EF1A2_HDT_RBI_Monetary_Policy_PCB12 PDF

Pillar1A2: 🤑 Money Supply (M0-M4) & Monetary Policy- CRR, SLR, Repo yes lengthy HDT bcoz very frequently variety of MCQ asked from here in all exams. Table of Contents 11 🤑Money’s Demand, Supply & Creation.........................................................................................60 🤲 11.11 Demand of Money: Liquidity Preference Theory (तरलता अधिमान)..........................................60 💰 11.11.1 TOTAL demand of money: factors affecting..................................................................61 11.11.2 ☔️💸 Liquidity of assets......................................................................................................... 61 11.11.3 ☔️💸 Liquidity Trap ( तरलता जाल) – refer to end section..........................................................61 11.12 💸📥 Deposit Types................................................................................................................62 11.12.1 🏦 🍀 DEPOSITs → Time Deposit → Green Deposit.......................................................62 11.12.2 → Time Deposit → Fixed Deposit → Bulk Deposits ( ₹3cr/>)........................................63 11.12.3 Demand deposits → Savings account → Salary account...................................................63 🏦 11.12.4 Deposits→ Inoperative & unclaimed accounts.............................................................64 🐯🦋 11.12.5 : UDGAM Portal: Unclaimed Bank Deposits (2023)................................................64 11.12.6 Full Reserve Banking vs. Fractional Reserve Banking........................................................64 11.13 💸📥📐Measures of Money Supply ( )...............................................................65 मुद्रा आपूर्ति के परिमाण 11.13.1 ⏰ Call Money | Notice Money | Term Money...................................................................67 11.14 💸⚡⛵️ ️Money Multiplier ( ).........................................................................................67 मुद्रा गुणक 11.14.1 ⛵️ Money Multiplier (MM)- similarities with speed of a boat to prevent confusion.....68 11.14.2 ES24: factors increasing liquidity / money multiplier system (2023)................................69 11.14.3 ⛵️ Money Multiplier From 2019 to 2021: why fallen?.......................................................69 11.14.4 💸⚡Money Multiplier From 1981 to 2020.........................................................................70 11.15 💸🖨 M0: formula..................................................................................................................70 11.15.1 💸🖨 If CRR ↑ then M0 ↑ says Eco Survey.........................................................................71 11.15.2 💸🖨 If net foreign assets (NFA) ↑ then M0 ↑ says Eco Survey.......................................71 11.16 💸🖨 M0: Creation of Money ( )................................................................................71 मुद्रा का निर्माण 11.16.1 FAQ: How can same thing become Asset and liability ? (WATCH VIDEO)..................72 11.16.2 🚩👶🏻 FAQ on Rs.1 paper-note.............................................................................................. 72 11.16.3 🧛🏻 FAQ on gold price / gold theft vs RBI liabilities and asset mismatch..........................73 11.17 🖨 Money Supply & FRBM Act.............................................................................................. 73 11.17.1 Monetisation of deficit ( )........................................................................................74 घाटे का मुद्रीकरण 11.17.2 🚩👶🏻 FAQ on Govt's borrowing & money printing...........................................................74 11.17.3 (Clarification) Formula for Money-supply M0-M4 not matching with CDS Exam.......75 11.17.4 💸⚡: Currency in Circulation (CIC)...................................................................................76 11.17.5 💸 Misc. topic: Velocity of Money Circulation ( )..............................................76 मुद्रा सं चालन का वेग (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 57 12 🐯📢 Monetary Policy ( मौद्रिक नीति)..................................................................................................... 77 12.11 🐯📢📐 MonPolicy: Quantitative Tools ( )..........................................................78 परिमाणात्मक साधन 12.11.1 Statutory Reserve Requirements: CRR, SLR (Fight inflation: ↑, deflation: ↓).......78 12.11.2 🚩👶🏻FAQ: How can CRR be an asset for a banker? If RBI pays 0% Interest on it!!?.......80 12.11.3 🚩👶🏻FAQ: What will be the impact of SLR changes on Money Multiplier?....................80 12.11.4 🌐👨‍🎨 : 🗄✂️CRR SLR on Foreigners/NRI’s deposits in Indian Banks?............................80 12.12 🐯🗄✂️🗓 CRR, SLR: Development in Recent Years............................................................80 12.12.1 🏦🍀 DEPOSITs → Green Deposit - SBI wants lower CRR (2023).................................80 12.12.2 🐯🗄✂️🗓 (2020-Feb) CRR Exemption for 5 yrs, depending on loans ( ).........80 सीआरआर में छू ट 12.12.3 🐯🗄✂️🗓 (2020-Mar) CRR during and after Corona.......................................................80 12.13 😥Net Interest Margin, Liquidity overhang & ₹2000 Withdrawal........................................81 12.13.1 📕ES24: NIM >5% is dangerous for financial stability.......................................................81 12.13.2 Liquidity overhang.................................................................................................................81 12.13.3 Liquidity overhang may occur in following scenarios........................................................82 🔐 12.14 Incremental CRR after ₹2000 withdrawal.........................................................................82 🚩👶✋ 🐯🗄✂️🗓 12.14.1 : CRR Technical things NOTIMP........................................................83 12.15 🐯📢📐 MonPolicy → Quant Tools → Rates → LAF Repo.................................................84 12.16 ⚡Current repo vs [neutral or terminal] repo rate................................................................85 12.17 → REPO → Special Windows under Atma Nirbhar...............................................85 12.17.1 → REPO → TLTRO, SLTRO, On-Tap Windows after Corona..........................85 12.17.2 (2020) 🐯🤧 Reverse Repo Rate cut....................................................................................... 86 12.17.3 🐯📢📐MonPolicy → Quant Tools → Variable Rate Reverse Repo (VRRR)...............86 12.17.4 🐯🔪 🎛 Enhanced Reverse Repo Rate for Hardworking Bankers in Corona.................87 12.17.5 🐯📢📐MonPolicy → Quant Tools → Rates → MSF (2011)..........................................87 12.17.6 🐯📢📐MonPolicy → Quant Tools → Rates → Bank rate (बेंक दर):...................................87 🐯📢📐 12.17.8 ⛓ MSF Repo vs Reverse Repo vs SDF.................................................................................. 89 12.17.7 Quanti. Tools → SDF (=Reverse Repo walla game Without Collaterals).........88 🚧 12.17.9 Policy Corridor / LAF Corridor / Monetary Policy Corridor......................................89 💦 12.17.10 System level liquidity...................................................................................................... 90 12.17.11 🧏‍♂️⚖️🧏🏻 Tri-Party Repo (त्रि-पक्षीय पुन: क्रय-अनुबं ध):..........................................................................91 12.17.12 🔪🐰BPLR, MCLR, External Benchmarks, etc:................................................................91 🏪 12.18 open market operations- two types....................................................................................91 12.18.1 🐯📢📁 Market Operations (OMO): (Inflation → Sell G-Sec, Deflation → Buy)..........92 12.19 🐯📢🗃🧬MonPolicy: Quanti Tools: OMO → Operation Twist..........................................92 12.19.1 🔪🗃: Security → Debt → G-Sec & Bonds ( ).......................................92 ऋण के लिए जारी की गई प्रतिभूतियां 12.19.2 🛒 (🔪🗃: 🧔👨‍💼) Deepening of G-Sec market- Retail investors’ RDAG @RBI................92 (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 58 12.19.3🔪🗃:🤵Corporate Bonds: factors that determine its interest rate....................................93 12.19.4🔪🗃: 🤑 Bond Yield ( ).................................................................94 बांड में निवेश करने पर होने वाली आय या मुनाफा 12.19.5🔪🗃: 🤑 Bond Yield ∝ 1/Price ( = )............................................................94 सस्ते में खरीदा तो मुनाफा ज्यादा 12.19.6🔪🗃: 🤑 Bond yield: other factors affecting it ( )......................................................94 अन्य कारक 12.19.7🐯📢🗃🧬 Operation Twist: why?........................................................................................95 12.19.8🐯📢🗃🧬 RBI’s Operation Twist: methodology (2019-Dec)...........................................95 12.19.9✋🎓 🔪🗃: 🤑 Bond Yield & Inverted Yield Curve. We'll not prepare...........................96 12.20 🐯📢🗃: 📅 MonPolicy: Quanti Tools: OMO → G-SAP.......................................................97 12.20.1 🐯📢🗃:📅 OMO → G-SAP : 🤩 Benefit?...........................................................................97 12.21 🐯📢🌽 Monetary Policy: Qualitative Tools ( ).......................................................98 गुणात्मक साधन 12.21.1 🙇🏼 Moral Suasion ( / ) & Publicity ( ).................................................................98 नैतिक दबाव सलाह प्रचार 12.21.2 🦵🏾🚯 Direct Action ( : )..............................................................99 सीधी कार्यवाही क्योकि लातो के भुत बातो से नहीं मानते 12.21.3 💍 Margin Requirements / Loan to Value (LTV) ( )..............................................99 सीमा अनिवार्यता 12.21.4 Selective Credit Control (चयनात्मक ऋण नियंत्रण)................................................................................. 99 12.22 🐯📢🌽 Priority Sector Lending (PSL: )..............................................100 प्राथमिकता क्षेत्र के लिए ऋण मानक 12.22.1 🐯📢🌽 PSL Reforms-2020: on RRB/SFB/UCB?.............................................................. 101 12.22.2 🐯📢🌽 PSL Reforms-2020: Startups, Renewable Energy and Healthcare....................102 12.22.3 🐯📢🌽 PSL Reforms-2020: Weightage to poor districts ( / )...................102 गरीब पिछड़े जिलों को भारांक 12.22.4 🐯👩‍🌾🏗️PSL Shortfalls: RIDF and UIDF.............................................................................102 12.22.5 🐯📢🌽:📜 Priority Sector Lending Certificates (PSLC) from 2016 onwards...............103 12.23 📢 👁‍🗨 Monetary Policy Tools: A Ready Reckoner Table.....................................................104 12.24 📢 Monetary Policy in Present-Day India............................................................................ 105 12.24.1 📢 Monetary Policy Making under RBI Act since 2016...................................................105 12.24.2 🔠❓ MCQs on MPC........................................................................................................... 107 12.25 📢 Review of Bi-Monthly Monetary Policies.......................................................................108 12.25.1 🚕🕹 Stance: Calibrated Tightening / Neutral / Accommodative...................................108 12.26 🐯🤧📢 RBI’s Monetary Policies: Before 2020-Corona......................................................109 12.27 🐯🤧📢 RBI’s Monetary Policies: Corona 2020...................................................................109 12.28 🐯🤧📢RBI Monetary Policies: April-2022 Onwards.........................................................110 12.28.1 🐯🤧📢 Monetary Policy: April-2022 (SDF)..................................................................... 110 12.28.2 🐯🤧📢Monetary Policy: 2022 so far upto 2024-Feb.......................................................110 12.29 🐯🤧📢Monetary Policy: Governor's regulatory announcements......................................111 12.30 🔪🤲🏻🏠🛵 Banks’ Lending Rates % ( )..............................................................112 बैंक ऋण की व्याज दरें 12.31 🔪🤲🏻🏠🛵 Bank’s loan interest rate: External Benchmark ( )................................113 बाहरी बेंचमार्क 12.31.1 🔪🤲🏻🏠🛵 External Benchmark: Formula Components:................................................113 (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 59 12.31.2 🤲🏻🏠🛵 External Benchmark system: Which borrowers eligible?..................................113 12.31.3 🤲🏻🏠🛵 🚩👶🏻 : External Benchmark system: FAQ..............................................................113 12.31.4 🚗📈Interest Rate Reset of EMI based Floating Interest Loans.......................................114 12.31.5 🔪🗓 Loan repayment: Bullet repayment vs EMI.............................................................114 12.31.6 🍬🗓 PSL Lollipop for UCB - Bullet repayment (2023)..................................................114 12.31.7 Banks’ Lending Rates % → Fixed vs Floating interest loans, teaser loans, NPA etc.....115 12.31.8 Relationship between deposit rate and repo rate..............................................................115 12.31.9 Weighted average lending rate............................................................................................115 12.32 🐯🔇 Limitations of Monetary Policy in India (मौद्रिक नीती की मर्यादाए)..........................................115 12.32.1 🐯📢📈 USA Quantitative Easing (QE) & Fed Tapering : Impact on India...................117 12.32.2 🐯🔇 Monetary policy limitations: Black Swan Events....................................................118 12.33 🐯📈 Monetary policy - target failed in 2022?..................................................................... 118 12.33.1 🐯📈🦅 Rate hikes: RBI vs Other Central banks...............................................................118 12.33.2 🐯🛬Monetary Policy: Soft landing vs Hard Landing......................................................119 12.33.3 🐯🔇 Monetary policy limitations: Cantillon Effect.........................................................119 12.33.4 💦🕸️Liquidity Trap ( )...............................................................................................119 तरलता जाल 12.33.5 🙋🏼‍♀️FAQ: Liquidity trap and liquidity overhang confusion / compare contrast..............120 11 🤑M ONEY’S DEMAND, SUPPLY & CREATION 11.11 🤲D EMAND OF MONEY: LIQUIDITY PREFERENCE THEORY (तरलता अधिमान) British Economist John Maynard Keynes (Book: The General Theory of Employment, Interest and Money, 1936) noted - people prefer to keep a part of assets in liquid form (cash money) with 3 motives: (लोग अपना कु छ पैसा नकदी में हाथ में रखेंगे. सारे का सारा पैसा बैंको में जमा नहीं कर देंगे. क्योंकि तीन कारण होते हैं) 1. 🌽 Transaction motive (सं व्यवहार उद्देश्य): For using money as a medium of exchange e.g. for buying daily milk, vegetables. (रोजाना की खरीद के लिए कु छ पैसा हाथ में रखा जाता है. सारा पैसा बैंक में नहीं जमा करते) 2. 💊 Precautionary motive (एहतियाती): To protect against sudden / unforeseen expenditure e.g. medical emergency or impulsive purchase during a holiday trip. (घर में कोई बीमार हो गया, प्रवास में जाना) 3. 📉 Speculative motive (सट्टा-उद्देश्य): Investors hold cash to make the best use of any investment opportunity that arises later e.g. waiting for gold / land prices to fall, then “I will use my cash to buy it”. Also known as "Asset Demand of Money". (जो सं पत्ति मुझे खरीदनी है उसका दाम थोड़ा गिर जाए उसकी राह देख रहा हूँ) (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 60 The amount of money held in cash form vary inversely with (deposit) interest rates. If higher interest available in Bank Deposits etc. → people would invest money in banks, instead of keeping money in liquid form (cash). (बैंक वाला अगर बचत खाते पर अच्छा ब्याज देगा तो लोग हाथ में नकदी पैसा कम रखेंगे बैंक में निवेश ज्यादा करेंगे) 11.11.1 💰TOTAL demand of money: factors affecting - Total demand for money in an economy = transaction demand + speculative demand. - 🙋🏼‍♀️FAQ: What does above chart mean? Ans. Explained in video lecture. - 🙋🏼FAQ: why have you not mentioned precautionary demand in above formula? Ans. Because NCERT has not mentioned precautionary demand in the given formula. 11.11.2 ☔️️💸 Liquidity of assets - Liquidity= ease of converting an asset into cash. Cash is the most liquid asset. - ☔️️☔️️Highly liquid assets = Gold, Demand deposits, G-Sec/T-Bill, shares/bonds of reputed companies. (अत्यधिक तरल सं पत्ति: तुरंत खरीदार मिल जाते हैं. आप सं पत्ति को नगदी धन में आसानी से परिवर्तित कर सकते हैं) - ☂️Relatively illiquid assets= Home/Real estate, Paintings/Sculptures etc. Because difficult to find buyers at right price instantly. खरीदार आसानी से नहीं मिलता इसलिए इन सं पत्तियों की तरलता थोड़ी कम है - 💸 💉Liquidity injection / infusion refers to phenomenon when RBI buys Bank/NBFCs’ G- Sec/T-bill/financial assets to give them cash. (HOW? Ans. Watch Video) (तरलता अन्तःक्षेपण) 11.11.3 ☔️️💸 Liquidity Trap ( तरलता जाल) – refer to end section - Refer to the end section of this handout. (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 61 11.12 💸📥 D EPOSIT TYPES 🗓 Time Liabilities of a Bank (FDRD) 💪 Demand Liabilities of a Bank (CASA) समय / मीयादी देयताएँ मांग देयताएं - Fixed deposits, Cumulative/ recurring - Current Account , Savings Account deposits, Staff security deposit etc. - Demand Draft - Bank legally not required to pay customer - Overdue balance in Fixed Deposits before maturity. But bank may pay after - Unclaimed deposits. (What does it mean? deducting penalty/ interest. (वक्त से पहले पैसा Ans. Explained in Video Lecture.) निकाला तो दंड लगेगा) - What is Nostro/Vostro? Refer Pillar3B. Public parks more money here, because better LESS (ऐसे बचत खातों पर ब्याज कम मिलता है इसलिए जनता returns / higher interest rates. कम मात्रा में पैसा रखती है यहाँ पर) LESS liquid. More liquid bcoz easily convertible into cash 🔠❓ ____ is not included in the assets of a commercial bank in India? (Prelims-2019) (a) Advances (b) Deposits (c) Investments (d) Money at call and short notice 11.12.1 → → DEPOSITs → Time Deposit → Green Deposit 2023: RBI released guidelines. Type of fixed deposit. Its money is loaned to green / environment related. Who can collect such deposits? banks, deposit-taking NBFCs (e.g. Bajaj Finserv), Housing Finance companies (e.g. Canfin Homes) ✅ Banker given give loans to ✋🚨 loans not allowed in renewable energy, waste management, clean transportation, fossil fuels, nuclear power^^, energy efficiency, and afforestation tobacco, etc business. ^^ 🚩👶🏻 FAQ why RBI forbidden it in nuclear power? Even nuclear power is clean energy!? Ans. RBI governor didn’t bother to justify in press release so, Plz email your suggestions to [email protected] if you have a lot of free time. (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 62 SBI launched Green FD with three tenures — (A) 1,111 days (B) 1,777 days (C) 2,222 days. If such bank/NBFC unable to find green-borrower in immediately (for giving long term loans) → then bank/NBFC can invest such green deposit money into liquid instruments with max. maturity upto 1 year e.g. T-Bill, Commercial Papers etc. (Ref Pillar1C for more.) If such bank/NBFC accepted green deposit but can’t find green-borrowers, then RBI will not penalise bank/NBFC for it. These deposits are covered by Deposit Insurance and Credit Guarantee Corporation (DICGC). So even if the bank fails/shuts down → depositor will get upto ₹5 lakh refunded by DICGC. (Ref Pillar1B2 for more.) Green deposits must be issued/accepted in rupee currency only. (i.e. not in dollar/Euro etc.) It is not compulsory every Bank/NBFC to raise/accept green deposits. Unki marzi hai. (just like it is not compulsory for every automobile company to launch an E-Vehicle.) 🚩👶🏻 FAQ: Do I've to remember all this? You added almost one page summary on Green Deposits, and so now your handout will become even longer!? Do I have to remember this much? Ans. Yes. Bcoz (A) This Green Deposit topic also relevant for the environment. (B) UPSC examiners new bad habit of asking microscopic facts of schemes.(C) I'm not pointing a gun over your head to read this. 11.12.2 → Time Deposit → Fixed Deposit → Bulk Deposits ( ₹3cr/>) Definition given by RBI before After-2024 Bulk Deposit means a large sized fixed deposit of _ _ _ ₹2 cr or higher ₹3 cr or higher Bankers may offer different interest rate on bulk deposit compared to normal fixed deposits. Whether interest will be higher or lower than the normal deposit depends on the banker’s business situation. We will not Phd on this. (इसपे बेंकर सामान्य एफ़डी से कम/ज़्यादा ब्याज दे सकता है।) 11.12.3 Demand deposits → Savings account → Salary account e.g. If Infosys has 5 lakh employees, Infosys will open their savings accounts in a bank & deposit the monthly salary inside it. Such accounts are called salary account. Further banking GK NOTIMP. (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 63 11.12.4 🏦 Deposits→ Inoperative & unclaimed accounts Inoperative Account unclaimed deposits (1) if savings/current account are not operated If depositor not doing any transaction from his for 10 years side for more than 2 years (2) if fixed/term deposits not claimed within 10 years from date of maturity. Over ₹ 1 lakh cr stuck here (2023 data) Over ₹ 42,000 cr stuck here (2023-data) Bank can’t charge penalty on such customer if it is a savings account, then banker must same as left cell. continue paying interest on it. 11.12.5 🐯: 🦋 UDGAM Portal: Unclaimed Bank Deposits (2023) - If deposits remain unclaimed for 10 years in a bank → banker need to transfer it to “Depositor Education and Awareness FUND” (DEA) OF RBI. - 2023: RBI setup UDGAM portal for it. (Unclaimed Deposits Gateway To Access inforMation) - Beneficiary can easily search unclaimed deposits across multiple banks at one place. (e.g. by searching the Aadhaar card / PAN Card number of his/her dead parent etc.) - How it works in real life? NOTIMP4EXAM. 11.12.6 Full Reserve Banking vs. Fractional Reserve Banking > इन शब्दों का हिंदी अनुवाद नहीं करेंगे क्योंकि इस प्रकार की थियरी पूछने का मुख्य परीक्षा में कोई रिवाज नहीं है. (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 64 Full Reserve Banking Fractional Reserve banking can banker give money from NO. And consequently, YES, can give. DEMAND Deposits as Banker may not pay LOANS? (e.g. current account, interest to demand saving account) depositors. can banker give money from YES, can give YES, can give TIME Deposits as LOANS? (e.g. Fixed Deposits) Bankers’ vulnerability to LESS. Because demand MORE. Because both time and sudden/panic withdrawals by deposits not given as demand deposits are given as loans. clients (known as ‘Bank Run’) loans. So if Vijay Mallya fled the country → it will create more problems! Banker’s ability to help in Less. Because it can give More Economic growth? less qty of loans. - India uses Fractional Reserve Banking. 11.13 💸📥📐M EASURES OF MONEY SUPPLY (मुद्रा आपूर्ति के परिमाण) Table 1: *CU: Coins & Currency with Public Post Office Savings Commercial Banks Bank Measure Liquidity Qty *CU Demand Time Demand सं कु चित, व्यापक Deposits Deposits Deposits Time तरलता मात्रा Deposits (CASA) (FDRD) (SA) Narrow M1 ✓ ✓ ✗ ✗ ✗ ☆☆☆☆ ☆ Money M2 ✓ ✓ ✗ ✓ ✗ ☆☆☆ ☆☆ Broad M3 ✓ ✓ ✓ ✗ ✗ ☆☆ ☆☆☆ Money M4 ✓ ✓ ✓ ✓ ✓ ☆ ☆☆☆☆ Apply logic to derive formula e.g. M3 = M1 + Time deposits with banks. (स्वयं से फार्मूला बनाइए) - (Objective) To design a good nutrition scheme for India, the government will have to first find the weight of the citizens. Similarly, to make a good monetary policy, RBI will have to find the quantity of money in the system. (कु पोषण के ख़िलाफ़ अच्छी योजना बनाने से पहले सरकार ने लोगों का वज़न नापना होगा. उसी तरह देश के लिए अच्छी मौद्रिक नीति बनाने के लिए रिज़र्व बैंक ने सबसे पहले तो देश में पैसों का जत्था नापना होगा) - (Definition) Money supply means the total amount of money in an economy at any given time. (दिए गए समय पर अर्थतंत्र में कु ल मिलाकर कितना पैसा है उसकी मात्रा या जत्थे को कहते हैं “मुद्रा आपूर्ति”) - (Significance) Money supply plays a crucial role in 1) price level (=inflation) and 2) interest rates on deposits & loans. (मुद्रा की आपूर्ति → महंगाई दर और ब्याज दरों पर असर करती है) - (Types) RBI measures the money supply through indicators: M0, M1, M2, M3, M4 - M3 is the most commonly used measure of money supply, also known as Aggregate Monetary Resources / Aggregate Money Supply” (समस्त मौद्रिक सं साधन) because out of all the money supply (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 65 indicators (M0-M4) this is the indicator RBI will focus the most for its analysis while designing of monetary policy. (अपनी मौद्रिक नीती बनाते वक्त, विश्लेषण के लिए रिज़र्व बैंक इस आंकड़े पर खास ध्यान रखती है) - In above formulas for money supply, we are only counting the “NET Demand / NET Time deposits” i.e. only public’s deposits in bank. We are not counting inter-bank deposits i.e. one commercial bank’s deposit in other commercial banks. एक बैंक से दूसरे बैंक में पैसा डिपॉजिट किया हो तो उसे इधर नहीं गिनते. - Corona-2020: Initial months of lockdown (May2May-2020) → deposit↓↓ because people withdrew money in panic / precautionary motive. Although in the later months → Unlockdown and normalcy → ↑↑ bank deposit by Dec-2020. तालाबं दी के शुरुआती महीनों में लोगों ने एहतियाती कारणों से बैंकों से अपनी डिपॉजिट निकाली हालांकि परिस्थिति सामान्य होने पर, बाद के महीनों में वापस बचत की मात्रा में बढ़ोतरी होने लगी है - M1 and M2 are called Narrow money. Because of their smaller size (since they only cover demand deposits) M3 and M4 are called broad money, because of their relatively larger size than M1 and M2. since these terms are given in the NCERT so we have to prepare & accept. It is not some great thing worthy of mains exam that we have to spend more time than that 1 word association. - 🚩👶🏻FAQ: What is Hard Money vs Soft Money? wait till we reach Pillar3B currency exchange. - 🚩👶FAQ: As per NCERT class12: “M4 = M3 + Total deposits with Post Office savings organisations (excluding National Savings Certificates)”. So why you revision table doesn’t talk about National Savings Certificates. ✅ Ans. This much pedantry I find it less imp for exam so don’t want to overcomplicate my revision friendly table. - 🚩👶 FAQ1: Why M3 is Aggregate Money Supply? ✅ Ans. Watch video. - 🚩👶 FAQ2: Why is the liquidity of M4 less than M3? ✅ Ans. Watch video. - 🚩👶🏻FAQ3: What is Narrow Money and Broad Money? 🔠❓ MCQ. If you withdraw Rs. 1 lakh in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be _ _. (Pre-2020) [a) to reduce it by ₹ 1,00,000 [b) to increase it by ₹ 1,00,000 [c) to increase it by more than ₹ 1,00,000 [d) to leave it unchanged 🚩👶 FAQ: I’ve 500 jaat-ke doubts in above MCQ ✅ Ans. Watch lectures. 🔠❓ MCQ. Which of the following are included in Narrow Money? (CDS-2023-II) 1. Currency with the public 2. Demand deposits 3. 'Other' deposits with Reserve Bank of India 4. Banker's deposits with Reserve Bank of India Codes: (a) 1, 2 and 4 (b) 1 and 2 only (c) 1, 2 and 3 (d) 3 and 4 only (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 66 11.13.1 ⏰ Call Money | Notice Money | Term Money These terms are used when bank/Non-Banking Financial Companies (NBFC) lend/borrow money among themselves for short term (i.e. less than 1 year) word Duration of LOAN Call Money borrowed for one day (=This duration also called “overnight”.) Notice Money 2 days to 14 days Term Money Exceeding 14 days but less than 1 year ✋DONOT mix above words with broad money / narrow money / M1/M2/M3/M4 etc. 11.14 💸⚡⛵️ ️M ONEY MULTIPLIER (मुद्रा गुणक) - Money Multiplier (MM) refers to the amount of M3 a bank generates with each rupee of M0 available to them. - MM depicts the relationship between the monetary base (M0) and the economy’s money supply (M3), indicating how fast the money supply will grow from the bank’s lending activity. - Higher the value of the MM, the higher the liquidity in the market and vice versa. - RBI’s Cash Reserve Ratio (CRR) controls the Fractional Reserve Banking & Credit Creation by the commercial banks, in the following manner: Table 2: this process is called 'Fractional Reserve Banking & Credit Creation' High Powered money (M0) = 100 Deposits Loaning 10% Reserve (‘R’) Bank#1 100 90 10 Bank#2 90 81 9 Bank#3 81 72.9 8.1 Bank#........ Total Money (here M3) Total sum = ₹1000 🚩👶 FAQ: How is this possible/ I didn’t understand? ✅Ans. Watch the video. - In above example, 10% CRR (CRR) generated 10x times of M0 money. [बैंक कर्ज देने से पहले यदि 10% रकम आरक्षित रखती है तो 10 गुना ज्यादा पैसों का निर्माण] - 4% reserve ratio will generate [1/(1/25)]= 25x times (in theory). See formula below: 4 1 CRR 4 %= = 100 25 (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 67 - If CRR is 4X then MM should be 25% theoretically. ✋ however in reality the multiplier may be lower than 25x, due to poor banking penetration. (गांव गांव तक बैंक की सुविधा नहीं है इसलिए वास्तविक जीवन में इतना मुद्रा गुणक नहीं होगा) - In a functional economy, money multiplier (MM) is always greater than 1 & CRR will always be less than 100%. WHY? Ans. Watch video. - MM directly improves with ↓reduction in CRR. (सीआरआर घटेगा तो मुद्रा गुणक बढ़ेगा) - MM indirectly improves as economy develops, consumption / loan demand increases, banking penetration, digital economy, less-cash economy etc. - MM improves with the ↑in banking penetration, financial inclusion (वित्तीय समावेशन) - Boom period, Whenever loan demand ↑ (तेजी का माहौल → लोन ज्यादा लिए जा रहे हो) - When RBI adopts Cheap / Easy / Dovish / Expansionary monetary policy to combat deflation. (जब सस्तापे/ अपस्फीति से लड़ने के लिए रिज़र्व बैंक लोन के ब्याज दर सस्ते कर दे) - In 1960s = less than 2x, 90s = more than 3x, At present = more than 5x. 🚩👶🏻 FAQ: What will be the impact of SLR changes on Money Multiplier? Ans. Can’t be written mathematically. Reason given in Video. MCQ. What would be the impact on the economy if people start holding more currency in hand and less in deposits? (CDS-2023-II) (a) Money demand will increase (b) Money multiplier will decrease (c) Money multiplier will increase (d) Money demand will decrease 11.14.1 ⛵️ Money Multiplier (MM)- similarities with speed of a boat to prevent confusion (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 68 11.14.2 ES24: factors increasing liquidity / money multiplier system (2023) How can ₹2000 note withdrawal, increase Money multiplier? Ans. Refer to section CRR → liquidity overhang / i-CRR topic in this handout. Basically, people deposited 2000 note but didn't withdraw exchanged notes (e.g. ₹500x4 notes). They kept money in their bank balance. So the amount of deposits increased → MM will increase. ⛵️ 11.14.3 Money Multiplier From 2019 to 2021: why fallen? Money multiplier (MM) fallen from 5.6 on 31/3/20 to 5.2 on 31/3/21 because  if banks kept loaning to households & business firms then (M3/M0)=Money Multiplier would grow thru lending-deposit activity from One bank account to another bank account.  But this deposit-to-lending activity seems to have slowed down in Corona & afterwards so MM did not improve. (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 69  Then between 2021-22, the money multiplier remained stable in the range of 5.2 (2021) → 5.1 (2022). (मुद्रा गुणक में कु छ खास बदलाव नहीं आया) 11.14.4 💸⚡️Money Multiplier From 1981 to 2020 Figure 1: source- Economic Survey 2020, zigzag pattern means 'not increasing steadily'. - between mid-1990’s to 2016-17: Money multiplier (measured as a ratio of M3/M0) was mostly ↑. Reasons are explained in the video. - But 2017-18 onwards: Money Multiplier is ↓. Could be attributed to the lack of growth in loaning activities & slowdown in economy. 🔠❓ MCQ. Money Multiplier in an economy increases with _ _ _? (UPSC-Prelims-2019) A) Increase in the cash reserve ratio B) Increase in the banking habit of the population C) Increase in the statutory liquidity ratio D) Increase in the population of the country 👆Same above MCQ also repeated in Prelims 2021 11.15 💸🖨 M0: FORMULA M0 measures the total amount of paper money and coins in circulation, plus the reserves (deposits) of central bank (=RBI). It is called M0 / Reserve Money / Monetary base / Govt Money / High Powered Money. Different books give different answer. Basically it boils down to following image. (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 70 - "Vault cash” means cash kept by bankers with themselves, for day to day operations. 11.15.1 💸🖨 If CRR ↑ then M0 ↑ says Eco Survey How? Ans. Refer to above image and read the red fonts. 11.15.2 💸🖨 If net foreign assets (NFA) ↑ then M0 ↑ says Eco Survey Ans. Following chart requires prior understanding of the currency exchange topic from pillar#3. So revisit following chart after finishing pillar#3. 11.16 💸🖨 M0: C REATION OF MONEY (मुद्रा का निर्माण) Watch Video lecture before reading further. ELSE u'll have too many doubts. is issued under RBI Act, by RBI’s ISSUE DEPARTMENT, with condition that ISSUE DEPARTMENT’s assets must match its liabilities. (आरबीआई के वल उतना ही पैसा छाप सकता है जितनी परिसं पत्तियां उसके इश्यू-विभाग के पास हो) Assets of Issue Department (परिसं पत्तियाँ) Liabilities of Issue Department [M0] 1. Rupee coins [RBI ‘buys’ coins & ₹1 notes Total Bank notes in circulation, which consists from Govt and circulates it as the ‘Agent of of: 1. Currency in circulation (i) Held by Public (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 71 Assets of Issue Department (परिसं पत्तियाँ) Liabilities of Issue Department [M0] govt’] (ii) Held by other Banks in “Vault cash” 2. Gold coins [Min. ₹ 200 crores] सोने के सिक्के (i.e. amount kept by bankers for day to day 3. Gold bullion [Min. ₹ 115 crores] सोने की ईंटे Operations.) 4. Foreign Securities, incl. IMF [Earlier 2. Bankers' Deposits with RBI (e.g. CRR) Minimum ₹ 400 crores but Post-1995 no 3. Other deposits with RBI (of Public*, such requirement.] NBFCs, & Govts, Intl.org) 5. (Indian) Govt. Securities [through which Govt borrows money & returns Principal + Interest at later date] सरकारी प्रतिभूतियां Total = suppose 100 Cr @”X”date Total = 100 Cr @”X” date. - * such as PM Garib Kalyan Yojana (2016) under which Blackmoney holder was required to deposit 25% of his blackmoney in RBI for a lock-in period of 4 years. More in Pillar#2B - M0 ↑ increases when RBI’s asset side increases ↑. (जब सरकार रिज़र्व बैंक से ज्यादा पैसा कर्जे मे ले तब रिज़र्व बैंक की परिसं पत्तियों में बढ़ोतरी होती है) 11.16.1 FAQ: How can same thing become Asset and liability ? (WATCH VIDEO) 11.16.2 🚩👶🏻 FAQ on Rs.1 paper-note 🚩👶🏻FAQ: Whose responsibility is it to exchange the public’s torn / soiled ₹ 1 note ? Ans. RBI will do it as the agent of the Govt. 🚩👶🏻FAQ: Whose responsibility is it to exchange broken coins? Ans. First of all it is difficult to break a coin unless with a metal cutter. And secondly I’d not loose sleep over such JAMES-Bond-Babu-Shona Qs. for UPSC exam point of view. Common-sense suggests that if RBI is exchanging torn ₹1 Note, then RBI would be exchanges coins as well. 🚩👶🏻FAQ: All coins and ₹1 paper-note is whose liability ? RBI or Govt (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 72  All coins and ₹1 paper-note are issued by Government. (Ref: Pillar1A1 Handout)  RBI circulate them as “agent of the government”.  However these items are liability of government. As per RBI Website.  So, All coins & ₹1 paper-note are liability of Govt.  However, some books interpret that since 1) RBI is circulating them 2) RBI is responsible for getting torn ₹1 rupee notes exchanged, so it is RBI's liability.  If in Doubt for MCQ → then tick “Govt.” as Answer. 11.16.3 🧛🏻 FAQ on gold price / gold theft vs RBI liabilities and asset mismatch 🧛🏻 This is how vampire babushone drink teacher's blood and yet not clear prelims. you must avoid this mentality. Move to next topic. what is the point of obsessing over a single topic like this? 11.17 🖨M ONEY SUPPLY & FRBM ACT FISCAL RESPONSIBILITY AND BUDGET MANAGEMENT ACT 2003 (राजकोषीय उत्तरदायित्व और बजट प्रबं धन कानून ) Notable provisions: (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 73 - Government has to control its fiscal deficit within X% of GDP. (Ref: Pillar#2D) (सरकार ने अपने घाटे को GDP के कु छ प्रतिशत से ज़्यादा नहीं बढ़ने देना होगा.) - Government CANNOT borrow from RBI. (In other words, RBI cannot buy government’s loan instruments for itself from primary market) **Except in TWO situations:** o i) Short term Ways and Means Advances (WMA) (Ref: Pillar#1C) o ii) During war, disaster, agri-crisis, big fall in GDP. (Ref: Pillar#2D) - RBI can buy/sell government’s loan instruments from secondary market (i.e. from other investors in OMO/ Open market operations.) (रिज़र्व बैंक आमतौर पे प्राथमिक बाज़ार से सरकार के लोन कर्ज़ उपकरण नहीं ख़रीद सकती है, किं तु द्वितीयक बाज़ार ले रिज़र्व बैंक उसकी ख़रीद बिक्री कर सकती है. ) 🙋🏼‍♀️FAQ: didn't understand this. Ans. Complete 1A2 pillar ke 5 lectures, Pillar1C AND pillar2D. 11.17.1 Monetisation of deficit (घाटे का मुद्रीकरण) - It means RBI printing more currency notes to give as loans to Government. (जब सरकार को उधार देने के लिए रिजर्व बैंक नया पैसा छापती है) - However, this process is difficult/ not easy due to FRBM Act conditions learned above. (हालाँकि FRBM क़ानून के चलते ये इतना आसान नहीं है अब.) 11.17.2 🚩👶🏻 FAQ on Govt's borrowing & money printing 🚩👶🏻FAQ: Can Govt borrow as much ₹₹ as they want via G-Sec? ✅ Ans. No! There are legal limits on govt borrowing under the Fiscal Responsibility And Budget Management act (FRBM). (More in 📑Pillar#2D) (सरकार अंधाधुंध तरीक़े से उधारी नहीं कर सकती FRBM क़ानून के अंतर्गत उस पर कु छ सीमाएं हैं.) 🚩👶🏻FAQ: RBI’s money supply is limited by above Asset-liability balance method. But what if govt issues large number of coins and one rupee notes before election to keep voters happy? Will it not create problems in the M0 & economy? ✅ Ans. Too much money supply without enough goods- supply → inflation. So, a sensible govt will not do such drama. Beyond that I’ve no interest in engaging in further PHD-intellectual debates. Not important for exam. Move to next topic. (झं डे वाले बाबूशोनो को ये ख़ास प्रश्न होता है यदि सरकार अपनी तरफ़ से अंधाधुंध तरीक़े से सिक्के छाप देगी तो क्या M0 पे ख़राब असर नहि होगा? (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 74 जवाब: अगर बहुत सिक्के छापे लेकिन बाज़ार में माल सामान की क़िल्लत होगी तो महँगाई बढ़ी जाएगी इसलिए एक ज़िम्मेदार सरकार ऐसी नौटंकी नहीं करेगी. इससे ज़्यादा मेरे को इसकी चर्चा नहीं करनी है क्योंकि वो परीक्षा के लिए काम की नहि है।) 🚩👶🏻FAQ: How did RBI print money in British times? Ans.✅ Watch the lecture videos 🚩👶🏻FAQ: Where is the repo, where is the RBI’s profit in above table? Ans.✅ Watch the videos 🚩👶🏻FAQ: If RBI’s gold/G-sec gets stolen/burned/lost then will M0 decrease? ✅ Watch the videos 🚩👶🏻FAQ: I’ve 500 jaat-ke other doubts. Ans.✅ then u keep looking for answers on Google. 11.17.3 (Clarification) Formula for Money-supply M0-M4 not matching with CDS Exam NCERT formulas RBI & Economic Survey formulas RBI official formula (IGNORE THIS. REMEMBER NCERT) NCERT Textbook page 38–39 Ref: https://ncert.nic.in/ncerts/l/leec103.pdf My handout contains NCERT formulas. I see no benefit in explaining / memorizing the RBI/Eco Survey's official technical formula- from exam point of view. You'll be overwhelmed and struggle to memorize them anyways. better skip it, and use brain memory for other topics. If you see some time-pass private mock test- wala making MCQs out of these official RBI/Eco Survey formulas, then you should ignore such MCQs, for your own mental peace. इस टेबल के राइट-साइड कॉलम में जो भी सूत्र दिये है उसे सिखाने का/याद रखने का मुझे बहुत कम फ़ायदा दिखता है इसलिए आप उसे नज़र-अन्दाज़ करे। अपने दिमाग़ की यादशक्ति को बाक़ी Economic Survey 2024 (IGNORE THIS. टोपिक्स याद रखने में इस्तेमाल करें। भले इसमें से प्रश्न आये छोड़ REMEMBER NCERT) दो। वरना लंबे हो जाओगे इतना सब रटते-रटते। (1) Components of Broad Money=Currency with the Public + Aggregate Deposits (Demand Deposits with Banks + Time Deposits with banks + ‘Other’ deposits with Reserve Bank) (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 75 NCERT formulas RBI & Economic Survey formulas (2) Sources of Broad Money=Net Bank Credit to Government + Bank Credit to Commercial Sector + Net Foreign Exchange Assets of Banking Sector + Government's Currency Liabilities to the Public- Banking Sector's Net Non-Monetary Liabilities) Note: Economic Survey'24 has not given any other formula. only above two formulas. M0 to M4 formula in NCERT are different than real life formulas in RBI website/Eco Survey. In the past, 1 formula MCQ in CDS- its answer-keys not matching with NCERT, because nobody filed a complain to UPSC after the exam was over within seven days. at this link https://upsconline.nic.in/miscellaneous/QPRep/ if CDS-candidates had filed complain, then probably UPSC may have cancelled the MCQ. Note: I'm not giving that controversial MCQ here, to prevent unnecessary mental stress. 11.17.4 💸⚡️: Currency in Circulation (CIC) - What is CIC’s exact formula? Ans. Economic Survey didn’t give, Google giving vague ans. - CIC is an indicator to measure cash as a payment instrument i.e. instead of other payment instruments such as Cheque, NEFT/RTGS, Card etc. (भुगतान के लिए नक़दी का कितना प्रयोग हो रहा है) - 2021: Currency in Circulation (CIC) growth (%) declined from Reason: Corona-led precautionary demand for cash has reduced/subsided → People are keeping less qty of cash in hand, and depositing more qty in Banks. (लोगों में कोरोना का ख़ौफ़ कम हुआ है इसलिए जनता अब एहतियादी रूप में हाथ में नक़दी कम मात्रा में रखती है।) - ⬆️ 2022: Russia-Ukraine war → temporary increase in precautionary cash holdings → Currency in Circulation (CIC) increased. (रूस यूक्रे न के युद्ध के चलते एहतियाद/सावधानी के लिए लोगों ने हाथ में नगदी /रोकड़ा रखना ज्यादा मुनासिब/उचित समझा।) 11.17.5 💸 Misc. topic: Velocity of Money Circulation (मुद्रा सं चालन का वेग) It is the average number of times money passes from one hand to another, during given time period. e.g. you bought pen worth Rs.10 from shopkeeper, he uses same ₹10 note to buy tea from another shop → same currency note performed function of Rs.20. कितनी बार एक नोट एक हाथ से दूसरे हाथ में जाता है? (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 76 This “Velocity of money circulation” is affected by following factors: - Income distribution: Money in the hands of poor people has higher velocity than the rich people. Why/HOW? Ans. Watch Video. - If more people borrow money → higher velocity. Hence developed countries => higher velocity, because people save less and spend more because of consumerist lifestyle and confidence in Government’s social-security/pension system e.g. USA. (जब लोगों में बचत की भावना कम हो) - Boom period in economy = more raw material purchase & hiring = higher velocity. (तेजी का माहौल) - Other 500-jaat-ke-combination-PHD = poor cost:benefit for exam 12 🐯📢 M ONETARY POLICY (मौद्रिक नीति) - [Definition] Monetary Policy is a macroeconomic policy (समष्टि आर्थिक नीति), designed by Central bank of a country, to manage money supply & interest rates. It helps shaping variables such as inflation, consumption, savings, investment, & capital formation (मुद्राआपूर्ति व ब्याजदरो को नियंत्रित कर मुद्रास्फीति/महंगाई, मांग/खपत, बचत, निवेश, पूंजी निर्माण को आकार देना- कें द्रीय बैंक द्वारा बनाई गई इस प्रकार की नीती को मौद्रिक नीती कहते हैं). - [Significance] Monetary policy plays an important role in price stability [inflation control], economic growth, job creation and social justice in any economy. (महंगाई-नियंत्रण, आर्थिक वृद्धि, रोजगार सृजन, सामाजिक न्याय के लिए महत्वपूर्ण साधन है ये मौद्रिक नीती) - Milton Friedman: This American economist’s research on monetary policy made this subject more popular, he also won a Nobel in Economics in this regard (1976). - Philip Curve: Inflation ↑ = unemployment ↓ (and vice versa). मं हगाई बढ़ेगी तो बेरोजगारी घटेगी. मं हगाई कम होगी तो बेरोजगारी बढ़ेगी. (More in Pillar#4C) - So, stable & moderate inflation is good for the economy. (स्थिर व मध्यमस्तर महंगाई अर्थतंत्र के लिए अच्छी) So, RBI tries to keep inflation with 2-6% Consumer Price Index (CPI: All India) using its bi-monthly monetary policy made by its 6- member statutory Monetary Policy Committee. (छ:-सदस्यवाली वैधानिक (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 77 समिति द्वारा द्वि-मासिक मौद्रिक नीति निर्माण करके रिजर्व बैंक महंगाई दर को उपभोक्ता मूल्य सूचकांक के हिसाब से २-६% में नियंत्रित करने की कोशिश करता है) 12.11 🐯📢📐 M ONPOLICY: QUANTITATIVE TOOLS (परिमाणात्मक साधन) Also known as (aka) General or Indirect Tools as they affect the entire economy, and not just a particular sector. (ये साधन / हथियार / उपकरण सामान्य या अप्रत्यक्ष हैं क्योंकि यह किसी एक क्षेत्र-विशेष को नहीं, किं तु पूरी अर्थव्यवस्था को असर करते हैं) 12.11.1 🗄✂️️Statutory Reserve Requirements: CRR, SLR (Fight inflation: ↑, deflation: ↓) - CRR and SLR are collectively known as “Variable Reserve Ratios” or “Statutory Reserve Ratios” (इन दोनों को परिवर्तनीय आरक्षित अनुपात / वैधानिक आरक्षित अनुपात भी कहा जाता है) CRR SLR Full form: Cash Reserve Ratio Full form: Statutory Liquidity Ratio (नकद कोष अनुपात) (वैधानिक तरलता अनुपात) Banks must keep this much deposits (or Banks must keep this much deposits in liquid balance) with RBI. RBI doesn’t pay interest on assets such as cash, gold, G-Sec, T-Bills, State this deposit, except in extraordinary Development Loan Bonds and other securities circumstances like 1999’s Banking slowdown. notified by RBI. (बेंक ने जमाकर्ताओं से हांसील की हुई रकम (बेंक ने जमाकर्ताओं से हांसील की हुई रकम का कु छ हिस्सा रिजर्व का कु छ हिस्सा, रिजर्व बेंक द्वारा मान्य तरल परिसं पतिमे निवेश बेंक मे जमा करना पड़ेगा।) करना होगा) Bank earns no profit / interest, as such. Some profit may be involved. (मुनाफा हो सकता है) - CRR: first suggested by British economist Mandated under Banking Regulation Act, 1949 (बैंकिं ग विनियमन अधिनियम के अनुसार इसे लागू किया जाता है) (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 78 CRR SLR J.M. Keynes & first introduced in US Federal Reserves (=Central Bank of USA). - Mandated under RBI Act, 1934  RBI can fix any amount of CRR. Legally  Presently it is 18.00% of NDTL. there is no minimum or maximum limit.  Legally, SLR can’t be made more than 40%. Although in real life, RBI will not keep (कानूनन रूप से रिज़र्व बैंक इसे 40% से ज्यादा नहीं रख CRR@100% otherwise, no bank can give सकतीं.) loans then economy will stop functioning.  Presently it is 4.50% of Net Demand & Time Liabilities of a bank (NDTL) - All Banks must keep CRR. Similar to left cell of this table. (सभी प्रकार के बैंक के लिए अनिवार्य. हालांकि क्षेत्रीय ग्रामीण बैंक - However, RBI may prescribe separate % तथा सहकारी बैंको के लिए इसकी प्रतिशत मात्रा रिज़र्व बैंक, अन्य norms/slabs for Regional Rural Banks बैंको की तुलना में थोड़ी भिन्न रख सकती है) (RRBs) and Cooperative Banks. - More in 📑Pillar1B1: classification 🚩👶 ✋Difference between NDTL, ODTL, Total DTL?= NOT IMP4IAS. If you want to satisfy your curiosity, do google search yourself but I don’t t think it as best use of time. - CRR-SLR are counted on fortnightly basis. If not maintained, bank will have to pay penalty interest rate to RBI. This Penalty rate is linked with Bank Rate%. (हर 15 दिनों के लिए गिना जाता है. यदि बेंकर ने नहि नहीं माना तो जुर्माना लगेगा.) - CRR-SLR ensure monetary stability of India through two primary functions: 1) CRR assists in money multiplier effect. (HOW? Watch lecture video.) 2) CRR-SLR provide buffer/protection during a Bank Run (बैंकों में से जमाराशि वापस लेने की दौड़) i.e. an emergency when every depositor wants to pull out money from his bank account (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 79 at once, mainly due to fake news / rumours sometimes due to war e.g. in Russia-Ukraine - Theoretically, CRR/SLR can be used for inflation control. But RBI primarily relies on REPO Rate (=its Policy Rate) to combat inflation, and not CRR/SLR. (हालांकि, सीआरआर और एसएलआर महंगाई नियंत्रण के मुख्य साधन नहीं है. रिज़र्व बैंक महंगाई से लड़ने के लिए मुख्यता रेपो रेट का इस्तेमाल करती है) 12.11.2 🚩👶🏻FAQ: How can CRR be an asset for a banker? If RBI pays 0% Interest on it!!? 12.11.3 🚩👶🏻FAQ: What will be the impact of SLR changes on Money Multiplier? Ans. Can’t be written mathematically. Reason given in Video. 12.11.4 🌐👨‍🎨 : 🗄✂️️CRR SLR on Foreigners/NRI’s deposits in Indian Banks? 🚩👶🏻FAQ: does CRR and SLR also apply to the deposits made by foreigners / NRIs / FCNR Accounts? Has RBI changed any rules regarding this? Ans. Wait till we reach Pillar3A: Currency Exchange Rate. Presently we are in Pillar1A2. 12.12 🐯🗄✂️️🗓 CRR, SLR: D EVELOPMENT IN RECENT YEARS 12.12.1 🏦🍀 DEPOSITs → Green Deposit - SBI wants lower CRR (2023) 2024-Feb: bankers need to keep 4.5% CRR on the deposit. SBI requested RBI to reduce the CRR on green deposits so that (A) loanable fund can increase for green projects. (B) loan interest rates can reduce for green projects. However, RBI NOT YET implemented this. 12.12.2 🐯🗄✂️️🗓 (2020-Feb) CRR Exemption for 5 yrs, depending on loans (सीआरआर में छू ट) - Outdated / technical stuff so removed from handout 12.12.3 🐯🗄✂️️🗓 (2020-Mar) CRR during and after Corona (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 80 Graph is self-explanatory. Not adding any text-explanation. IF not understood then watch video. 12.13 😥N ET INTEREST MARGIN, LIQUIDITY OVERHANG & ₹2000 WITHDRAWAL 📕 12.13.1 ES24: NIM >5% is dangerous for financial stability Net interest margin (NIM) is difference between Loan interest MINUS Deposit Interest Rate. An NIM of 3–4% is considered healthy/good for bank’s profitability and growth. if NIM>5%, it implies that greedy-banker is exploiting the depositor and/or the borrower = not good for financial stability of the system. (मुनाफ़ाख़ोरी/व्याजख़ोरी, शोषण, वित्तीय स्थिरता।) Thus, High NIM (e.g. >over 5%) is negatively correlated with financial stability. But, thankfully, the NIM of Indian banks is below 5%- said Economic Survey. 12.13.2 Liquidity overhang refers to a situation in monetary policy where money supply is >> (higher) than demand for money (loans). [जब मुद्रा आपूर्ति ज़्यादा और मुद्रा/लोन की माँग कम हो] (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 81 Result? Loan interest rates become cheaper. This could have negative consequences if there is a problem of high inflation. (Because cheap loans → more shopping → more demand → inflation problem worsens) (लोन सस्ते हो जाएँगे, और वे महंगाई की समस्या को जटिल बनायेंगे।) 12.13.3 Liquidity overhang may occur in following scenarios - During Very Dovish (Easy) monetary policy e.g USA’s Quantitative Easing (QE) - Refer to the last section of this handout. - During Note-ban (Demonetisation) or withdrawal of currency. e.g. ₹2000 in 2023. [Solution: i- CRR. Refer to Next Section] 12.14 🔐 INCREMENTAL CRR AFTER ₹2000 WITHDRAWAL - After withdrawal of ₹2000 notes → 87% of such notes coming as bank deposits. (Meaning public didn’t exchange 87% 2000 notes with other notes like ₹2000 ₹500x4 notes. Public simply deposited in to their bank accounts.) - But as we learned in previous section, this can cause problem of ‘Liquidity overhang’ - So, RBI came up with Incremental Cash Reserve Ratio (I-CRR: वृद्धिशील नकद आरक्षित अनुपात) Normal CRR i-CRR (10%) Whatever extra/ additional deposits came during []May 19, 2023 and July 28, 2023]…keep… 10% extra CRR from it, During 12th-Aug to 7th-Oct-2023 on those deposits. Rate 4.5% of NDTL (Exact dates / Exact formula not imp.) 2000 के नोट चलन हटाने के बाद बैंको में जो अतिरिक्त राशि जमा हुई उसमें कु छ अतिरिक्त CRR एक अस्थायी समय तक रखना होगा ऐसा नियम. - Protection against bank - To suck / absorb excess liquidity after withdrawal of Objective? run. ₹2000. - Controlling - To avoid LIQUIDITY overhang problem. money supply Will RBI pay interest to No. No. रिज़र्व बैंक बैंकरों को कोई ब्याज नहीं देगा इस पर. bankers on this? - i-CRR locked ₹1 trillion worth money. i-CRR was a temporary measure from 12th-Aug to 7th- Oct 2023. Then i-CRR was withdrawn/removed. - Earlier, RBI had issued a temporary i-CRR in 2016–17 after demonetisation of ₹500 & ₹1000 (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 82 🙋🏼‍♀️FAQ: does i-CRR only count ₹2000 note deposit or does it also count ₹100-500 type deposits? Ans. RBI press release didn't clarify. And I didn’t waste time doing self-PHD. 12.14.1 🚩👶✋ 🐯🗄✂️🗓 : ️ CRR Technical things NOTIMP Following technical operational aspects of CRR not imp / poor cost benefit in studying for exam - What is Automated sweep-in and sweep-out (ASISO) facility? - What is Flexible Automated Option for Managing CRR? - Banks are required to calculate CRR on a fortnightly (15 days) basis. They have to maintain at least 90% of that amount in CRR on daily basis. RBI also ↓ minimum daily CRR balance maintenance from 90% to 80% upto 2020-June. = NOTIMP. परीक्षा के लिए काम की नहीं 🚩👶✋Above type of information is not really important for the scope of civil service exam. So, don’t lose sleep if some inexperienced private Mocktest quiz master framing MCQs like this. 🔠❓Cash Reserve Ratio refers to _ _ _. (UPSC-CDS-i-2020) (a) the share of Net Demand and time liabilities (NDTL) that banks have to hold as liquid assets (b) the share of NDTL that banks have to hold as balances with the RBI (c) the share of Net demand and time liabilities that banks have to hold as part of their cash reserves (d) the ratio of cash holding to reserves of banks 🔠❓Find correct statements about SLR: (UPSC-CDS-2011-II) 1. To meet SLR, Commercial banks must keep cash only. 2. SLR is maintained by the banks with themselves. 3. SLR restricts the banks leverage in pumping more money into the economy. Answer codes:(a) 1, 2 and 3 (b) 1 and 3 (c) 2 and 3 (d) only 2 🔠❓When RBI reduces SLR by 50 basis points which is likely to happen? (UPSC-Pre-2015) (a) India's GDP growth rate increases drastically. (b) Foreign Institutional Investors may bring more capital into our country. (c) Scheduled Commercial Banks may cut their lending rates. (d) It may drastically reduce the liquidity to the banking system. 🔠❓ If the CRR is lowered by the RBI, supply of money in the economy will:_ _ _ (CAPF-2023) (a) remain unchanged. (b) decrease. (c) increase. (d) have ambiguous impact. 🔠❓ The banks are required to maintain a certain ratio between their “cash in hand” and total assets. This ratio is known as :_ _ _ (CAPF-2023) (a) Cash Reserve Ratio (CRR) (b) Statutory Liquidity Ratio (SLR) (c) Central Bank Reserve (CBR) (d) Statutory Bank Ratio (SBR) 🔠❓ If the Cash Reserve Ratio is lowered by RBI, supply of money in the economy _ _ _ (CAPF'23) (a) remain unchanged. (b) decrease.(c) increase.(d) have ambiguous impact. (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 83 12.15 🐯📢📐 M ONPOLICY → QUANT TOOLS → RATES → LAF REPO RBI’s Liquidity Adjustment Facility (LAF, तरलता समायोजन सुविधा): has two windows: ®️LAF-Repo Rate ®️®️LAF-Reverse Repo Rate (रिपो दर/पुन: क्रय-अनुबंध) (उलट रिपो/ पुन: क्रय-अनुबंध) The Interest rate at which RBI lends short-term It’s the interest rate that clients earn when loans to its clients, keeping their G-Sec as parking their surplus funds with the RBI for collaterals. (रिजर्व बेंक अपने ग्राहको को लघु अवधि के ऋण short periods, to earn interest. (ग्राहक अपना देता है। उसपर लागू ब्याज दर को रिपो दर कहेते है। ग्राहक ने अतिरिक्त धन, रिजर्व बेंक मे लघु अवधि के लिए जमा कर जो अपनी सरकारी प्रतिभूतियों को रिजर्व बेंक मे गिरवी रखना पड़ता ब्याजदर कमाते है, उसे उलट-रिपो-दर कहेते है) है)  Clients enter into an agreement with RBI to Mechanism similar to Repo, RBI gives its G-Sec repurchase their G-sec at a future date at a as a collateral to client. (higher) pre-determined price.  Banks can’t pledge their SLR-quota-G-Secs for this borrowing. ✋  Repo also called ‘Ready Forward Reverse Repo Rate = Repo% MINUS x% Transaction’.  Repo Rate is our Policy Rate to control inflation. (मौद्रिक नीति दर)  Repo = RBI lends short term loans its clients, & demands G-Sec/T-bill as collateral. At every ✋ place, I’ve not mentioned T-bill, as it just reduces the speed of revision.  Market Repo = Players other than RBI (such as bank, NBFCs) loaning short money to other Banks/NBFCs/Corporate Companies, and demanding financial securities (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 84 (G-Sec/T-Bill/shares/bonds/commercial paper etc.) as collateral. What do those terms mean? Ans. Ref the table given in topic Operation Twist. 12.16 ⚡️C URRENT REPO VS [NEUTRAL OR TERMINAL] REPO RATE Term Meaning ⚡️Current repo whatever is the present Repo rate e.g. 6.50% on 22_Aug_24 rate वर्तमान रेपो दर - % repo rate at which inflation is under control, and full employment Neutral or achieved. RBI will not increase the repo rate beyond this point ELSE it’ll Terminal repo damage consumer demand & GDP growth. rate - This is a theoretical concepts, RBI has not officially declared any number / तटस्थ रेपो दर target for it. (यदि इस नंबर से ज्यादा रेपो दर को बढ़ाया तो फिर पब्लिक लोन कम लेगी और अर्थतंत्र को कठिनाई होगी बेरोजगारी बढ़ जाएगी.) Non-Accelerating Inflation Rate of Unemployment. This term is related with NAIRU Unemployment. It is not loan interest rate. (We’ll study it in: Pillar#4C: Unemployment) (यह बेरोजगारी दर है. ब्याज दर नहीं. खिचड़ी मत करो) 12.17 👻🐯📢📈 REPO → S PECIAL WINDOWS UNDER ATMA NIRBHAR ‘Atma-Nirbhar’ is a set of reforms by RBI and govt to revive Indian economy after Corona-2020 12.17.1 👻🐯📢📈 REPO → TLTRO, SLTRO, On-Tap Windows after Corona We will not waste time learning how exactly they worked because it is outdate. So only vague idea of the keywords is enough. #In above chart, All Banks doesn’t include Payment Banks. PB can’t give loans (Ref: 📑#1B1) "Contact Intensive Sectors" means hotel, gym etc. (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 85 12.17.2 (2020) 🐯🤧Reverse Repo Rate cut Figure 2: sir, जब तक आप loan के लिए हाँ नही कं हेंगे, हम आपको telemarketing spam-calls करते रहेंगे! Corona led Economic Slowdown → Loan demand ↓ → banks parking their excess funds in RBI to earn interest in the form of reverse repo rate. (कोरोना महामारी के दौरान बैंक वाले अपना अतिरिक्त धन रिज़र्व बैंक में डाल के बैठे बिठाये व्याज कमा रहे थे. ग्राहकों में लोन का पैसा घुमाने की मेहनत नहीं कर रहे थे.)  By 2020-March: banks parked ₹~3 lakh crores in RBI in Reverse Repo.  So, RBI has drastically reduced ↓the reverse repo rate to 3.35% to discourage such laziness of banks. (बैंको के इस आलसीपन को दूर करने के लिए रिज़र्व बैंक ने रिवर्स रेपो रेट में कटौती की)  Benefit of reverse repo reduction?  IF SBI offers 5.9% Fixed deposit interest rate to depositors, and parks it in the RBI reverse repo rate (3.35%) then SBI will actually make losses.  So, RBI hopes SBI will now be ‘forced’ to give loans in a proactive manner (through SMS-spam, email-spam and unwanted telemarketing calls etc) Although as per 📔📔 ES21, Banks still continued to park their surplus funds in Reverse repo because there were not enough loan takers due to Corona slowdown. (हालांकि कु छ खास फायदा नहीं हुआ ऐसा आर्थिक सर्वेक्षण का कहना है) 12.17.3 🐯📢📐 MonPolicy → Quant Tools → Variable Rate Reverse Repo (VRRR) (Normal / Fixed) Type variable rate reverse repo (VRRR) Reverse Repo Fixed by RBI. e.g. 3.35% Varies/changes depending on the Interest Rate? (2023) auction bids made by clients. (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 86 (Normal / Fixed) variable rate reverse repo Type Reverse Repo (VRRR) When RBI wants to Objective? same as left cell. reduce money supply Can RBI reject accepting deposits Yes. Depends on RBI same as left cell. from clients in this window? discretion/mood VRRR is a special method thru which RBI conducts reverse repo rate deals with clients, via auction. so exact % is not fixed. because % depends on the auction. (नीलामी से तय होता है रिवर्स रिपो दर। असल में कै से होगा उसमे हम समय बर्बाद नहीं करेंगे) RBI conducted VRRR operations during 2023. So term came was in news. 🚩👶🏻FAQ: Why doesn't RBI merge these 2 tools ? Ans. Governor will use them as per his situation/discretion. He didn't explain, I didn't do self-PHD. 🚩👶🏻FAQ: I've counter-logics on how Bankers can misuse these windows!? Ans. Look at PYQs. do u think UPSC will ask it? R u a focused-race-horse or r u a wandering-street-bull? 12.17.4 🐯🔪 🎛 Enhanced Reverse Repo Rate for Hardworking Bankers in Corona Outdated/technical for exam cycle, so removing from latest handout. 12.17.5 🐯📢📐 MonPolicy → Quant Tools → Rates → MSF (2011) - Marginal Standing Facility (MSF: सीमांत स्थायी सुविधा) is the Interest rate at which RBI lends short- term loans to Scheduled Commercial Banks (SCB) & Regional Rural Banks (RRB) with their SLR-quota G-Sec as collaterals. (ऐसी खास खिड़की है जहाँ से रिज़र्व बैंक द्वारा अनुसूचित वाणिज्यिक बैंको तथा क्षेत्रीय ग्रामीण बैंकों को, उन बैंको के एसएलआर कोटा की प्रतिभूतियों को गिरवी लेकर रिजर्व बैंक उन्हें लघु अवधि के कर्ज देता है) - MSF higher than Repo Rate. MSF = Repo% + 0.25% - What is the difference/meaning of SCB/RRB/SFB/UCB etc? Ans: ( 📑Ref: HDT-Pillar#1B1:) 🚩👶🏻FAQ:Which types of banks can access MSF facility? ✅ Ans. It is given in above note itself. 🚩👶🏻FAQ: are cooperative banks eligible for MSF or not?✅ Ans. not imp. self-PHD karo. 12.17.6 🐯📢📐 MonPolicy → Quant Tools → Rates → Bank rate (बेंक दर): Bank Rate MSF Repo Rate Introduced in RBI Act, 1934** 2011 2000 What is the % Since 2012: Monetary Policy MSF = Repo% + “x”% rate? Bank Rate% = MSF% Committee decides Who can All clients of RBI: borrow from Only banks bank, non-bank, the RBI? Union & State Govt Collateral **Yes and No Bank can pledge securities Yes, G-Sec/T-bill. But (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 87 Bank Rate MSF Repo Rate required? from its SLR quota not from SLR Loan duration Longer than repo Short term usually overnight to 14 days Emergency borrowing by Nowadays mainly Primary bank, using their securities Short term borrowing for deciding penalty Utility? from SLR quota subject to by all clients of RBI. on errant banks certain limits. - **RBI Act, 1934: “Bank rate is the standard rate at which RBI buys or rediscounts first class securities, bills of exchange or other commercial papers.(-NCERT)” rediscounting basically means the “repo-walla game= RBI buys @x price, re-sells@y price where y>x” - But, since the introduction of the Repo rate in the 2000s, the Bank rate has become a dormant tool (निष्क्रिय उपकरण) =not frequently used by RBI for lending or by banks for borrowing). - So, reference books/websites differ in its operational status e.g. some of them would say: - Bank rate requires no collateral and is meant for long term loans. - Bank rate accepts collateral which can be both GSec/T-bill as well as private companies’ securities. 🚩👶✋So, in the real exam, it depends on which book/web source the examiner has copied the statement(s) and accordingly you’ve to take a judgement call in ticking the answer. (विभिन्न और किताबों और वेब साइटों पर बैंक दर की व्याख्या/अर्थ गठन अलग अलग है इसलिए असल परीक्षा में जो पूछा जाए तो स्थिती/विवेक के हिसाब से आपने जवाब tick करना है.) 12.17.7 🐯📢📐 Quanti. Tools → SDF (=Reverse Repo walla game Without Collaterals)  2013: Urjit Patel Committee on Monetary policy proposed standing deposit facility (SDF)  SDF = Clients park/deposit their extra money in RBI. RBI pays them interest. RBI doesn’t give any collateral (unlike in REVERSE REPO). (स्थायी जमा/डिपॉज़िट सुविधा = रिज़र्व बैंक के ग्राहक अपना अतिरिक्त पैसा रिज़र्व बैंक में जमा करेगा. रिज़र्व बैंक ग्राहकों को डिपॉज़िट के लिए ब्याज देगा. रिज़र्व बैंक ग्राहक के पास गिरवी कु छ नहीं रखेगा.)  🤩Benefit of SDF: To combat inflation → RBI can suck extra money supply via SDF window. RBI will not have to pledge G-Sec as collateral to clients. (महँगाई से लड़ने वास्ते बाज़ार में से पैसों की अतिरिक्त आपूर्ति को चूसने/हटाने/कम करने के लिए रिज़र्व बैंक एसडीएफ़ का इस्तेमाल कर सकता है- बिना कु छ गिरवी रखे।)  2018: RBI act amended to add SDF facility. (रिज़र्व बैंक क़ानून में सुधार किया गया).  2022-April: RBI launched SDF. RBI also changed in Policy corridor. 🚩👶🏻 FAQ: SDF is launched so does it mean Reverse Repo discontinued? > Reverse Repo rate not discontinued. Reverse Repo will remain as part of RBI’s toolkit. RBI will continue to use it at its discretion from time to time. Presently Reverse Repo is 3.35% 🚩👶🏻 FAQ: what is the deposit time duration of SDF and Reverse Repo? (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 88 > Sufficient to know these are for short-term. Now what exactly is short-term? Is it 1 day, 7 day, 14 day? = Not important for exam. Why overburden the memory card of the brain with unnecessary information? 🚩👶🏻 FAQ: IF SDF and Reverse Repo both present, then why would Bankers go for SDF where no collateral given? > The time period and interest rate offered on SDF and Reverse Repo are different. So, it depends on bankers’ business-requirement, cash-flow management. RBI is not pointing in gun their head to use it. (बैंकर को ज़रूरत होगी तो इस्तेमाल करेगा. रिज़र्व बैंक उसकी कनपटी पर पिस्तौल नहीं रखा है.) 12.17.8 ⛓ MSF Repo vs Reverse Repo vs SDF Tool MSF Repo Reverse Repo SDF Present rate 6.75% 6.50 3.35% Fixed 6.25 (2023-Feb) Reverse Repo Rate (FRRR) Lender RBI RBI Banks+some Banks+some NBFCs NBFCs Borrower ONLY Scheduled Banks+some RBI RBI Commercial Banks NBFCs (SCB) & RRB Borrower need to Yes Yes Yes Not required. give Collateral? ##Facility Client (SCB) RBI RBI Client available at (Banks+Some Discretion of NBFC)  ## Discretion = here means suppose a client (Bank/NBFC) comes for Reverse Repo= It's not compulsory for RBI to entertain him. (रिज़र्व बैंक की मर्ज़ी की बात है कि उसको सेवा देगा या नहीं देगा.)  But, If client (Banker) comes for MSF = RBI will not say "NO" to him. RBI will help him.  What is SCB/Scheduled commercial banks? Ans. Refer Pillar1B1: Classification of Banks 🚧 12.17.9 Policy Corridor / LAF Corridor / Monetary Policy Corridor  Policy Corridor also known as Liquidity Adjustment Facility (LAF) corridor. (नीति गलियारा / तरलता सुविधा गलियारा)  BEFORE 2022-April: Policy Corridor = total width between: MSF REPO Reverse Repo. (इन तीनों उपकरणों के बीच की कु ल चौड़ाई)  After 2022-April: Policy Corridor = MSF (Repo+0.25%) REPO SDF (Repo-0.25%)  Thus total width is 0.25+0.25= 0.50% (Batch: PCB12-Prelims-Raftaar) Mrunal’s Economy Pillar#1A-2: Money Supply & RBI’s Monetary Policy → Page 89 Upper end of Center Lower end of Corridor Total width Corridor/ Ceiling / Floor (फ़र्श) (छत/ऊपरी सीमा) Tool? MSF REPO Before: Reverse Repo. (RR) After: SDF Before MSF= R+25 bps R% RR = Repo-25 bp

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