28. RBI, Monetary Management, Banking & Financial Reforms — Full Notes

CORE Key Points at a Glance

1. 1

   RBI's Repo Rate (April 2025)

   • Current rate: 6.00%
   • Cut by 25 bps in February 2025 and again in April 2025 (from 6.50% in 2024)
   • Signals a shift to accommodative stance to support growth
   • CPI inflation moderating was the trigger for the cuts
2. 2

   Inflation Targeting Framework

   • In force since August 2016 under a statutory mandate
   • CPI inflation target: 4% ± 2% (i.e., 2%–6% tolerance band)
   • Target reviewed every 5 years
   • MPC: 3 RBI members + 3 government-nominated external members
3. 3

   Key Monetary Policy Rates (April 2025)

   • Repo Rate: 6.00%
   • Standing Deposit Facility (SDF): 5.75%
   • Marginal Standing Facility (MSF): 6.25%
   • Bank Rate: 6.25% | CRR: 4.0% | SLR: 18.0%
4. 4

   Monetary Policy Committee (MPC)

   • Constituted under RBI Act amendment 2016
   • Six members decide repo rate by majority vote
   • RBI Governor holds casting vote
   • Meets 6 times a year (every 2 months); external members serve 4-year terms
5. 5

   RBI's Functions

   • (a) Monetary Authority — formulates monetary policy
   • (b) Regulator/Supervisor of banks and NBFCs
   • (c) Government's Banker and Debt Manager
   • (d) Custodian of Foreign Exchange Reserves
   • (e) Issuer of Currency (note-issuing authority)
   • (f) Developmental Role — financial inclusion, priority sector lending
6. 6

   India's Foreign Exchange Reserves

   • Stood at $688 billion (January 2025) — sufficient for 11 months of imports
   • Composition: Forex assets ($600B), Gold ($68B), SDRs ($18B), IMF Reserve Position
   • India's forex reserves peaked at $642 billion in 2021
7. 7

   NPA Crisis and Resolution

   • Gross NPA ratio peaked at 11.5% (March 2018)
   • Fell to 2.67% (September 2024) — the lowest in over a decade
   • Decline driven by SARFAESI Act, DRT system, IBC 2016, and bank recapitalisation
8. 8

   Insolvency and Bankruptcy Code (IBC) 2016

   • India's landmark financial reform for corporate insolvency resolution
   • Time-bound process: 180 days (extendable to 270 days)
   • Replaced 12 overlapping laws
   • NCLT (adjudicating authority) and NCLAT (appellate tribunal) established
9. 9

   Priority Sector Lending (PSL)

   • Banks must lend 40% of ANBC (Adjusted Net Bank Credit) to priority sectors
   • Agriculture: 18% | Micro Enterprises: 7.5% | Weaker Sections: 12%
   • Also covers: Export Credit, Education, Housing, Renewable Energy, Social Infrastructure
10. 10

    Banking Sector Consolidation

    • From 27 public sector banks (2017) to 12 PSBs after mega-mergers
    • OBC + United Bank → Punjab National Bank (2020)
    • Vijaya + Dena → Bank of Baroda (2019)
    • Andhra + Corporation + Union Bank → Union Bank of India (2020)
    • Syndicate Bank → Canara Bank (2020)
11. 11

    Payment System Innovations

    • UPI processed 17.4 billion transactions (₹23.25 lakh crore) in March 2025
    • NPCI runs UPI, IMPS, NACH, FASTag, and RuPay
    • RBI launched Digital Rupee (e-Rs) pilot in November 2022 — CBDC (Central Bank Digital Currency)
12. 12

    Financial Inclusion — Jan Dhan Yojana

    • PM Jan Dhan Yojana (PMJDY) launched 28 August 2014
    • Over 54 crore basic savings bank accounts opened by 2025
    • Total deposits: ₹2.31 lakh crore
    • Features: zero-balance, RuPay debit card, ₹2 lakh accident insurance, overdraft facility