बँकिंग व वित्त Banking and Finance

थोडक्यात सारांश

Money is anything that is generally accepted as a medium of exchange and a measure of value. It removed the difficulties of barter and made modern trade and banking possible. This topic covers the evolution, functions and kinds of money, the measures of money supply in India, and the meaning of inflation and deflation.

महत्त्वाचे मुद्दे

• Definition: Crowther – "anything that is generally acceptable as a means of exchange and at the same time acts as a measure and store of value." Walker – "money is what money does."
• Barter system – direct exchange of goods for goods. Its problems: lack of double coincidence of wants, no common measure of value, indivisibility of goods, difficulty in storing value and in deferred payments.
• Evolution of money: commodity money → metallic money → paper money → bank (credit) money → plastic and digital money (cards, UPI, CBDC – the e-rupee).
• Primary functions: medium of exchange, measure of value (unit of account).
• Secondary functions: standard of deferred payments, store of value, transfer of value.
• Contingent functions: basis of credit, distribution of national income, equalising marginal utilities, giving liquidity, helping capital formation.
• Kinds: legal tender (limited and unlimited) and optional money; full-bodied and token money; fiat money; near money (bills, bonds, time deposits).
• In India, coins are issued by the Government of India and currency notes by the RBI (₹1 notes by the Government).
• Money supply measures (RBI): M1 = currency with the public + demand deposits with banks + other deposits with RBI; M3 (broad money) = M1 + time deposits with banks. M2 and M4 also exist; M3 is the most used measure.
• Inflation (चलनवाढ) – a continuous rise in the general price level, which reduces the value of money. Deflation – a continuous fall in prices.
• In India inflation is measured mainly by the Consumer Price Index (CPI); the RBI's target is 4% CPI inflation with a band of ±2% (check the current framework).

महत्त्वाच्या संज्ञा

• Legal tender – money that must be accepted by law in payment of debts.
• Fiat money – money declared legal by government order, not backed by gold.
• Liquidity – ease with which an asset can be turned into cash.
• Value of money – the purchasing power of money; it moves opposite to the price level.

महत्त्वाची माहिती

• Quantity theory of money (Fisher): MV = PT, where M = money supply, V = velocity of circulation, P = price level, T = volume of transactions. With V and T constant, prices change in proportion to money supply.
• Types of inflation by speed: creeping (below 3%), walking (3–7%), running (10–20%), galloping/hyper (very high). Ranges differ by author.
• Causes of inflation: demand-pull (excess demand) and cost-push (rising wages, oil prices).

५ महत्त्वाचे प्रश्न

Q1. What is barter? State two drawbacks.

Barter is the direct exchange of goods and services without money. Drawbacks: lack of double coincidence of wants and lack of a common measure of value.

Q2. Define M1 and M3.

M1 (narrow money) = currency with the public + demand deposits of banks + other deposits with RBI. M3 (broad money) = M1 + time deposits of banks.

Q3. Explain the functions of money.

Outline: primary (medium of exchange, measure of value), secondary (deferred payments, store of value, transfer of value), contingent (basis of credit, liquidity, distribution of income, capital formation); one example each.

Q4. Explain the evolution of money.

Outline stages: barter, commodity money (cattle, grains, shells), metallic money (gold and silver coins), paper money (convertible and fiat), credit/bank money (cheques), plastic money (cards), digital money (UPI, wallets, e-rupee). Reasons for each change.

Q5. What is inflation? Explain its causes and effects.

Outline: meaning; types; causes – demand-pull and cost-push; effects on producers, consumers, fixed-income groups, debtors and creditors, savings and exports; control measures – monetary (repo rate, CRR), fiscal (taxes, spending) and supply-side.

परीक्षेसाठी टीप

Start a "functions of money" answer with the famous two-line couplet: "Money is a matter of functions four – a medium, a measure, a standard, a store." It makes your answer memorable.

थोडक्यात सारांश

A commercial bank accepts deposits from the public and lends money for profit. Banks create credit, run the payment system and channel savings into investment. This topic covers the meaning of a bank, the primary and secondary functions of commercial banks, the types of banks in India, and the process of credit creation.

महत्त्वाचे मुद्दे

• Banking (Sec 5(b), Banking Regulation Act, 1949) – accepting deposits of money from the public for lending or investment, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise.
• Primary functions: (a) accepting deposits – current, savings, fixed (term) and recurring; (b) lending – loans, cash credit, overdraft, discounting of bills.
• Secondary functions: (a) agency functions – collecting cheques and dividends, paying bills, buying/selling securities, acting as trustee; (b) general utility functions – lockers, drafts, letters of credit, bank guarantees, foreign exchange, credit and debit cards, net and mobile banking.
• Credit creation (पत निर्मिती) – banks lend a large part of their deposits; loans come back as new deposits, so total deposits become a multiple of the original cash deposit.
• Credit creation is limited by the Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), public's cash habits, demand for loans and availability of good securities.
• Types of banks in India: Reserve Bank (central bank); scheduled commercial banks – public sector banks, private sector banks, foreign banks, Regional Rural Banks; small finance banks; payments banks; co-operative banks (urban and state/district central); development financial institutions (NABARD, SIDBI, EXIM Bank).
• Scheduled bank – a bank listed in the Second Schedule of the RBI Act, 1934.
• After the mergers of 2019–20, India has 12 public sector banks (check for later mergers); SBI is the largest bank.
• Payments banks accept deposits (subject to a per-customer limit) but cannot give loans; small finance banks serve small businesses and the unorganised sector.
• NPA (Non-performing asset) – a loan where interest or principal is overdue for more than 90 days.

महत्त्वाच्या संज्ञा

• Current account – for businessmen; any number of transactions; usually no interest.
• Overdraft – permission to withdraw more than the balance in a current account.
• Cash credit – borrowing limit against stock or other security; interest on the amount used.
• Universal banking – one bank offering banking, insurance, mutual funds and other financial services.

महत्त्वाची माहिती

• Credit multiplier = 1 ÷ required reserve ratio.
• Total deposits created = initial deposit × (1 ÷ reserve ratio).

Worked example: initial deposit ₹10,000, reserve ratio 20%.

Multiplier = 1 ÷ 0.20 = 5, so total deposits = 10,000 × 5 = ₹50,000 and total credit created = ₹40,000.

५ महत्त्वाचे प्रश्न

Q1. Define a bank as per the Banking Regulation Act, 1949.

Banking means accepting, for lending or investment, deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise (Sec 5(b)). A company doing this business is a banking company.

Q2. What is a payments bank?

A bank that can accept small deposits and provide payments and remittance services, debit cards and net banking, but cannot lend or issue credit cards. Examples: India Post Payments Bank, Airtel Payments Bank.

Q3. Explain the primary and secondary functions of commercial banks.

Outline: deposits (four types with features), loans and advances (loans, overdraft, cash credit, bill discounting), agency services, utility services; role in the economy.

Q4. Explain the process of credit creation with an example. State its limits.

Use the table above; explain how each loan returns as a deposit; multiplier formula; limits – CRR/SLR, cash drain, demand for credit, securities, RBI's monetary policy, banking habits.

Q5. Explain the structure of the Indian banking system.

Outline with a chart: RBI at the top; scheduled and non-scheduled; commercial banks (public, private, foreign, RRBs, small finance, payments) and co-operative banks; development banks. One line on each.

परीक्षेसाठी टीप

For credit creation, a 3–4 row table with the multiplier formula is enough to earn full marks; don't write all rounds.

थोडक्यात सारांश

The Reserve Bank of India (RBI) is India's central bank. It issues currency, regulates banks, manages foreign exchange and controls the money supply through monetary policy. This topic covers the establishment and functions of the RBI, the quantitative and qualitative instruments of credit control, and the Monetary Policy Committee with inflation targeting.

महत्त्वाचे मुद्दे

• RBI was set up on 1 April 1935 under the RBI Act, 1934 (recommended by the Hilton Young Commission) and nationalised on 1 January 1949. Head office: Mumbai.
• It is managed by a Central Board of Directors headed by the Governor.
• Functions: (1) bank of issue – sole right to issue currency notes (except ₹1); (2) banker to the government; (3) bankers' bank and lender of last resort; (4) regulator and supervisor of banks and NBFCs; (5) custodian of foreign exchange reserves and manager under FEMA, 1999; (6) controller of credit; (7) payment and settlement systems; (8) development and promotional role (financial inclusion, rural credit).
• Monetary policy (मौद्रिक धोरण) – RBI's use of money supply and interest rates to keep prices stable while supporting growth.
• Quantitative (general) instruments: repo rate, reverse repo / Standing Deposit Facility (SDF), Marginal Standing Facility (MSF), bank rate, CRR, SLR and open market operations (OMO).
• Qualitative (selective) instruments: margin requirements, credit rationing, moral suasion, direct action, consumer credit regulation, publicity.
• Monetary Policy Committee (MPC): six members – three from RBI (including the Governor, who has a casting vote) and three appointed by the Government. Created by the 2016 amendment to the RBI Act. Meets at least four times a year.
• Inflation target: CPI inflation of 4% with a tolerance band of 2% to 6%, set by the Government for five years at a time (check the current target period).
• To fight inflation RBI raises repo rate and CRR or sells securities (tight/dear money policy); to boost growth it does the opposite (easy/cheap money policy).

महत्त्वाच्या संज्ञा

• Repo rate – rate at which RBI lends short-term funds to banks against government securities.
• Standing Deposit Facility (SDF) – rate at which RBI absorbs surplus funds from banks without collateral; it replaced the fixed-rate reverse repo as the floor of the policy corridor in 2022.
• CRR (Cash Reserve Ratio) – part of a bank's net demand and time liabilities (NDTL) kept as cash with RBI; no interest is paid on it.
• SLR (Statutory Liquidity Ratio) – part of NDTL that banks must keep in liquid assets like government securities, gold and cash.
• Open market operations – sale or purchase of government securities by RBI.

महत्त्वाची माहिती

• Policy rates change at almost every MPC meeting, so "check the current year's figures" for repo, SDF, MSF, CRR and SLR before the exam.
• MSF rate = repo + 0.25%; SDF rate = repo − 0.25% (the corridor around repo).

५ महत्त्वाचे प्रश्न

Q1. What is the repo rate?

It is the rate at which the RBI lends money to commercial banks for short periods against government securities. A higher repo rate makes bank loans costlier and reduces money supply.

Q2. Distinguish between CRR and SLR.

CRR is kept as cash balance with the RBI and earns no interest. SLR is kept by the bank itself in liquid assets like government securities, gold and cash, and can earn income.

Q3. Explain the functions of the Reserve Bank of India.

Outline the eight functions above with one line each; add recent roles – digital payments (UPI with NPCI), e-rupee (CBDC), financial literacy.

Q4. Explain the quantitative and qualitative methods of credit control.

Outline: meaning of credit control; quantitative methods (bank rate, repo, SDF, MSF, CRR, SLR, OMO) with how each works; qualitative methods (margin, rationing, moral suasion, direct action, publicity); comparison.

Q5. What is monetary policy? Explain its objectives and the role of the MPC.

Outline: meaning; objectives – price stability, growth, exchange-rate stability, financial stability, employment; MPC composition and voting; inflation targeting framework; transmission to bank lending rates; limitations in India.

परीक्षेसाठी टीप

Always write the date of establishment (1 April 1935) and nationalisation (1 January 1949) in the first lines of any RBI answer.

थोडक्यात सारांश

Digital banking means doing banking through electronic channels – internet, mobile, ATMs and cards – without visiting a branch. India now has one of the world's largest digital payment systems, led by UPI. This topic covers the channels of e-banking, the main payment systems (NEFT, RTGS, IMPS, UPI, cards, wallets), the institutions behind them, their benefits and risks, and safety rules.

महत्त्वाचे मुद्दे

• E-banking / digital banking (डिजिटल बँकिंग) – banking services offered through electronic means, 24 × 7.
• Channels: ATM, debit and credit cards, internet banking, mobile banking apps, phone banking, POS machines, micro-ATMs and banking correspondents (business correspondents).
• NEFT (National Electronic Funds Transfer) – fund transfer in half-hourly batches; available 24 × 7 × 365 since December 2019; no minimum amount.
• RTGS (Real Time Gross Settlement) – each transaction settled individually and immediately; minimum ₹2 lakh; for large-value payments; 24 × 7 since December 2020.
• IMPS (Immediate Payment Service) – instant 24 × 7 transfer through mobile, internet or ATM; run by NPCI.
• UPI (Unified Payments Interface) – launched by NPCI in 2016; links bank accounts to a mobile app; payment using a virtual payment address (VPA, like name@bank) or QR code and a UPI PIN.
• Other systems: AEPS (Aadhaar-enabled payment system), BHIM app, RuPay card, FASTag, Bharat Bill Payment System (BBPS), NACH for recurring payments, CTS (cheque truncation system).
• NPCI (National Payments Corporation of India) – set up in 2008 by RBI and IBA under the Payment and Settlement Systems Act, 2007; runs UPI, IMPS, RuPay, NACH and others.
• Prepaid payment instruments (PPIs) – mobile wallets and gift cards.
• CBDC / e-rupee (e₹) – the digital form of the rupee issued by RBI; pilots began in 2022.
• Limits on transactions (UPI per day, wallet balance) are changed by NPCI/RBI from time to time – check the current year's figures.

महत्त्वाच्या संज्ञा

• KYC (Know Your Customer) – process to verify a customer's identity and address.
• OTP – one-time password used for secure authentication.
• Two-factor authentication – two separate proofs (e.g. card + PIN, password + OTP).
• Phishing – fake messages or websites that trick users into giving passwords or PINs.

महत्त्वाची माहिती

• Benefits: convenience, speed, low cost, transparency, less cash handling, financial inclusion, record of every transaction.
• Risks: cyber fraud, phishing, SIM-swap, data theft, technical failures, digital illiteracy.
• Safety rules: never share PIN, OTP or CVV; use official apps only; check the payee name before paying; scanning a QR code is for paying, not for receiving money; report fraud to the bank at once and on the national cyber-crime helpline 1930.

५ महत्त्वाचे प्रश्न

Q1. What is UPI?

UPI is an instant real-time payment system developed by NPCI (2016). It links one or more bank accounts to a mobile app so money can be sent using a VPA, mobile number or QR code and authorised with a UPI PIN.

Q2. Distinguish between NEFT and RTGS.

NEFT settles in half-hourly batches with no minimum amount; RTGS settles each transaction instantly and individually with a minimum of ₹2 lakh. Both are run by RBI and are available 24 × 7.

Q3. Explain the various channels of e-banking.

Outline: ATM, cards, POS, internet banking, mobile banking and UPI, phone banking, micro-ATM/business correspondents; features and uses of each.

Q4. Explain the merits and demerits of digital banking.

Merits for customers, banks and the economy (speed, 24 × 7, low cost, transparency, less black money). Demerits: cyber fraud, dependence on network, privacy concerns, exclusion of elderly and rural users. Suggestions.

Q5. Write a note on the role of NPCI in India's payment system.

Outline: formation (2008, RBI and IBA initiative, not-for-profit company), products (UPI, IMPS, RuPay, NACH, AEPS, FASTag/NETC, BHIM, BBPS), impact on financial inclusion and cashless economy, UPI's international linkages.

परीक्षेसाठी टीप

Use a comparison table (NEFT/RTGS/IMPS/UPI) in any answer on payment systems; it scores well and saves writing time.