Special Topic – UPSC Indian Economy Synopsis
UPSC Economy Revision | Page 27
RBI, Banking, Monetary Policy and SEBI
The banking and financial system plays a major role in economic stability, investment and growth. Understanding RBI, monetary policy and SEBI is important for UPSC and competitive examinations.
Reserve Bank of India (RBI)
The Reserve Bank of India is the central bank of India. It was established in 1935.
Main Objectives of RBI
- Maintain price stability
- Control inflation
- Regulate banks
- Promote economic growth
Functions of RBI
Currency Issuing Authority
RBI issues and manages currency in India.
Banker to Government
RBI manages banking transactions of the government.
Banker’s Bank
Commercial banks keep reserves with RBI.
Controller of Credit
RBI controls money supply through monetary policy tools.
Monetary Policy
Monetary policy refers to actions taken by RBI to regulate money supply and credit.
Objectives of Monetary Policy
- Control inflation
- Promote growth
- Maintain financial stability
Repo Rate
Repo rate is the rate at which RBI lends money to commercial banks.
Increasing repo rate reduces money supply.
Reverse Repo Rate
Reverse repo rate is the rate at which RBI borrows money from commercial banks.
Cash Reserve Ratio (CRR)
CRR is the percentage of deposits that banks must keep with RBI.
Higher CRR reduces lending capacity of banks.
Statutory Liquidity Ratio (SLR)
SLR is the percentage of deposits that banks must maintain in liquid assets.
Open Market Operations (OMO)
RBI buys or sells government securities to control liquidity in the economy.
Commercial Banks
Commercial banks provide banking services to the public.
Functions
- Accept deposits
- Provide loans
- Promote savings
- Facilitate payments
Types of Banks
- Public Sector Banks
- Private Sector Banks
- Regional Rural Banks
- Cooperative Banks
- Small Finance Banks
Non-Performing Assets (NPAs)
Loans that are not repaid for a long period become NPAs.
Effects of NPAs
- Weakens banks
- Reduces profitability
- Affects economic growth
Financial Inclusion
Financial inclusion ensures banking access to all sections of society.
Important Schemes
- Pradhan Mantri Jan Dhan Yojana
- Direct Benefit Transfer (DBT)
- Digital Banking
SEBI (Securities and Exchange Board of India)
SEBI regulates the securities market in India.
Functions of SEBI
- Protect investors
- Regulate stock exchanges
- Prevent unfair trade practices
- Promote market development
Stock Market
The stock market allows buying and selling of securities.
Major Stock Exchanges
- BSE → Bombay Stock Exchange
- NSE → National Stock Exchange
Digital Payments
Digital payment systems are rapidly growing in India.
Examples
- UPI
- Mobile Banking
- Internet Banking
- Digital Wallets
UPI transformed digital transactions in India.
Important UPSC Facts
- RBI was established in 1935
- Repo rate controls money supply
- SEBI regulates securities market
- NPAs weaken banking system
- UPI revolutionized digital payments
Quick Revision Box
- RBI → Central bank
- Repo Rate → RBI lending rate
- CRR → Bank reserves with RBI
- SEBI → Securities market regulator
- NPA → Bad loan
- UPI → Digital payment system
Mind Map – Banking & Financial System
-
Indian Financial System
- RBI
- Monetary Policy
- Commercial Banks
- SEBI
- Stock Market
- Digital Payments
Shaktimatha Learning
UPSC Indian Economy Synopsis – English Version
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