Money & Banking

📖 The Reserve Bank of India (RBI)

India's central bank, established in 1935, performs several core functions: issuing currency, acting as banker to the government, serving as banker's bank and lender of last resort to commercial banks, and regulating monetary policy to maintain price stability.

🏦 Commercial banks vs NBFCs

Commercial banks (public, private, and foreign) accept deposits and provide loans, and are directly regulated under the Banking Regulation Act. Non-Banking Financial Companies (NBFCs) provide many similar services (loans, leasing, investment) but cannot accept demand deposits (like savings/current accounts) and are regulated somewhat differently, though RBI oversight over NBFCs has tightened significantly in recent years.

🎛️ Monetary policy tools

• Repo Rate — the rate at which RBI lends short-term funds to commercial banks; the primary tool for controlling inflation and liquidity.
• Reverse Repo Rate — the rate at which RBI borrows from banks.
• CRR (Cash Reserve Ratio) — the percentage of deposits banks must keep with the RBI in cash.
• SLR (Statutory Liquidity Ratio) — the percentage of deposits banks must maintain in liquid assets like government securities.
• Open Market Operations (OMO) — RBI buying/selling government securities to manage liquidity.

👥 Monetary Policy Committee (MPC)

Since 2016, monetary policy decisions (like setting the repo rate) are made by a six-member Monetary Policy Committee, with three members from RBI and three external members appointed by the government — a shift from a purely RBI-Governor-driven decision.