English · हिन्दी · తెలుగు · தமிழ் · മലയാളം · मराठी · ಕನ್ನಡ

Quick recap: Money and banking on one page

മലയാളത്തിൽ വിശദീകരണം

Money and banking · Quick recap · Fact-checked on 20 October 2026 · how we check

Written with AI from the sources listed at the bottom of this page, then fact-checked by a separate AI.

Both parts of Money and banking condensed for quick revision: money and note issue, M0 to M4, credit creation and the multiplier, CRR and SLR, kinds of banks and nationalisation, deposit insurance, NPAs and recovery laws, and priority sector lending, with a one-table overview and eight mixed questions.

Each idea is explained first in Malayalam (മലയാളം), ending with the English and Hindi exam terms, followed by the same point in exam English. UPSC Prelims is in English or Hindi, so understand it in Malayalam and revise it in English.

എല്ലാവരും പണമടവായി സ്വീകരിക്കുന്നതാണ് പണം; ബാർട്ടറിൽ രണ്ടുപേരുടെ ആവശ്യവും ഒരേസമയം ഒത്തുവരണമെന്ന പ്രശ്നം തീർക്കുന്നു; വിനിമയ മാധ്യമം, അളവുകോൽ, മൂല്യസംഭരണം, മാറ്റിവെച്ച പണമടവിന്റെ മാനദണ്ഡം. നോട്ടുകൾ നിയമാനുസൃത നാണയം: RBI നിയമം വകുപ്പ് 22 പ്രകാരം നോട്ട് RBI മാത്രം; നാണയങ്ങളും ₹1 നോട്ടും സർക്കാരിന്റേത് (2011-ലെ നാണയ നിയമം). ബാങ്ക് നിക്ഷേപവും പണമാണ്, പക്ഷേ നിയമാനുസൃത നാണയം അല്ല — കടക്കാരന് ചെക്ക് നിരസിക്കാം. (→ English: legal tender · हिन्दी: वैध मुद्रा)

In exam EnglishMoney is whatever is generally accepted in payment; it ends barter's need for a double coincidence of wants and serves as a medium of exchange, unit of account, store of value and standard of deferred payment. Notes are fiat money and legal tender: under section 22 of the RBI Act, 1934 only the RBI issues bank notes, while coins and the ₹1 note are issued by the Government under the Coinage Act, 2011. Bank deposits are money too, but not legal tender.

കരുതൽ പണം (M0) = പ്രചാരത്തിലുള്ള കറൻസി + RBI-യിലെ ബാങ്കുകളുടെയും മറ്റുള്ളവരുടെയും നിക്ഷേപം; RBI നേരിട്ട് നിയന്ത്രിക്കുന്ന അടിത്തറ. 1977-ലെ അളവുകൾ പടിപടിയായി: M1 (ജനങ്ങളുടെ കറൻസി, ഡിമാൻഡ് നിക്ഷേപം, RBI-യിലെ മറ്റ് നിക്ഷേപം) സങ്കുചിത പണം; M2-ൽ പോസ്റ്റ് ഓഫീസ് സേവിംഗ്സ്; M3 = M1 + ബാങ്ക് സ്ഥിരനിക്ഷേപം — വിശാല പണം, മുഖ്യ അളവ്; M4-ൽ പോസ്റ്റ് ഓഫീസ് നിക്ഷേപം മുഴുവൻ. M1-ൽ നിന്ന് M4-ലേക്ക് ദ്രവ്യത്വം കുറയുന്നു. 1998-ൽ Y.V. റെഡ്ഡി സംഘം NM1–NM3, L1–L3 ചേർത്തു. (→ English: reserve money, narrow money, broad money · हिन्दी: आरक्षित मुद्रा, संकीर्ण मुद्रा, व्यापक मुद्रा)

In exam Englishreserve money (M0) is currency in circulation plus bankers' deposits and other deposits with the RBI; it is the monetary base the RBI controls most directly. The 1977 measures add the public's money in steps: M1 (currency with the public, demand deposits, other deposits with the RBI) is narrow money; M2 adds post office savings deposits; M3, M1 plus banks' time deposits, is broad money and the headline measure; M4 adds all post office deposits. Liquidity falls from M1 to M4. The 1998 Working Group under Y.V. Reddy added NM1–NM3 and liquidity aggregates L1–L3.

ബാങ്കുകൾ വായ്പാ സൃഷ്ടിയിലൂടെ പണം ഉണ്ടാക്കുന്നു: ഓരോ നിക്ഷേപത്തിലും ഒരു ഭാഗം കരുതൽ, ബാക്കി വായ്പ — അത് വീണ്ടും പുതിയ നിക്ഷേപമായി തിരിച്ചുവരുന്നു. പൂർണ പരിധി = നിക്ഷേപം ÷ കരുതൽ അനുപാതം. പണ ഗുണകം = M3 ÷ M0; കരുതൽ അനുപാതം കൂടിയാലും ജനങ്ങൾ കൂടുതൽ പണം കൈയിൽ വെച്ചാലും കുറയുന്നു. കരുതൽ ധന അനുപാതം (വകുപ്പ് 42) RBI-യിൽ പലിശയില്ലാത്ത പണം, 2006 മുതൽ പരിധികളില്ല, 2025 നവംബറോടെ 3 ശതമാനം. നിയമാനുസൃത ദ്രവ്യത്വ അനുപാതം (വകുപ്പ് 24) ബാങ്കിന്റെ കൈവശം തന്നെ പണം, സ്വർണം, സെക്യൂരിറ്റികൾ; പരമാവധി 40, 2007 മുതൽ കുറഞ്ഞ പരിധിയില്ല, 2020 ഏപ്രിൽ മുതൽ 18 ശതമാനം. (→ English: cash reserve ratio, statutory liquidity ratio · हिन्दी: आरक्षित नकदी निधि अनुपात, सांविधिक चलनिधि अनुपात)

In exam EnglishBanks create money through credit creation: they keep a fraction of each deposit as reserves and lend the rest, which returns as new deposits. The theoretical limit is the deposit divided by the reserve ratio. The money multiplier, M3 divided by M0, falls when the reserve ratio rises or when the public holds more cash. The cash reserve ratio (RBI Act s.42) is a cash balance with the RBI that earns no interest and has had no floor or ceiling since 2006; it was cut to 3 per cent of NDTL by November 2025. The statutory liquidity ratio (Banking Regulation Act s.24) is held by the bank itself in cash, gold and approved securities, has a 40 per cent ceiling and no floor since 2007, and has been 18 per cent since April 2020.

Money and banking at a glance
Item	Key fact	Legal or official basis
Bank notes	Issued only by the RBI; coins and ₹1 note by the Government	RBI Act s.22; Coinage Act, 2011
M0 / M1 / M3	Reserve money / narrow money / broad money	RBI working groups, 1977 and 1998
CRR	Cash with the RBI, no interest; 3% of NDTL	RBI Act s.42
SLR	Cash, gold, approved securities with the bank; 18%, ceiling 40%	Banking Regulation Act s.24
NPA	Overdue more than 90 days	RBI prudential norms
Deposit insurance	₹5 lakh per depositor per bank	DICGC Act, 1961
Priority sector	40% of ANBC or CEOBE for domestic banks	RBI Master Directions, 2025

ബാങ്കുകളെ RBI ബാങ്കിംഗ് റെഗുലേഷൻ നിയമം 1949 പ്രകാരം നിയന്ത്രിക്കുന്നു; RBI നിയമത്തിന്റെ രണ്ടാം ഷെഡ്യൂളിലുള്ളത് ഷെഡ്യൂൾഡ് ബാങ്ക്. വാണിജ്യ ബാങ്കുകൾ: പൊതുമേഖല, സ്വകാര്യ, വിദേശ, ഗ്രാമീണ, സ്മോൾ ഫിനാൻസ്, പേയ്മെന്റ്സ്; സഹകരണ ബാങ്കുകൾ അംഗങ്ങളുടേത്. RBI ദേശസാൽക്കരണം 1949, SBI 1955, 14 ബാങ്കുകൾ 1969, ആറെണ്ണം 1980; 2020 ഏപ്രിൽ 1 മുതൽ 12 പൊതുമേഖലാ ബാങ്കുകൾ. ഗ്രാമീണ ബാങ്കുകൾ 1975, 1976-ലെ നിയമം; ഓഹരി 50:35:15. പേയ്മെന്റ്സ് ബാങ്ക് ₹2 ലക്ഷം വരെ നിക്ഷേപം സ്വീകരിക്കും, വായ്പ നൽകില്ല; സ്മോൾ ഫിനാൻസ് ബാങ്ക് ചെറിയവർക്ക് വായ്പ. 2020 മുതൽ ഓരോ ബാങ്കിലും ഓരോ നിക്ഷേപകനും ₹5 ലക്ഷം ഇൻഷുറൻസ്. (→ English: scheduled bank · हिन्दी: अनुसूचित बैंक)

In exam EnglishThe RBI regulates banks under the Banking Regulation Act, 1949; a scheduled bank is one in the Second Schedule to the RBI Act. Commercial banks are public, private, foreign, regional rural, small finance and payments banks; cooperative banks are member-owned. The RBI was nationalised in 1949, the SBI formed in 1955, 14 banks nationalised in 1969 and six in 1980; mergers left 12 public sector banks from 1 April 2020. Regional rural banks date from 1975 and the 1976 Act, owned 50:35:15 by the Centre, a sponsor bank and the state. Payments banks take deposits up to ₹2 lakh per customer but cannot lend; small finance banks lend mainly to small borrowers. The DICGC insures deposits up to ₹5 lakh per depositor per bank since 2020.

പലിശയോ മുതലോ 90 ദിവസത്തിലധികം കുടിശ്ശികയായാൽ വായ്പ നിഷ്ക്രിയ ആസ്തി; അതിനുമുമ്പ് SMA-0, SMA-1, SMA-2; പിന്നീട് സബ്‌സ്റ്റാൻഡേർഡ്, ഡൗട്ട്ഫുൾ, ലോസ്. മൊത്ത NPA-യിൽ നിന്ന് മാറ്റിവെച്ച തുക കുറച്ചാൽ അറ്റ NPA. 2010-കളിൽ നിലച്ച പദ്ധതികൾ 'ഇരട്ട ബാലൻസ് ഷീറ്റ്' പ്രശ്നം ഉണ്ടാക്കി (2016-17 സാമ്പത്തിക സർവേ); 2015-ലെ RBI പരിശോധനയ്ക്കുശേഷം 2018 മാർച്ചോടെ മൊത്ത NPA 11 ശതമാനം കടന്നു. കടം തിരിച്ചുപിടിക്കൽ ട്രൈബ്യൂണലുകൾ (1993), ആസ്തി പുനർനിർമാണ കമ്പനികളോടെ SARFAESI (2002), പാപ്പരത്ത നിയമം (2016) എന്നിവ ഉപാധികൾ; 2025 സെപ്റ്റംബറിൽ അനുപാതം 2.1 ശതമാനം. (→ English: non-performing asset · हिन्दी: अनर्जक आस्ति)

In exam EnglishA loan becomes a non-performing asset when interest or principal is overdue for more than 90 days; before that it passes through SMA-0, SMA-1 and SMA-2, and afterwards it is graded substandard, doubtful and loss. Net NPAs are gross NPAs minus provisions. In the 2010s stalled projects produced the twin balance sheet problem (Economic Survey 2016-17); after the 2015 Asset Quality Review the gross NPA ratio rose above 11 per cent by March 2018. Debts Recovery Tribunals (1993), the SARFAESI Act (2002) with asset reconstruction companies, and the Insolvency and Bankruptcy Code (2016) are the recovery tools; the ratio was 2.1 per cent in September 2025 (RBI Financial Stability Report, December 2025).

മുൻഗണനാ മേഖല വായ്പ ബാങ്ക് വായ്പയുടെ ഒരു പങ്ക് കൃഷി, MSME മുതൽ വിദ്യാഭ്യാസം, ഭവനം, പുനരുപയോഗ ഊർജം വരെ എട്ട് വിഭാഗങ്ങളിലേക്ക് തിരിച്ചുവിടുന്നു. 2025-ലെ RBI നിർദേശപ്രകാരം ആഭ്യന്തര ബാങ്കുകളും 20+ ശാഖകളുള്ള വിദേശ ബാങ്കുകളും ANBC-യുടെയോ CEOBE-യുടെയോ (ഏതാണോ കൂടുതൽ) 40 ശതമാനം — അതിൽ കൃഷി 18, സൂക്ഷ്മ സംരംഭങ്ങൾ 7.5, ദുർബല വിഭാഗങ്ങൾ 12; ഗ്രാമീണ ബാങ്കുകൾ 75, സ്മോൾ ഫിനാൻസ്, നഗര സഹകരണ ബാങ്കുകൾ 60. കുറവ് വന്നാൽ RIDF പോലുള്ള കുറഞ്ഞ ആദായ ഫണ്ടുകളിൽ നിക്ഷേപം; 2016 മുതൽ വായ്പ കൈമാറാതെ സർട്ടിഫിക്കറ്റുകൾ (PSLC) വിൽക്കാം, വാങ്ങാം. (→ English: priority sector lending · हिन्दी: प्राथमिकता प्राप्त क्षेत्र उधार)

In exam Englishpriority sector lending steers a share of bank credit to eight categories, from agriculture and MSMEs to education, housing and renewable energy. Under the RBI's 2025 Master Directions, domestic banks and foreign banks with 20 or more branches must lend 40 per cent of ANBC or CEOBE, whichever is higher, including 18 per cent to agriculture, 7.5 per cent to micro enterprises and 12 per cent to weaker sections; regional rural banks have 75 per cent, and small finance and urban cooperative banks 60 per cent. Shortfalls go into low-yield funds such as the RIDF, and since 2016 banks can trade priority sector lending certificates without transferring loans.

Exam traps

CRR (RBI Act s.42) is cash with the RBI and earns no interest; SLR (BR Act s.24) is held by the bank and earns interest.
M3 = M1 + banks' time deposits; M2 adds post office savings deposits instead.
Coins and the ₹1 note are issued by the Government, not the RBI.
A higher CRR or more cash with the public lowers the money multiplier.
Payments banks cannot lend; small finance banks can.
An NPA is a loan overdue for more than 90 days.
DICGC cover is ₹5 lakh per depositor per bank, with the premium paid by banks.

Recap

Money: medium of exchange, unit of account, store of value, standard of deferred payment.
RBI alone issues bank notes (s.22); M0 is reserve money, M1 narrow and M3 broad money.
Credit creation limit = deposit ÷ reserve ratio; money multiplier = M3/M0.
CRR: s.42 RBI Act, 3%, no interest; SLR: s.24 BR Act, 18%, ceiling 40%.
Nationalisation: RBI 1949, SBI 1955, 14 banks 1969, 6 banks 1980; 12 PSBs from 2020.
RRBs 1975/1976 (50:35:15); payments banks cannot lend; small finance banks lend to small borrowers.
NPA after 90 days; SARFAESI 2002, IBC 2016; gross NPA ratio 2.1% in September 2025.
PSL: 40% of ANBC or CEOBE (18% agriculture, 7.5% micro, 12% weaker sections); RRBs 75%; SFBs and UCBs 60%.

Practice questions

Q1. In India, the ₹1 currency note is put into circulation under the authority of which one of the following?

The Reserve Bank of India
The Government of India
The State Bank of India
The Security Printing and Minting Corporation on its own authority

Show answer

Answer: B. The Government of India

The ₹1 note, like coins, is issued by the Government of India. The RBI issues all other bank notes under s.22, the SBI is a commercial bank with no issuing power, and the printing corporation only manufactures notes and coins for the issuing authorities.

Q2. Consider the following statements:
1. Time deposits held with banks form part of M1.
2. M4 is a less liquid measure of money than M1.
Which of the statements given above is/are correct?

1 only
2 only
Both 1 and 2
Neither 1 nor 2

Show answer

Answer: B. 2 only

Statement 1 is wrong: time deposits are added in M3, not M1, which has currency with the public, demand deposits and other deposits with the RBI. Statement 2 is right. So '1 only', 'both' and 'neither' are wrong.

Q3. If the reserve ratio is 25 per cent and there are no other leakages, the maximum deposits that can be created from a fresh deposit of ₹2,000 are

₹2,500
₹4,000
₹6,000
₹8,000

Show answer

Answer: D. ₹8,000

Maximum deposits = 2,000 ÷ 0.25 = ₹8,000. ₹2,500 adds only a quarter, ₹4,000 simply doubles, and ₹6,000 counts only the new loans and leaves out the first deposit.

Q4. Consider the following statements:
1. The cash reserve ratio is kept by banks as a balance with the RBI.
2. The Reserve Bank of India Act, 1934 is the law that lays down the statutory liquidity ratio.
Which of the statements given above is/are correct?

1 only
2 only
Both 1 and 2
Neither 1 nor 2

Show answer

Answer: A. 1 only

Statement 1 is right: CRR is a cash balance with the RBI under s.42 of the RBI Act. Statement 2 is wrong: the SLR comes from s.24 of the Banking Regulation Act, 1949. So '2 only', 'both' and 'neither' are wrong.

Q5. In which year were six more commercial banks, each with deposits of ₹200 crore or more, nationalised?

1955
1969
1980
1991

Show answer

Answer: C. 1980

Six banks were nationalised on 15 April 1980. 1955 is when the SBI was formed, 1969 when 14 banks with deposits of ₹50 crore or more were nationalised, and 1991 is the year of the Narasimham Committee, which pointed towards reform rather than nationalisation.

Q6. Consider the following pairs:
1. Payments bank — Cannot lend
2. Regional rural bank — Share capital of the Centre, a sponsor bank and the state in the ratio 50:35:15
3. DICGC — Deposit cover of ₹1 lakh per depositor per bank
How many of the pairs given above are correctly matched?

Only one
Only two
All three
None

Show answer

Answer: B. Only two

Pairs 1 and 2 are correct. Pair 3 is wrong because the cover has been ₹5 lakh since 4 February 2020; ₹1 lakh was the earlier limit. So 'only one', 'all three' and 'none' are wrong.

Q7. The Economic Survey 2016-17 described India's bad-loan crisis as a 'twin balance sheet problem'. Which two sets of balance sheets did the phrase point to?

The RBI and the Central Government
Banks and corporate borrowers
Households and banks
The Centre and the states

Show answer

Answer: B. Banks and corporate borrowers

The Economic Survey 2016-17 used the phrase for over-leveraged companies and the banks that had lent to them. It is not about the RBI and the Centre, households, or Centre-state finances.

Q8. Under the RBI's priority sector lending directions effective from 1 April 2025, what is the overall target for small finance banks?

40 per cent
60 per cent
75 per cent
18 per cent

Show answer

Answer: B. 60 per cent

Small finance banks now have a 60 per cent target. 40 per cent applies to domestic commercial banks, 75 per cent to regional rural banks (and to small finance banks before the revision), and 18 per cent is the agriculture sub-target.

← Part 1 All parts

Study this in the Upscore app to keep notes, save it for revision, track your practice scores and follow a plan to the exam date. It's free.

Study this in the app →

Sources

Reserve Bank of India Act, 1934 (ss.22 and 42, Second Schedule) — https://www.indiacode.nic.in
Banking Regulation Act, 1949 (s.24) — https://www.indiacode.nic.in
Reserve Bank of India: Working Group on Money Supply (1998); Master Directions on Priority Sector Lending (2025); bank licensing guidelines (2014); Financial Stability Report (December 2025) — https://www.rbi.org.in
Coinage Act, 2011 — https://www.indiacode.nic.in
State Bank of India Act, 1955; Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980; Regional Rural Banks Act, 1976 — https://www.indiacode.nic.in
DICGC Act, 1961; SARFAESI Act, 2002; Insolvency and Bankruptcy Code, 2016 — https://www.indiacode.nic.in
Economic Survey 2016-17, Ministry of Finance (chapter on the twin balance sheet problem) — https://www.indiabudget.gov.in/economicsurvey/