on the policy (for/against/neutral) and each paragraph's role; tone and central-idea questions hinge on it.