Indian Economy
🔒 Log in to trackMoney, banking and the RBI
🔒 Log in to trackThe RBI is India's central bank. It issues currency, keeps the banks' reserves and sets the policy rates. A six-member Monetary Policy Committee decides the repo rate to keep CPI inflation at 4%, with a band of 2% either side. Most questions test dates, rate positions and the ratios CRR and SLR.
The RBI in brief
The RBI Act, 1934 created the bank. It began work on 1 April 1935. It was nationalised on 1 January 1949. Its head office is in Mumbai.
The RBI issues all currency except the ₹1 note and coins. The Finance Ministry issues those. The RBI is also banker to the government and banker to banks. It is the lender of last resort. It keeps the country's forex reserves.
The Governor is Sanjay Malhotra, the 26th Governor, since December 2024.
The rate corridor
The repo rate is the rate at which the RBI lends short-term to banks. It is the main policy rate. Two rates sit around it.
| Rate | Position | Level (after 5 Aug 2026 MPC) |
|---|---|---|
| MSF and Bank Rate | Repo + 0.25 (ceiling) | 5.50% |
| Repo | Middle | 5.25% |
| SDF | Repo - 0.25 (floor) | 5.00% |
The MPC held rates unchanged in August 2026 with a neutral stance. The reverse repo is 3.35%, but it is dormant as an operative rate since the SDF began in 2022.
Rule: SDF is the floor and MSF is the ceiling. Bank Rate equals MSF.
SDF lets banks park spare cash with the RBI without collateral. MSF lets banks borrow overnight, even beyond their SLR holdings.
CRR, SLR and liquidity
- CRR: the share of deposits a bank keeps as cash with the RBI. It earns no interest. It is now 3.00%, cut from 4% in four steps in Sep-Nov 2025.
- SLR: the share of deposits a bank keeps in liquid assets such as government securities and gold, held by the bank itself. It is 18%.
- OMOs: the RBI buys or sells government securities. Buying adds liquidity.
Tip: Cutting CRR or repo makes money cheaper and adds liquidity. Raising them controls inflation.
The Monetary Policy Committee
The RBI (Amendment) Act, 2016 set up the MPC. It has six members: three from the RBI, including the Governor, and three named by the government. The Governor has the casting vote.
It meets at least four times a year. The target is CPI inflation of 4% with a 2% band on each side. Missing the band for three straight quarters means a report to the government. The target uses CPI, not WPI.
Money supply
| Measure | Contents |
|---|---|
| M1 (narrow money) | Currency with the public + demand deposits + other RBI deposits |
| M2 | M1 + post-office savings |
| M3 (broad money) | M1 + time deposits |
| M4 | M3 + post-office deposits (not NSCs) |
Banking milestones
| Year | Event |
|---|---|
| 1955 | SBI formed from the Imperial Bank |
| 1969 | 14 banks nationalised (19 July) |
| 1975 | Regional Rural Banks begin |
| 1980 | 6 more banks nationalised (15 April) |
| 1991, 1998 | Narasimham Committees I and II |
| 2008 | NPCI set up (UPI came in 2016) |
| 2014 | Nachiket Mor Committee |
DICGC insures deposits up to ₹5 lakh per depositor per bank. Payment banks take deposits but cannot lend.
Question types you will see
Each type: how to recognise it, the method step by step, and one question to try.
RBI identity, history and currency
'The RBI was set up under which Act', 'when was it nationalised', 'which note does the RBI not issue', or 'where is its HQ'.
Recall the dates: Act 1934, start 1 April 1935, nationalised 1 January 1949.
HQ is Mumbai.
The ₹1 note and coins come from the Finance Ministry.
The RBI is the bankers' bank and lender of last resort.
These few facts repeat in almost every paper.
The one-rupee note in India is issued by whom?
Show solutionHide solution
The RBI issues other notes.
The ₹1 note is an exception.
The Finance Ministry issues it.
The Government of India (Finance Ministry)
Policy rates and the corridor
'SDF is how much below repo', 'the Bank Rate equals', or 'which rate is the policy rate'.
Place repo in the middle.
SDF is repo - 0.25 (floor).
MSF and Bank Rate are repo + 0.25 (ceiling).
Do not call CRR or SLR a rate of the corridor.
Positions stay fixed even when the numbers change.
The Standing Deposit Facility (SDF) is placed how far from the repo rate?
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SDF is the floor of the corridor.
Banks park surplus cash there without collateral.
It sits 25 basis points below repo.
25 basis points below repo
MPC and the inflation target
'How many members sit on the MPC', 'who holds the casting vote', or 'what is the inflation target'.
The MPC has 6 members: 3 from the RBI and 3 outsiders.
The Governor has the casting vote.
Target is CPI 4% with a 2% band.
Three straight quarters outside the band trigger a report.
The MPC facts are a short fixed list from the 2016 Act.
Who holds the casting vote in the Monetary Policy Committee?
Show solutionHide solution
There are six members.
A 3-3 split needs a tie-breaker.
The Governor breaks the tie.
The RBI Governor
CRR, SLR and liquidity tools
'CRR is kept with', 'SLR consists of', or 'which tool adds liquidity at once'.
CRR means cash with the RBI. It earns nothing.
SLR means the bank's own liquid assets.
A CRR or repo cut adds liquidity. A rise removes it.
Buying securities in OMO adds liquidity.
Every tool moves liquidity in one direction, so learn the direction.
The Cash Reserve Ratio (CRR) requires banks to keep what?
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CRR is a share of deposits.
It is held as cash.
The cash sits with the RBI and earns no interest.
A fixed share of their deposits as cash with the RBI
Money supply and banking milestones
'M1 consists of', 'which is the broad money measure', '14 banks were nationalised in', or DICGC and NPCI facts.
M1 = currency + demand deposits + other RBI deposits.
M3 = M1 + time deposits.
Recall the years: 1955, 1969 (14), 1975, 1980 (6).
Recall DICGC ₹5 lakh and NPCI 2008.
Each measure adds one item to the last.
Which item is included in M1 but not in M3?
Show solutionHide solution
M3 is M1 plus time deposits.
So every M1 item is also in M3.
The correct answer is that there is no such item.
None. M3 contains all of M1.
Shortcuts that save time
Repo is the middle. The floor (SDF) is repo minus 0.25. The ceiling (MSF and Bank Rate) is repo plus 0.25.
If repo were 6.00%, what would the MSF be?
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MSF is the ceiling.
Ceiling = repo + 0.25.
6.00 + 0.25 = 6.25.
6.25%
1935 RBI born, 1949 RBI nationalised, 1955 SBI, 1969 fourteen banks, 1975 RRBs, 1980 six banks.
How many banks were nationalised in 1980?
Show solutionHide solution
The 1969 round had 14 banks.
The 1980 round was smaller.
It covered banks with deposits of ₹200 crore or more.
Six
Six members. At least four meetings a year. Target CPI 4% with a 2% band. The Governor has the casting vote.
Who has the casting vote in the MPC?
Show solutionHide solution
The MPC has an even number of members.
A tie needs a tie-breaker.
The RBI Governor holds it.
The RBI Governor
Mistakes to avoid
Where most students lose marks on this subtopic.
Repeating old rates such as repo 6.5% and CRR 4%.
After the 5 Aug 2026 MPC, repo is 5.25% and CRR is 3%.
Mixing up reverse repo (3.35%, dormant) and SDF (5.00%).
SDF is the operative floor of the corridor.
Crediting the Nachiket Mor Committee with the 1990s reforms.
Those were Narasimham I and II. Nachiket Mor (2014) is about inclusion and payment banks.
Calling CRR and SLR 'policy rates'.
They are ratios. The policy rate is the repo rate.
Saying the RBI issues the ₹1 note.
The Finance Ministry issues the ₹1 note and coins.
Quick revision
Read this the night before the exam.
RBI Act 1934. Started 1 April 1935. Nationalised 1 January 1949. HQ Mumbai.
Finance Ministry issues the ₹1 note and coins. RBI issues the rest.
SDF = repo - 0.25 (floor). MSF = Bank Rate = repo + 0.25 (ceiling).
CRR = cash with the RBI. SLR = liquid assets held by the bank.
MPC: 6 members, Governor's casting vote, CPI 4% with a 2% band.
M1 is narrow money. M3 = M1 + time deposits.
1955 SBI, 1969 (14), 1975 RRBs, 1980 (6). DICGC cover ₹5 lakh.
Practice: 17 questions
Sets of 10, mixed across the question types above. Every answer has a step-by-step explanation.
Topic test · 10 questions
Suggested time 4 min · wrong answers go to your mistake notebook automatically.