📌 I. Monetary Policy Highlights (2024–2025)
📉 Repo Rate – RBI’s Key Lending Tool
- What is it?
The interest rate at which RBI lends money to commercial banks (like SBI, BOB, ICICI). - Why banks borrow?
- To meet short-term liquidity needs
- To fulfill daily cash flow gaps or regulatory requirements
- Collateral:
Banks give Government Securities and agree to repurchase them – this repurchase is what gives “repo” its name. - Trend:
- FY25 started at 6.50%
- Reduced to 6.25% in Feb 2025
- Further down to 5.50% by June 2025
- Impact:
✔️ Cheaper home, auto, and personal loans
✔️ Boost in consumption and business investment
🧠 Exam Tip:
Repo Rate ↓ ⇒ Loans Cheaper ⇒ Growth ↑
🧭 Monetary Policy Stance – RBI’s Direction Signal
- Meaning: Indicates the RBI’s bias — whether it focuses on growth or controls inflation.
| Monetary Policy Stance | Focus | Action | When Used | Effect |
| Accommodative (Dovish) 🔽 | Growth | Lowers interest rates | Economic slowdown + low inflation | Boosts loans & investments |
| Tightening (Hawkish) 🔼 | Inflation control | Increases interest rates | High inflation | Makes loans costly, reduces demand |
| Neutral ⚖️ | Flexibility | Neither clearly up nor down | Stable economy | Rates steady, but could move either way |
| Withdrawal of Accommodation 🔄 | Normalization | Moves away from easy money | After recovery from a crisis (e.g., COVID) | N/A |
| Calibrated Tightening 📉 | Gradual adjustment | Gradual rate hikes, not every meeting | N/A | More cautious than strict tightening |
🟢 October 2024 Update:
RBI moved from Withdrawal of Accommodation → Neutral
💰 Cash Reserve Ratio (CRR)
- Trend: Reduced from 4% to 3% during FY25
- Effect: Frees up money with banks → More liquidity
📥 Standing Deposit Facility (SDF) Rate
- What is it?
Rate at which RBI accepts uncollateralized deposits from banks - Trend: Down from 6.00% → 5.25%
🔎 Replaced the earlier Reverse Repo Rate in LAF
🚨 Marginal Standing Facility (MSF) & Bank Rate
- What is MSF?
Emergency overnight borrowing rate for banks (penalty applied) - Trend:
- Feb 2025: 6.50%
- June 2025: 5.75%
📊 II. Economic Outlook (2024–2025)
📈 GDP Growth
- India’s Status:
Fastest-growing major economy - FY25 Estimate: 6.5%
- Drivers:
✔️ Private consumption
✔️ Capital formation
✔️ Rural growth & services
🌾 Inflation
- Target: 4% ± 2%
- FY25 Trend: 4.6% headline CPI
- Risks:
- Climate variability
- Global conflicts
- Trade issues
🧠 Exam Tip:
CPI Target = 4% ±2 → Max acceptable: 6%, Min: 2%
🌐 External Sector
- CAD: 1.3% of GDP → Comfortable
- Forex Reserves: $668+ billion
- INR Management: RBI intervenes to reduce volatility, not fix rates
🏛️ III. Key Guidelines & Reforms
✅ Financial Sector Health
- Credit Growth > Deposit Growth
- NPAs ↓ = Improved loan quality
- Urban Co-op Banks (UCBs): Better performance, less stress
📲 Digital India Push
- UPI: Massive growth
- UPI Lite: ₹5,000 wallet limit (up from ₹2,000)
- UPI123Pay: ₹10,000 per transaction
- CBDC – Digital Rupee:
- More circulation
- Cross-border pilots under testing
- Cybersecurity:
- New bank.in domains for safe banking
- Stronger authentication for international digital transactions
- Tech Repositories:
- FinTech & EmTech Repositories launched to monitor AI, ML adoption
⚠️ Bank Frauds
- Number ↓, but Value ↑ (legacy frauds reported)
- RBI Focus: Better bank controls + secure currency design
🔍 KYC Guidelines (Updated Oct 2023)
- Beneficial Ownership: Lowered threshold to 10%
- PEPs: Enhanced checks
- ARCs: Now treated as Regulated Entities
- Approach: Risk-based periodic updates
📘 IV. RBI’s Core Functions
| Role | What RBI Does |
|---|---|
| 🧮 Monetary Authority | Sets interest rates (repo, CRR), controls inflation |
| 💵 Currency Issuer | Issues & manages Indian currency |
| 🏛️ Banker to Govt. | Manages govt accounts, debt, advises govt |
| 🏦 Banker to Banks | Lender of last resort, maintains clearing house |
| 🔍 Regulator & Supervisor | Oversees banks & NBFCs – NPAs, licensing, mergers, KYC |
| 🌐 Forex Manager | Manages foreign exchange reserves, supports INR stability |
| 🚀 Development Role | Promotes rural credit, financial inclusion |
📌 RBI’s Balance Sheet (March 2025)
- Growth: +8.2% YoY
- Income: ↑22.77% (from forex & investments)
- Expenses: ↑7.76%
- Surplus to Govt.: ₹2.68 lakh crore
- Gold Reserves: ↑ to 879.58 tonnes
🪙 Currency in Circulation
- Usage: Grew in rural areas
- Most Used Note: ₹500
- Counterfeit Alert: Rise in fake ₹500 and ₹200
📝 Quick Revision Tips for Exams
| Topic | Key Point |
|---|---|
| Repo Rate | Loans from RBI to banks – lower rate = cheaper loans |
| CRR | % of bank deposits kept with RBI – lower CRR = more money for banks |
| Inflation Target | 4% ± 2% → RBI uses repo to keep this in check |
| Policy Stance | Accommodative = Growth, Tightening = Inflation control |
| CBDC | Digital rupee initiative (cross-border in testing) |
| GDP Growth FY25 | 6.5% – Driven by consumption and capex |
| Forex Reserves | $668+ billion – Stable INR, good coverage |
| KYC Rules | 10% BO, enhanced checks for PEPs, ARCs added as REs |
🎯 Important Keywords
- IIBX: India International Bullion Exchange
- CIC: Credit Information Company
- Basel III: Global bank regulation framework
- LAF: Liquidity Adjustment Facility