- The Reserve Bank of India was set up on April 1, 1935 under the RBI Act, 1934 and nationalised on January 1, 1949. Its headquarters moved from Calcutta to Mumbai in 1937.
- Monetary policy is set by a six-member Monetary Policy Committee (MPC) with a mandate of 4% CPI inflation within a 2–6% band.
- The current Governor is Sanjay Malhotra, the 26th Governor (since December 11, 2024).
Monetary Policy Committee
- Created by amending the RBI Act in 2016 (Section 45ZB).
- Six members: the Governor (chair), a Deputy Governor, an RBI officer, and three external members appointed by the Government.
- The Governor has a casting vote in a tie; the MPC must meet at least four times a year (in practice, every two months).
- The inflation target is set by the Government in consultation with the RBI: 4% CPI, with a tolerance band of ±2%.
Policy Instruments (as of December 2025)
| Instrument | Meaning | Rate |
|---|---|---|
| Repo rate | Rate at which RBI lends to banks against government securities | 5.25% |
| Standing Deposit Facility (SDF) | Floor of the corridor — banks park surplus funds without collateral (since April 2022) | 5.00% |
| Marginal Standing Facility (MSF) | Emergency overnight borrowing for banks — ceiling of the corridor | 5.50% |
| Bank rate | Long-term lending rate; aligned with MSF | 5.50% |
| CRR | Share of deposits kept as cash with RBI, earning no interest | 3% |
| SLR | Share of deposits held in liquid assets — cash, gold, approved securities | 18% |
The repo rate was cut by 25 bps to 5.25% on December 5, 2025; CRR was cut from 4% to 3% in four tranches between September and November 2025. Check the latest MPC statement before your exam.
RBI establishedApril 1, 1935
NationalisedJan 1, 1949
MPC members6
Inflation target4% ± 2%
Repo (Dec 2025)5.25%
Deposit insurance₹5 lakh
Measures of Money Supply
- M0 (Reserve money): currency in circulation + bankers' deposits with RBI + other deposits with RBI.
- M1 (Narrow money): currency with the public + demand deposits with banks + other deposits with RBI.
- M2: M1 + savings deposits with post office savings banks.
- M3 (Broad money): M1 + time deposits with banks — the most commonly used measure.
- M4: M3 + all deposits with post office savings organisations (excluding NSCs).
Banking Structure
- Bank nationalisation: 14 banks on July 19, 1969 and 6 more in 1980. After the 2020 mergers there are 12 public sector banks.
- Regional Rural Banks were set up in 1975 (RRB Act, 1976) and are jointly owned by the Centre, the state and a sponsor bank.
- Payments banks (Nachiket Mor Committee) can take deposits up to ₹2 lakh per customer but cannot lend; Small Finance Banks can lend, mainly to small borrowers.
- NABARD (1982) refinances rural credit; SIDBI (1990) serves MSMEs.
Bad Loans & Safety Nets
- A loan becomes a Non-Performing Asset when interest or principal is overdue for more than 90 days.
- SARFAESI Act, 2002 lets banks seize secured assets; the Insolvency and Bankruptcy Code, 2016 provides time-bound resolution.
- DICGC insures deposits up to ₹5 lakh per depositor per bank (raised from ₹1 lakh in February 2020).
- Under Basel III, RBI requires a minimum capital ratio of 9% plus a 2.5% capital conservation buffer — 11.5% in total.
Q1. The Standing Deposit Facility (SDF), introduced in April 2022, serves as:
✅ Answer: (b) The floor of the policy corridor
💡 Explanation: The SDF replaced the fixed reverse repo as the floor; it lets banks park funds without collateral.
Q2. How many members does the Monetary Policy Committee have?
✅ Answer: (c) 6
💡 Explanation: Three RBI members (including the Governor) and three external members.
Q3. Which measure of money supply is known as broad money?
✅ Answer: (d) M3
💡 Explanation: M3 = M1 + time deposits with banks.
Q4. A loan is classified as an NPA when payments are overdue for more than:
✅ Answer: (a) 90 days
💡 Explanation: The 90-day norm has applied since 2004.
Q5. In which year was the Reserve Bank of India nationalised?
✅ Answer: (b) 1949
💡 Explanation: The RBI was nationalised on January 1, 1949.
🔁 Revise in 60 Seconds
- RBI: 1935 (RBI Act 1934), nationalised 1949; Governor Sanjay Malhotra (26th).
- MPC: 6 members, 4% CPI ± 2%.
- Corridor: SDF (floor) < Repo < MSF (ceiling), each 25 bps apart.
- CRR → cash with RBI; SLR → liquid assets with the bank itself.
📌 Prelims Traps to Avoid
- ✘ CRR is kept with the RBI; SLR is kept by the bank itself.
- ✘ Since 2022 the SDF, not the fixed reverse repo (3.35%), is the floor of the corridor.
- ✘ DICGC cover is per depositor per bank, not per account.
What is the repo rate?
The repo rate is the rate at which the RBI lends short-term funds to banks against government securities. It was cut to 5.25% on December 5, 2025.
What is the difference between CRR and SLR?
CRR is the share of deposits a bank must keep as cash with the RBI, earning no interest. SLR is the share it must hold itself in liquid assets such as cash, gold and approved government securities.