Complete  Notes on Money and Banking  for BPSC and Other Competitive Exams in 2025

Complete  Notes on Money and Banking  for BPSC and Other Competitive Exams in 2025

Economics- 4

Here are detailed notes on “Money and Banking” under the requested heads—RBI, Monetary Policy, Types of Banks, and Financial Inclusion initiatives (Jan Dhan Yojana, UPI, DBT)

Money and Banking

Money and banking form the backbone of any economy. They facilitate saving, investment, credit creation, and efficient allocation of resources.

Reserve Bank of India (RBI)

Introduction

• Established: 1 April 1935 (under RBI Act, 1934)
• Nationalised: 1 January 1949
• Head Office: Mumbai
• Current Governor: Shaktikanta Das (as of 2025)

Functions of RBI

1. Monetary Authority

• Controls money supply and interest rates.
• Manages Monetary Policy to control inflation and growth.

2. Issuer of Currency

• Sole authority to issue currency notes (except ₹1 note, issued by Govt. of India).
• Maintains currency stability.

3. Banker to the Government

• Manages public debt, payments, and receipts.
• Issues and manages government securities.

4. Banker’s Bank

• Regulates and supervises commercial banks.
• Maintains CRR and SLR from banks.

5. Foreign Exchange Management

• Maintains external value of rupee.
• Manages Foreign Exchange Reserves under FEMA Act, 1999.

6. Developmental Role

• Promotes financial inclusion, rural credit, MSMEs, digital banking.

Monetary Policy

Objective: Control inflation, ensure price stability, promote economic growth.

Instruments of Monetary Policy:

Monetary Policy Committee (MPC):

• Introduced in 2016.
• 6 members: 3 from RBI (including Governor) + 3 nominated by Government.
• Meets bi-monthly.
• Decides repo rate changes.

Types of Banks in India

1. Commercial Banks

• Profit-oriented institutions accepting deposits and giving loans.
• Regulated by RBI under Banking Regulation Act, 1949.
• Types:
  • Public Sector Banks (e.g., SBI, PNB)
  • Private Sector Banks (e.g., HDFC, ICICI)
  • Foreign Banks (e.g., Citibank, HSBC)

2. Cooperative Banks

• Based on cooperative principles.
• Serve rural areas, farmers, artisans.
• Three-tier structure:
  • State Co-op Banks
  • District Central Co-op Banks
  • Primary Agriculture Credit Societies (PACS)

3. Regional Rural Banks (RRBs)

• Established in 1975 for rural credit delivery.
• Jointly owned by Central Govt (50%) + State Govt (15%) + Sponsor Bank (35%).
• Function: Provide loans to small farmers, artisans, and rural poor.

Financial Inclusion Initiatives

Financial inclusion means ensuring access to financial services like savings, credit, insurance, and pension for the unbanked and underbanked population.

1. Pradhan Mantri Jan Dhan Yojana (PMJDY)

• Launched: 28 August 2014.
• Objective: Provide universal banking access.
• Features:
  • Zero balance accounts.
  • RuPay debit card.
  • ₹2 lakh accident insurance cover.
  • Overdraft up to ₹10,000.
  • Accounts linked to Aadhaar and DBT.

2. Unified Payments Interface (UPI)

• Launched by: NPCI in 2016.
• Real-time interbank digital money transfer via mobile.
• Features:
  • 24/7 availability.
  • Uses VPA (Virtual Payment Address).
  • Used via apps like BHIM, Google Pay, PhonePe.

3. Direct Benefit Transfer (DBT)

• Launched: 2013 (expanded under Digital India).
• Subsidies and welfare benefits directly credited to beneficiaries’ bank accounts.
• Reduces leakages and corruption.
• Examples: LPG subsidy (PAHAL), MNREGA wages, PM-KISAN, scholarship payments.

Objective Questions

1. Who is the issuer of ₹200 and ₹500 currency notes in India?
A) Ministry of Finance
B) State Bank of India
C) Reserve Bank of India
D) NITI Aayog
Answer: C

2. Which of the following is a quantitative tool of RBI’s monetary policy?
A) Moral suasion
B) Repo Rate
C) Direct action
D) Credit rationing
Answer: B

3. What does the U in UPI stand for?
A) Unified
B) Universal
C) Unilateral
D) Unique
Answer: A

4. Which bank type is jointly owned by Central Govt, State Govt, and Sponsor Bank?
A) Private Banks
B) RRBs
C) NBFCs
D) Co-operative Banks
Answer: B

5. Jan Dhan Yojana offers an overdraft facility of up to:
A) ₹2,000
B) ₹5,000
C) ₹10,000
D) ₹20,000
Answer: C

6. The Monetary Policy Committee of India consists of how many members?
A) 3
B) 5
C) 6
D) 7
Answer: C

7. The Cash Reserve Ratio is:
A) Amount banks can lend freely
B) Govt borrowing limit
C) % of deposits kept with RBI
D) Rate of interest on savings
 Answer: C