Chapter Overview

Money (मुद्रा), banking (बैंकिंग) and inflation (मुद्रास्फीति) form one connected story. The Reserve Bank of India (भारतीय रिज़र्व बैंक) issues currency and regulates banks. Through monetary policy (मौद्रिक नीति) it changes the cost and quantity of money so that inflation stays near a target set by the Government. Banks pass these signals to borrowers and savers in Raipur, Bastar and Surguja alike. Prelims asks exact details here (repo vs reverse repo, M1 vs M3, who publishes CPI). Mains GS-III asks you to evaluate inflation targeting, NPAs and financial inclusion.

Figures in this chapter change every few months

Policy rates, the RBI Governor, inflation prints and bank counts are dated in the text (“as of August 2026”, “as of 2026”). The RBI’s Monetary Policy Committee meets six times a year, so check the latest decision on the RBI website before the exam.

What You’ll Learn

By the end of this chapter, you will be able to:

State the functions of money and distinguish M0, M1, M2, M3 and M4, and explain the money multiplier
Trace the history of the RBI (1926 → 1935 → 1949) and list its functions
Explain the flexible inflation targeting framework and the Monetary Policy Committee (MPC): composition, quorum, voting and accountability
Use every monetary tool correctly: repo, SDF, MSF, Bank Rate, CRR, SLR, OMO, and the qualitative tools
Draw India’s banking structure, from public sector banks to payments banks, cooperative banks and RRBs, including Chhattisgarh Gramin Bank
Explain the milestones of banking reform: nationalisation (1969, 1980), Narasimham Committees, NPAs, IBC and mergers
Classify inflation by cause and speed, compare CPI (base 2024) with WPI (base 2022-23), and evaluate the tools used to control it

Prerequisites

Basic Concepts of the Economy: GDP, nominal vs real values, and the sectors of the economy
Public Finance: fiscal policy is the other half of macro policy, and the fiscal deficit affects inflation and interest rates

Learning Path

Follow the topics in this order:

graph TD
    A["1. Money and the RBI
Functions of money, M0–M4,
RBI history and functions"] --> B["2. Monetary Policy
Inflation targeting, MPC,
repo, CRR, SLR, OMO"]
    B --> C["3. Banking Structure
Commercial, cooperative, RRBs,
reforms, NPAs, inclusion"]
    C --> D["4. Inflation
Types, CPI vs WPI,
causes, effects, control"]
    D --> E["5. Quick Revision
One-page sheet"]
    E --> F["Next chapter:
Public Finance"]

Topics in This Chapter

#	Topic	What it covers
1	Money and the Reserve Bank of India	Functions and kinds of money, money supply measures (M0–M4), money multiplier, RBI history, governors, functions, currency management, digital rupee
2	Monetary Policy and the MPC	Objectives, flexible inflation targeting, MPC (Section 45ZB), quantitative and qualitative tools, LAF corridor, current rates (2026), transmission
3	Banking Structure in India	Scheduled and non-scheduled banks, PSBs, private, foreign, SFBs, payments banks, RRBs, cooperatives, NABARD, nationalisation, Narasimham reforms, NPAs, financial inclusion, Chhattisgarh angle
4	Inflation: Types, Measurement and Control	Demand-pull and cost-push, stagflation, deflation, CPI (base 2024) and WPI (base 2022-23), core inflation, effects, control measures, 2026 figures
—	Quick Revision	Rates, dates, committees and indices on one page

Where It Is Asked

Paper	What to expect
Prelims P-I (Part 1, India GS)	Fact-based MCQs: which tool injects or absorbs liquidity, components of M1 and M3, MPC composition, who publishes CPI and WPI, nationalisation years, types of banks and what they may not do (payments banks cannot lend). Statement-based and match-the-following formats are common
Mains P-V (GS-III), Indian Economy	Short answers (e.g. “repo vs reverse repo”, “core inflation”, “payments banks”) and long answers (evaluate inflation targeting, causes of NPAs, financial inclusion in tribal areas, food inflation and its effect on the poor)

Exam focus

High-yield: CRR vs SLR (which Act, which form); MPC (6 members, quorum 4, Governor’s casting vote); the 4% ± 2% target; nationalisation in 1969 (14 banks) and 1980 (6 banks); CPI publisher (NSO, MoSPI) vs WPI publisher (Office of the Economic Adviser, DPIIT).
Common mistakes: thinking the RBI fixes the inflation target (the Government does, in consultation with the RBI); calling M3 “narrow money”; thinking payments banks can give loans.
Chhattisgarh angle for Mains: Chhattisgarh Gramin Bank (HQ Atal Nagar–Nava Raipur, sponsored by SBI); cooperative credit for paddy farmers through primary societies; banking access in Bastar’s remote areas; food inflation and the PDS.

Quick Reference: Key Numbers (as of 2026)

Item	Value	As of
RBI Governor	Sanjay Malhotra (26th Governor, since 11 December 2024)	2026
Policy repo rate	5.25% (cut from 5.50% on 5 December 2025; held at the reviews of February, April, June and August 2026)	August 2026 review
SDF / MSF / Bank Rate	5.00% / 5.50% / 5.50%	August 2026
CRR / SLR	3.00% / 18.00% of NDTL	2026
Inflation target	4% CPI, band 2–6%, notified for 1 April 2026 – 31 March 2031	Notification of 25 March 2026
CPI inflation (base 2024)	4.82% in August 2026 (July 2026: 4.45%)	Released 14 September 2026
WPI inflation (base 2022-23)	9.92% in August 2026, led by fuel and power	Released September 2026
Public sector banks	12 (since the mergers of 1 April 2020)	2026
Regional Rural Banks	28 (after “One State, One RRB”, effective 1 May 2025)	2025–26
Deposit insurance (DICGC)	₹5 lakh per depositor per bank (since 4 February 2020)	2026

Start Learning

Begin with the first topic:

→ Money and the Reserve Bank of India