Last reviewed 30 Sept 2026 · Facts as of 30 Sept 2026 · 11 min read
A note on figures. Policy rates (repo, CRR, SLR) and inflation targets are revised by the RBI from time to time. Use the latest Monetary Policy Statement for current values.
Money
Money is anything generally accepted as a medium of exchange, a measure of value, a store of value and a standard of deferred payment. Barter suffers from the double coincidence of wants.
- Forms: commodity money (gold, silver), fiat money (currency notes and coins declared legal tender), bank money (deposits, cheques), digital money (UPI, cards, wallets, CBDC).
- Legal tender: unlimited for notes; limited for coins (e.g., coins up to certain limits). ₹1 notes and coins are issued by the Government of India (Ministry of Finance); all other notes (₹2 to ₹500) are issued by the RBI (the Governor's signature is on the note; the Finance Secretary's signature on the ₹1 note). Minimum Reserve System (1956) for the note issue: the RBI must hold gold and foreign securities worth ₹200 crore, of which gold at least ₹115 crore.
- Security Printing: notes are printed at Nashik, Dewas, Mysuru, Salboni (Note Printing Presses); coins are minted at Mumbai, Hyderabad, Kolkata, Noida.
- Demonetisation (8 November 2016) withdrew ₹500 and ₹1000 notes; a new ₹2000 note was introduced (withdrawn from circulation in 2023).
Money supply
The RBI publishes four measures:
| Measure | Composition |
|---|---|
| M0 (reserve money / high-powered money / monetary base) | currency in circulation + bankers' deposits with the RBI + "other" deposits with the RBI |
| M1 (narrow money) | currency with the public + demand deposits with banks + other deposits with the RBI |
| M2 | M1 + savings deposits with post office savings banks |
| M3 (broad money) | M1 + time deposits with banks (the main aggregate) |
| M4 | M3 + all deposits with the post office (discontinued) |
Money multiplier = M3 / M0.
Banking structure in India
| Type | Notes |
|---|---|
| Reserve Bank of India (RBI) | the central bank |
| Scheduled commercial banks | included in the Second Schedule of the RBI Act 1934: public sector banks (PSBs) (SBI and nationalised banks; the number was reduced by mergers to 12 in 2020), private sector banks (HDFC Bank, ICICI Bank, Axis, Kotak), foreign banks, small finance banks, payments banks |
| Regional Rural Banks (RRBs) | created in 1975 (Narasimham Committee; RRB Act 1976) to serve rural areas; owned by the Centre (50 %), state (15 %) and the sponsor bank (35 %) |
| Cooperative banks | Urban Cooperative Banks (UCBs) and rural cooperative banks (State Cooperative Banks, District Central Cooperative Banks, Primary Agricultural Credit Societies (PACS)); under the dual control of the RBI and NABARD/registrar |
| Small Finance Banks (SFBs) | to serve unserved and underserved sections (e.g., AU Small Finance Bank, Ujjivan); 75 % priority sector lending |
| Payments Banks | accept deposits (up to ₹2 lakh per customer) and provide payment services but cannot lend — India Post Payments Bank (IPPB) (2018), Airtel Payments Bank, Paytm Payments Bank (restricted by the RBI in 2024) |
| Development financial institutions | NABARD (1982; agriculture and rural), SIDBI (1990; small industries), EXIM Bank (1982; trade), NHB (housing), NaBFID (infrastructure, 2021) |
| Non-Banking Financial Companies (NBFCs) | lend and invest but cannot accept demand deposits or issue cheques; regulated by the RBI |
- History: the first Indian bank was the Bank of Hindustan (1770); the Presidency Banks (Bengal, Bombay, Madras) merged into the Imperial Bank of India (1921), which became the State Bank of India (1955). Punjab National Bank (1894), the first Indian bank with Indian management; Swadeshi movement gave rise to several banks. Nationalisation: 19 July 1969 (14 banks with deposits above ₹50 crore — Indira Gandhi) and 15 April 1980 (6 more).
- Banking Regulation Act 1949 (now the Banking Laws Amendment); the RBI Act 1934.
- Deposit insurance: DICGC (a subsidiary of the RBI) insures deposits up to ₹5 lakh per depositor per bank.
- Priority Sector Lending (PSL): 40 % of adjusted net bank credit — agriculture, MSMEs, education, housing, weaker sections. Lead Bank Scheme (district level); Kisan Credit Card (1998); Jan Dhan Yojana (2014) for financial inclusion.
The Reserve Bank of India
- Established on 1 April 1935 under the RBI Act 1934, on the recommendation of the Hilton Young Commission (1926); headquartered in Mumbai (initially Kolkata; moved in 1937); nationalised on 1 January 1949. First Governor: Sir Osborne Smith; the first Indian Governor — C. D. Deshmukh. The Governors in recent years: Raghuram Rajan (2013–16), Urjit Patel (2016–18), Shaktikanta Das (2018–24), Sanjay Malhotra (from December 2024) (check the current Governor). The RBI's emblem shows a tiger and a palm tree.
- Central Board with the Governor and up to four Deputy Governors; offices in Mumbai, Delhi, Chennai, Kolkata (regional).
- Functions:
- Monopoly of note issue (except ₹1 notes and coins).
- Banker to the government (Union and states); manager of public debt.
- Banker's bank and lender of last resort.
- Custodian of the foreign exchange reserves; manages the exchange rate (FEMA 1999, the successor of FERA).
- Regulator and supervisor of banks and NBFCs; licensing; controller of credit — through the monetary policy.
- Development role (NABARD; financial inclusion), financial stability, and payments system regulation (Payment and Settlement Systems Act 2007).