Aspirant Academy

Economy

Key Points at a Glance

RBI, Monetary Management, Banking & Financial Reforms

Paper I · Unit 2 Section 1 of 11 0 PYQs 29 min
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Key Points at a Glance

  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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Payment System Innovations

    • UPI processed 17.4 billion transactions (Rs 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. 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: Rs 2.31 lakh crore
    • Features: zero-balance, RuPay debit card, Rs 2 lakh accident insurance, overdraft facility