Economy · X-Factor Notes
Money and Banking revision notes for UPPCS Prelims.
High-Yield Revision| Concept | What to remember | Asked in UPPCS |
|---|---|---|
| Components of Money in India | Currency with the public, Demand deposits with banks, Time deposits with banks, and Other deposits with RBI. | |
| Effect of Cash Withdrawal on Money Supply | Withdrawing ₹ 1,00,000 in cash from a Demand Deposit Account has no immediate effect on aggregate money supply, as it shifts money from demand deposits (M1 component) to currency (M0 component). | |
| Decimal Coinage System | Introduced in India in 1957. | UPPCS (Mains) 2010, UPPCS (Mains) 2005, UPPCS (Pre) 1995 |
| Legal Tender Money | Money which a creditor is under compulsion to accept in settlement of his claims. | UPPCS (Mains) 2010, UPPCS (Pre) 1995 |
| Authority to Issue Coins | The Ministry of Finance, Government of India, is authorized to issue coins. | U.P. U.D.A./L.D.A. (Spl.) (Pre) 2010 |
| One Rupee Note Signature | Issued under the signature of the Finance Secretary, Ministry of Finance, Govt. of India. | U.P. Lower Sub. (Spl.) (Pre) 2004 |
| RBI Currency Note Issue System | Based on the Minimum Reserve System. Requires RBI to maintain aggregate assets (gold, bullion, foreign securities) of not less than ₹ 200 crore, of which gold coin and bullion must be at least ₹ 115 crore. | U.P.P.S.C. (GIC) 2010, UPPCS (Mains) 2004, 2007 |
| Inflation Measurement | Historically, inflation was often measured by the Wholesale Price Index Number (WPI). Currently, the Combined Consumer Price Index (CPI) is primarily used by the RBI for monetary policy purposes. | UPPCS (Pre) 2021 |
| Price Index for Central Govt. Wages | The Consumer Price Index for Industrial Workers [CPI (IW)] is used to compensate the wages of Central Government employees. | UPPCS (Pre) 2001, U.P. Lower Sub. (Pre) 1997 |
| Brent Index | Related to Crude oil prices. | U.P. R.O./A.R.O. (Pre) 2021 |
| Concept | What to remember | Asked in UPPCS |
|---|---|---|
| RBI Status | India’s Central Bank (Banker's Bank). It is a statutory body. | U.P. U.D.A./L.D.A. (Pre) 2001, U.P.P.S.C. (GIC) 2010, UPPCS RO-ARO 2023 Prelims Re-Exam |
| RBI Functions | Regulates the money supply, controls credit creation, monitors the work of NABARD, acts as the regulator of banks, controls liquidity, and maintains foreign exchange reserves. RBI also acts as the 'lender of last resort,' usually referring to providing liquidity to banks having a temporary crisis. | U.P. U.D.A./L.D.A. (Pre) 2001, U.P. U.D.A./L.D.A. (Spl.) (Mains) 2010, UPPCS (Pre) 2012 |
| Monetary Policy |
| Concept | What to remember | Asked in UPPCS |
|---|---|---|
| Financial Inclusion | Providing banking services to people of the lower income group with 'zero' or 'minimum balance' or providing financial services to the low income group. Steps taken to achieve this include Bank Nationalization, establishment of RRBs, and adoption of villages by Bank Branches. | UPPCS (Spl.) (Mains) 2008 |
| Kisan Credit Card (KCC) | Introduced in 1998-1999. It covers short-term credit for cultivation, post-harvest expenses, consumption requirements, and investment credit requirements. | U.P. R.O./A.R.O. (Mains) 2014, U.P. P.C.S. (Mains) 2014 |
| SHG-Bank Linkage Programme (1992) |
| Complementary to fiscal policy. Monetary policy tools include variable reserve rates (CRR/SLR) and Open Market Operations (OMOs). |
| U.P. R.O. / A.R.O. (Mains) 2016 |
| Monetary Policy Committee (MPC) | Decides the RBI's benchmark interest rates. It comprises six members, and the Governor of RBI is the chairperson ex-officio. |
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| Repo Rate (5.50%) | The key monetary policy rate at which the RBI lends short-term funds to commercial banks, primarily to control credit availability and inflation. | UPPCS (Mains) 2017, U.P. Lower Sub. (Pre) 2013 |
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| Reverse Repo Rate (3.35%) | The interest rate at which the RBI borrows money from commercial banks for a short term. | UPPCS (Spl.) (Mains) 2008 |
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| Bank Rate (5.75%) | The rate of interest charged by the Reserve Bank of India on loans given to commercial banks. | U.P.P.C.S (Pre) 2009 |
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| Prime Lending Rate (PLR) | This rate is not determined by the Reserve Bank of India. It is the interest rate that commercial banks charge to their most creditworthy corporate customers. | UPPCS (Spl.) (Mains) 2008 |
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| Cash Reserve Ratio (CRR) (3.75%) | Percentage of deposits commercial banks must maintain as reserves with the RBI. A higher CRR reduces credit creation (reduces money supply). Lowering the CRR increases bank liquidity, increases investment, and broadens currency supply. | UPPCS (Pre) 2010, UPPCS (Mains) 2004 |
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| Statutory Liquidity Ratio (SLR) (18%) | It refers to the minimum percentage of deposits that commercial banks are required to maintain in the form of liquid cash, gold, or approved government securities, kept in their own vaults and not with the Reserve Bank of India (RBI). |
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| CRR Vs SLR |
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| Open Market Operations (OMOs) | A Quantitative technique of credit control. The RBI increases theCLR)** |
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| Marginal Cost of Funds Based Lending Rate’ (MCLR) | An internal reference rate for banks fixed by the RBI to define the minimum interest rate on loans, aiming to improve transparency Banks cannot lend below MCLR |
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| RBI Accounting Year | Aligned with the fiscal year of the Government (i.e., April - March). |
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| Gold Tranche (Reserve Tranche) | The "Gold Tranche" or more commonly, the "Reserve Tranche" refers to a part of the International Monetary Fund (IMF) quota resources available to member countries for use without conditionality | UPPCS (Pre) 2016 |
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| Chronology of Key Banking Events | Establishment of Regional Rural Bank (1975) Establishment of NABARD (1982) Self Help Group Bank Linkage Programme(1992-93) Kisan Credit Card Plan (1998-1999). | UPPCS (Pre) 2020 |
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| SIDBI (1990) | Small Industries Development Bank of India, set up in 1990, acts as the principal financial institution for promotion, financing and development of the MSME sector. Headquartered at Lucknow. | U.P. R.O. / A.R.O. (Mains) 2016, UPPCS (Mains) 2004 |
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| Long-term Industrial Financing | Institutions involved include ICICI (1955), IDBI (1964), and IFCI (1948). | U.P. Lower Sub. (Pre) 1998 |
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| Amalgamation of Public Sector Banks | Aimed at achieving economies of scale, improved access to capital, covering larger geographical areas, and creating banks of global size. | U.P.B.E.O. (Pre) 2019 |
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| Narasimham Committee I (1991) | Related to Financial Sector Reforms and suggested the reduction in SLR and CRR. |
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| Narasimham Committee II (1998) | Recommended bank mergers. Reduce govt. Ownership in banks Reduce CAR Establish SARFAESI |
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| Raghuram Rajan Committee (2007) | Constituted to suggest the next generation of financial sector reforms in India. The Committee’s report titled "A Hundred Small Steps". | UPPCS (Mains) 2007 |
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| Malegam Committee (2010) | Set up by RBI in 2010 to study the microfinance sector and suggested creating a separate category for NBFCs operating in microfinance. | UPPCS (Mains) 2010, U.P.R.O./A.R.O. (Pre) 2014 |
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| DICGC Insurance Limit | Deposit Insurance and Credit Guarantee Corporation insures all bank deposits up to ₹ 5,00,000 (from Feb 2020). | U.P. R.O./A.R.O(Re-Exam) (Pre) 2016 |
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| PIN in Banking | PIN stands for Personal Identification Number. | UPPCS RO-ARO 2023 Prelims Exam (1) |
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| Financial Health Index of UP | Uttar Pradesh ranks 7th in the Fiscal Health Index (FHI) 2025 released by NITI Aayog, with a score of 45.9. It is categorized as one of the "front-runners". | UPPCS RO-ARO 2023 Prelims Re-Exam |
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| Started by NABARD in 1992. |
| UPPCS (Pre) ( Re-Exam) 2015 |
| Lead Banking Scheme (LBS) (1969) | The scheme (by RBI)is aimed at ensuring adequate banking and credit services in rural and underbanked areas through a “service area approach,” assigning a specific bank the lead responsibility for each district. | UPPSC Pre-2022 |
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| Pradhan Mantri MUDRA Yojana (PMMY) (2015) | Aimed at bringing small entrepreneurs into the formal financial system by providing loans up to ₹ 10 lakh to non-corporate, non-farm micro enterprises. Shishu: Loans up to ₹50,000 for businesses in the initial stage. Kishore: Loans above ₹50,000 and up to ₹5 lakh for businesses looking to expand. Tarun: Loans above ₹5 lakh and up to ₹10 lakh for well-established businesses. |
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| Small Finance Banks (SFBs) | Purpose is to supply credit to small business units and small and marginal farmers. PSL Norms : 75% 25% branches in unbanked areas Approved 2015 First SFB- 2016 (Capital SFB) |
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| Commercial Paper (CP) | A short-term unsecured promissory note. |
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| Call Money | A short-term finance instrument used for inter-bank transactions, typically for 1 day. |
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| Money Market Participants | RBI is not a participant in India’s money market. | UPPCS (Pre) 1999 |
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| SEBI (Securities and Exchange Board of India) (1992) | Controls the working of the share market (securities market) in India. Constituted as a statutory body on April 12, 1992, under the SEBI Act, 1992. | U.P. R.O./A.R.O. (Pre) 2016, UPPCS (Mains) 2012, 2004, 2013 |
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| Private Sector Mutual Funds | Permitted in India in 1993. | U.P.P.C.S (Pre) 2011 |
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| Sensex | The popular Index of the Bombay Stock Exchange (BSE), measured on the basis of 30 blue chip companies. | UPPCS (Pre) 2021, UPPCS (Mains) 2005 |
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| Credit Rating Agencies in India | CRISIL, CARE, and ICRA. | UPPCS (Mains) 2008 |
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| Non-Prepaid Payment Instrument | Credit Card of a Nationalized Bank. | U.P. P.C.S. (Mains) 2014 |
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| Capital Account Convertibility (CAC) | Implies that the Indian Rupee can be exchanged for any major currency for the purpose of trading financial assets. The first Tarapore Committee (1997) provided a roadmap for full convertibility. |
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| Participatory Notes (PNs) | Associated with Foreign Institutional Investors (FIIs). Introduced by SEBI in the year 2000 as a means to allow foreign corporates and high net worth investors to enter the Indian stock market without registering themselves with SEBI directl |
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