Bi-monthly Updates ✅Tools → Quantitative,

(2020, 2021, 2022-Jul) Gen., Indirect

Reserve Ratios (CRR, SLR)
MCLR, External Rates: Bank, MSF, LAF [Repo, RR]
Benchmark OMO, Op Twist

Limitations of Monetary
Policy ✅Tools → Qualitative:
Selective, Direct
Impact of US Policy • Moral Suasion, Direct Action
• Margin req / LTV
• Selective Credit Control:
Mains Model Ans. • Credit Rationing, Consumer
Credit control / EMI, PSL
3 ways of making monetary policy
Exchange rate •Multiple Inflation with inflation
We are not so concerned
stability Indicators
control. targeting
•Singapore & other
export oriented ••Growth
We just
•Employment
want 1•2-6% CPI (all India)
US $
•Repo>CPI
= 2 Singapore Dollars= This
economies. helpsWPI,CPI
•Inflation in tourism & exports.
•Other indicators
We’ll try
••Exchange fall inthe
rateto regulate line.money supply of our local
Successful in
currency againstwestern
the US dollars to to this
nations.
But how to
• (more in Pillar #3A on currency exchange). update??
3 ways of making monetary policy
Exchange rate Multiple Inflation
stability Indicators targeting
•Singapore & other •Growth⬆ •2-6% CPI (all India)
export oriented •Employment⬆ •Repo>CPI
economies. •Inflation control •Other indicators
•Stable Exchange fall in line.
rate Successful in
western nations.
We’ll try to set Repo rate @such level ke all these goals are
targetted. – India used this method till 2016.
3 ways of making monetary policy
Exchange rate Multiple Inflation
stability Indicators targeting
• Singapore & • Growth • Other indicators
other export • Employment fall in line. Before Rajan
oriented • Inflation WPI,CPI Successful in
economies. western nations. •Update: 45-45 days
• Exchange rate
From Rajan
India adopted this from 2016
•60-60 days (Bi-monthly)
2013-14
• Gov Rajan forms (Dy.Gov) Urjit Patel Committee to review Monetary Policy making

2016
• RBI Act amended to setup for MPC Committee & inflation targeting
• Keep inflation within 2-6% CPI (All India)

Ok we’ll do multiple indicators

like that.
synonyms
Repo rate
= policy rate
= benchmark
interest rate
RBI side 3 Govt side 3
 Govt side members= 4 years tenure 2016-2020:

✋Members 2020-2024:
NAMES
NOT IMP4IAS
 1 Dy.Gov 1 Executive
Director of
RBI

Ex-officio
Chairman
.

Tenure tied with official post in RBI. E.g. Shaktikanta Das= 3 year tenure (as RBI
governor). If he’s reappointed as RBI gov., he’ll continue here also.
Quorum

•Minimum 4 person including

governor required.
•ELSE meeting can’t start.

Decisions?

•Take vote. Governor will also RBI side 3 Govt side 3

vote.
•If tie → governor will again
cast a vote second time, to
break tie. (CASTING Vote)
• ,
• /
•
All these people are selected by two different Committees. Both those
‘selection Committees’ are headed by Cabinet Secretary (IAS)

Term tied with official post 4 years, no re-appointment

e.g. RBI gov: 3 years
• Government can send message to Committee only in writing
• “elections coming so make repo 0% for cheap loans to farmers…” ok but
send it in writing. ,
 We’ll decide this.
2016-2020 [till financial year ending @31stMarch 2021] But after consulting
Same then extended for next 5 years till 31/3/2026 with RBI governor .

2% 4% 6%

not lower than this because not higher than this because
deflation = unemployment too much inflation= hardship
(Philip curve) to poor people.
Bi-monthly Updates ✅Tools → Quantitative,
(2020, 2021, 2022-Jul) Gen., Indirect
Reserve Ratios (CRR, SLR)
MCLR, External Rates: Bank, MSF, LAF [Repo, RR]
Benchmark OMO, Op Twist

Limitations of Monetary
Policy ✅Tools → Qualitative:
Selective, Direct
Impact of US Policy • Moral Suasion, Direct Action
• Margin req / LTV
• Selective Credit Control:
Mains Model Ans. • Credit Rationing, Consumer
Credit control / EMI, PSL
 Pause Video to
Attempt it Yourself
 6 members

RBI governor!
Synonyms:
Repo rate, benchmark interest rate of
central bank, policy rate

Pause Video to
Attempt it Yourself
 6 members

RBI governor!
• There is no option where
“none of the three
statement” is given.
• You’ve to pick least bad
But first statement says “RATES” = plural but option.
MPC decides only a single Repo rate so even • Hairsplittery =
#1 is wrong. Pause Video to
Fencesitting=#EPICFAIL
Attempt it Yourself
 Pause Video to
Attempt it Yourself
 Then RBI timepass ke liye adjust repo rate?

Then RBI timepass ke liye adjust repo rate?

Click Baiters/Guessmasters
Extreme worded statements
always wrong in UPSC.
While it’s true here, butbut
not every time such ‘meta
keyword’ strategy works.
✋“ONLY” Pause Video to
.
Attempt it Yourself
Money = expensive loans = inflation fought

 Money = cheap loans = deflation fought

Pause Video to
Attempt it Yourself
•

.
•
Pause Video to
Attempt it Yourself
CRR is in separate Quantitative, Gen., Indirect
category! Reserve Ratios (CRR, SLR)
CRR Rates: Bank, MSF, LAF [Repo, RR]
OMO & MSS, SDF

Qualitative: Selective, Direct

•Moral Suasion, Direct Action
• Margin req / LTV
• Selective Credit Control:
• Credit Rationing, Consumer Credit
control / EMI, PSL
• CRR is
quantitative tool.
• Others are
Pause Video to
qualitative tools.
Attempt it Yourself
But margin
requirement is not part
of SCC,
if we go by the
sequence of topics in
handout.

• CRR “NOT instrument” of SCC. You’ve to tick it.

• SCC internal Classification varies as per books.

• Real UPSC exam requires lot of thinking on your

feet. tick
Bi-monthly Updates ✅Tools → Quantitative,
(2020, 2021, 2022) Gen., Indirect
Reserve Ratios (CRR, SLR)
MCLR, External Rates: Bank, MSF, LAF [Repo, RR]
Benchmark OMO, Op Twist

Limitations of
Monetary Policy ✅Tools → Qualitative:
Selective, Direct
Impact of US Policy • Moral Suasion, Direct Action
• Margin req / LTV
• Selective Credit Control:
Mains Model Ans. • Credit Rationing, Consumer
Credit control / EMI, PSL
 9.00
Repo ⏬in Global financial crisis
8.50
8.00 8.00 7.75 8.00 6 Member MPC,
.📑Pillar#3A
6.75
Inflation targeting
(2-6%) starts from
6.50 6.25 6.25 6.50
6.00 here
6.00
5.00 4.75 5.00

D. Subbarao Era (2008-13) Rajan Era (2013-16) Urjit Era (2016-18)

2016 2017 2018 2018
2008 2008 2009 2009 2010 2010 2011 2012 2013 2014 2015 2016

Repo 9.00 8.00 5.00 4.75 Previous governor’s timeline / names not
5.00 6.00 8.50 8.00 7.75 8.00 6.75 6.50
-Oct
6.25
-Aug
6.00
-Jun
6.25
-Aug
6.50
Axis Title
imp. but one should be aware of ‘trend’
 9.00
8.50
8.00 8.00 7.75 8.00 6 Member MPC,
Inflation targeting
6.75 6.50 (2-6%) starts from
6.25 6.00 here6.25 6.50
6.00
5.00 4.75 5.00

D. Subbarao Era (2008-13) Rajan Era (2013-16) Urjit Era (2016-18)

2016 2017 2018 2018
2008 2008 2009 2009 2010 2010 2011 2012 2013 2014 2015 2016
-Oct -Aug -Jun -Aug
Repo 9.00 8.00 5.00 4.75 5.00 6.00 8.50 8.00 7.75 8.00 6.75 6.50 6.25 6.00 6.25 6.50
Axis Title
 9.00
8.50
8.00 8.00 7.75 8.00

6.75 6.50
6.00 6.25 6.00 6.25 6.50

5.00 4.75 5.00

D. Subbarao Era (2008-13) Rajan Era (2013-16) Urjit Era (2016-18)

2016 2017 2018 2018
2008 2008 2009 2009 2010 2010 2011 2012 2013 2014 2015 2016
-Oct -Aug -Jun -Aug
Repo 9.00 8.00 5.00 4.75 5.00 6.00 8.50 8.00 7.75 8.00 6.75 6.50 6.25 6.00 6.25 6.50
Axis Title
 9.00
8.50
8.00 8.00 7.75 8.00

6.75 6.50
6.00 6.25 6.00 6.25 6.50

5.00 4.75 5.00

6 Member MPC,
Inflation targeting
(2-6%) starts from
here

D. Subbarao Era (2008-13) Rajan Era (2013-16) Urjit Era (2016-18)

2016 2017 2018 2018
2008 2008 2009 2009 2010 2010 2011 2012 2013 2014 2015 2016
-Oct -Aug -Jun -Aug
Repo 9.00 8.00 5.00 4.75 5.00 6.00 8.50 8.00 7.75 8.00 6.75 6.50 6.25 6.00 6.25 6.50
Axis Title
 ✅Tools → Quantitative,
Gen., Indirect
Reserve Ratios (CRR, SLR)
Rates: Bank, MSF, LAF [Repo, RR]
OMO, Op Twist

MPC decides only this

✅Tools → Qualitative:
Selective, Direct
• committee to decide only the repo rate. • Moral Suasion, Direct Action
• Margin req / LTV
• All other tools = decided solely by Governor • Selective Credit Control:
• repo • Credit Rationing, Consumer
. Credit control / EMI, PSL
 😰Failure if
continously outside
this range for
9 months

Inflation ⏫✋
Priority
#1 Keep in 2-6% CPI Range
 Needs Hawkish/Tight/
Dear
Money Policy

Make Loans
Expensive → ⏬Demand
→
⏫Repo,
CRR, SLR ⏬Inflation
😰Failure if
continously outside
this range for
9 months

Inflation ⏫✋
Priority
#1 Keep in 2-6% CPI Range
 Needs Hawkish/Tight/Dear
Money Policy

Make Loans GDP Growth, Job Creation

Expensive → ⏬Demand ⏫⏫
→
⏫Repo,
CRR, SLR ⏬Inflation
😰Failure if
continously outside Needs Dovish/Easy/
this range for Cheap Money Policy
9 months
Make Loans
Cheap → ⏫Demand
Inflation ⏫✋ →
Priority ⏬Repo,
#1 CRR, SLR ⏫GDP
Keep in 2-6% CPI Range
 6.5 6.25 6 5.75 5.4 5.15 5.15 5.15

4%
5th 18(Dec) 6th 18(Feb19) 1st 19 (Apr) 2nd 19(Jun) 3rd 19 (Aug) 4th 19(Oct) 5th 19(Dec) 6th 20 (Feb) Corona Policies

2022- Feb : Repo unchanged @4%

Stance: Accommodative. Meaning when in 2022-April:
A) either will keep unchanged @4% OR
B) Will reduce @3.##%
What we’ll do in the
Increase (Hike) To fight Inflation
next meeting after 2 Calibrated
months? Tightening
No change (hold)

RBI’s Stance
Increase

Neutral No change (hold)

Decrease
⏫
(=)
No change (hold)
Accommodative ⏬✋
Decrease
What we’ll do in the Inflation
Increase (Hike)
next meeting after 2 Calibrated
months? Tightening
No change (hold)

RBI’s Stance
Increase

Neutral No change (hold)

Decrease

No change (hold) Deflation/ GDP

Accommodative boost=
Decrease
What we’ll do in the Inflation
Increase (Hike)
next meeting after 2 Calibrated
months? Tightening
No change (hold)

RBI’s Stance
Increase

Neutral No change (hold)

Decrease

No change (hold) Deflation/ GDP

Accommodative boost=
Decrease
What we’ll do in the Inflation
Increase (Hike)
next meeting after 2 Calibrated
months? Tightening
No change (hold)

RBI’s Stance
Increase

Neutral No change (hold)

Decrease

No change (hold) Deflation/

This is the stance
Accommodative GDP boost=
Decrease
• Stance is not ‘legally-binding’.

• If Committee feels situation is changed → they may not abide

by it. → .
⏫REPO
7.00%
Inflation shd not
6.00%
6.26% 6.01% be more than 6%
5.59% 5.66%
5.30%
5.00%
4.91%
4.35% 4.48%
4.00% If price was ₹100 @Jan-2021
Then presently ₹106.01 @Jan2022
3.00%

2.00%

1.00%
I’ll not do
anything! Inflation shd not
0.00%
be less than 2%
June July Aug Sept Oct Nov Dec Jan
CPI
 Combat Deflation /
Tool Combat Inflation
⏫GDP

Repo Loan%⏫ Repo ⏬ ⏫

Expensive loans Shopping⏬

Expensive Loans

Inflation Sellers ⏬
controlled price to attract
customers
GDP Growth / Post-Corona revival
•Cheap loans requires this.

Failure
•If only inflation outside 2-6% range for
•9 months continously
Supply side factors
•Crude oil, Russia-Ukraine War
•Global commodity prices
•REPO can’t fix.
 2020 2021

Policy

trend ?

2020- was Corona

so need to be aware
what RBI did?
6%
above

CPI

2%
below
GDP is the Market value of
More in pillar4
All final goods & services

Produced within domestic

territory of a country
For a given time period, usually 1
year
 GDP ₹ Lakh Cr
145 146
140
134
?
2018 2019 2020 2021
 GDP ₹ Lakh Cr
145 146
140
134
?
2018 2019 2020 2021
8.9
GDP GROW TH RATE %
4.2

2019 2020 2021

-7.7
 ✋Unchanged Despite to
6.5 inflation
6.25 6 5.75 5.4 5.15 5.15 5.15

5th 18(Dec) 6th 18(Feb19) 1st 19 (Apr) 2nd 19(Jun) 3rd 19 (Aug) 4th 19(Oct) 5th 19(Dec) 6th 20 (Feb)

• RBI required to control inflation with 2-6%

• But inflation crossing 7%
• YET Repo not ⬆ because otherwise GDP growth will
be harmed.😰
• So, in the latest two polices, repo kept unchanged.
• Stance: accommodative.
 2019 2020

2-2

Which month did they

meet exactly? But Corona= pattern broken.
✋ANS NOT IMP - April ki policy = March mein
- April= Another emergency
announcement in
- May =Another
announcement
2020-Mar: PM GARIB KALYAN Corona relief
- Free foodgrain, free LPG cylinder for poor
- ₹50lakh health insurance for corona warrior
- Etc. (More Pillar#2)
- This is not monetary policy. This is fiscal
policy.
- Originally, around 1.70 lakh cr.

RBI PMGKY Total

8 1.* 1.*lCr
Japan Malaysia Singapore India India’s GDP=204 lcr
20% 10%GDP → 20 lcr ka
16.20% package Minimum required!
12.20% 10%

Stimulus package as a % of GDP

 March, April and May 2020
RBI monetary policy announcements
⏬CRR, Repo, special windows to help NBFCs
~8 lakh crores
RBI 2020-Mar: PM GARIB KALYAN Corona relief
- Free foodgrain, cylinder
- ₹50lakh health insurance for corona
warrior Etc.
~1.7 lakh crore

RBI PMGKY Total

8 1.* 9-10lCr
 1) CRR⏬, Repo⬇, new windows to help
NBFC, Hotel, Hospitals etc.

2) Free food, LPG cylinder, etc

Few
RBI PMGKY Total
others
8 1.* 20LCR
11

May-2020:
3) More loans for MSME, PM Matsya Sampda Yojana,
Agri infra funds. (we’ll see them in respective pillars)
₹20 lcr ka Atma Nirbhar Bharat economic
stimulus package. More in Pillar#2 & #4C
 1.0 RBI PMGKY Few Total>
13 2 others 30LCR

1.0, 2.0, 3.0: many things ++++

• Festival advance for Govt employees
2.0 3.0 • States given interest free loans for CAPEX
• Production Linked Incentive (PLI) to boost mfg
Etc. More in respective pillars e.g. Pill#2, #4B
Handout page 93
 7.5
6%

6.5

5.5
⏫REPO
7.5%

→
→ DEMAND
SUPPLY
 6.5 6.25 6 5.75 5.4 5.15 5.15 5.15
4

5th 18(Dec) 6th 18(Feb19) 1st 19 (Apr) 2nd 19(Jun) 3rd 19 (Aug) 4th 19(Oct) 5th 19(Dec) 6th 20 (Feb) Mar20 Oct21

- Repo ⏬ to @4%
- Stance: Accommodative
- RBI Priority#2,
Priority#1: …. when #1 is
• Control done
inflation in • Boost GDP
2-6% range growth rate
 6.00
5.40 5.15 5.15 4.40 4.90
4.00

1st 19 (Apr) 3rd 19 (Aug) 4th 19(Oct) 6th 20 (Feb) Mar20 Oct21 2022-May 2022-June

Shouldn’t they meet at 2-2 If accommodative Stance,

months? how can they raise REPO?
•NOT Compulsory •Not Compulsory
What we’ll do in the Inflation
Increase (Hike)
next meeting after 2 Calibrated
months? Tightening
No change (hold)

RBI’s Stance
Increase

Neutral No change (hold)

Decrease

No change (hold) Deflation/

This is the stance
Accommodative GDP boost=
Decrease
• Stance is not ‘legally-binding’.

• If Committee feels situation is changed → they may not abide

by it. → .
• Bi-monthly developments given in handout
• Self-explanatory
50:50 elimination
 ✅Tools → Quantitative,
Gen., Indirect
Reserve Ratios (CRR, SLR)
Rates: Bank, MSF, LAF [Repo, RR]
OMO, Op Twist

MPC decides only this

✅Tools → Qualitative:
Selective, Direct
• committee to decide only the repo rate. • Moral Suasion, Direct Action
• Margin req / LTV
• All other tools = decided solely by Governor • Selective Credit Control:
• repo • Credit Rationing, Consumer
. Credit control / EMI, PSL
 1) MPC Committee =
• 2) After meeting is over, RBI governor
only 1 function. Decide repo rate. separately and by his own discretion
announce other regulatory measures.
• ✅Monetary policy: launch TLTRO,⬇
CRR, SLR, PSL, etc.
• ✅Regulatory reforms: ban magnetic
chip-walle cards. Use EMV card etc,
cryptocurrency related.. (Pillar#1A1)

.
CRR, SLR, PSL →
 • cryptocurrencies are dangerous WRT
consumer protection, market integrity
and money laundering.
• No entity regulated by RBI shall deal
with Cryptocurrencies….

Later recall how SC revoked the Ban

(Pillar#1A1)
Jogging

😰
2018: RBI ordered- all banks, payment-App-wallas etc ke
“Payment System data must be stored in India”
 Pause Video to
Attempt it Yourself
• server
•
- they may store it in Infosys/Wipro
company’s server etc Pause Video to
• CAG Attempt it Yourself
 1) MPC Committee =
• 2) After meeting is over, RBI governor
only 1 function. Decide repo rate. separately and by his own discretion
announce other regulatory measures.
• ✅Monetary policy: launch TLTRO,⬇
CRR, SLR, PSL, etc.
• ✅Regulatory reforms: ban magnetic
chip-walle cards. Use EMV card etc,
cryptocurrency related.. (Pillar#1A1)

.
CRR, SLR, PSL →
 Everything said/done by RBI
or theHindu or private quiz
master is not important for
exam. Look at previous
papers.

XYZ
Everything said/done by RBI
or theHindu or private quiz
master is not important for
exam. Look at previous
papers.

XYZ
Bi-monthly Updates ✅Tools → Quantitative,
(2020, 2021, 2022-Feb) Gen., Indirect
Reserve Ratios (CRR, SLR)
MCLR, External Rates: Bank, MSF, LAF [Repo, RR]
Benchmark OMO, Op Twist

Limitations of Monetary
Policy ✅Tools → Qualitative:
Selective, Direct
Impact of US Policy • Moral Suasion, Direct Action
• Margin req / LTV
• Selective Credit Control:
Mains Model Ans. • Credit Rationing, Consumer
Credit control / EMI, PSL
 Cost Selling
Profit
Price Price

How to decide this?

There are some
formulas…..
1. Base Rate Bank’s Loan
Spread
2. MCLR Cost Interest
(Profit)
Price Rate
3. External
Benchmark
 3) Operating cost: Electricity bill,
phone bill, server bill, staff salary,
ATM security, marketing,

Asset Liability
CRR: 4 RBI loans
SLR: 18
Time Deposits
5) How much loan 78
Loanable: Demand Deposits
interest rate% should I
charge to make profit?
 RBI gave Benchmark
Govt “administered” Prime Lending Rate
1991: M.Narsimham-
rates on Public Sector (BPLR) Methodology
deregulate
Banks (PSBs)
(✋notimp at present)

• Kisan loan _ %
2010: Base Rate (
)
• Cattle purchase loan _2019:
2016: MCLR % External
Benchmark
• Irrigation Pumpset purchase loan _%...
 Asset Liability
CRR: 4 RBI loans
SLR: 18
Time Deposits
Internal formula 2) Staff salary,
Loanable: 78 Demand Deposits Telephone bill
components
NOT IMP✋
I’ll add all these factors into a
formula to derive a value
= “BASE RATE”.
Cost Selling
Profit
Price Price

Similarly
Deposit
Interest Operating Min. rate
CRR Cost BASE RATE
(Cost of Cost of return
Funds)
Cost Selling
Profit
Price Price

Similarly
Deposit
Interest Operating Min. rate
CRR Cost BASE RATE
(Cost of Cost of return
Funds)

SBI’s +Spread Base Rate (10%)+ Spread (_%)

Car loan 0.75% 10.75% Suppose
Two wheeler 8.25% 18.25% SBI Base Rate is
Education 3.5% 13.5% 10% then
Home (upto
0.15% 10.15% (10.10% if Woman)
75L)
 1991: RBI gave Benchmark
Post nationalization:
M.Narsimham- Prime Lending Rate
Govt “administered”
deregulate (BPLR) Methodology

2019: External
2010: Base Rate 2016: MCLR
Benchmark

So banks not transmitting my repo rates

cuts. #time2teachthemlesson…
Even if RBI ⏬repo
Base Spread Loan
Bankers did not re- Rate (Profit) Rate
calculate this part.
repo
Even if RBI ⏬repo
Base Spread Loan
Bankers did not re- Rate (Profit) Rate
calculate this part.
repo
I’ll introduce new system

Required to re- Spread Loan

MCLR
calculate it every (Profit) Rate
1-1- month
 BASE RATE 2010 MCLR 2016
How’s loan rate Base Rate + Spread MCLR + Spread
counted? = loan interest rate =loan interest rate
BASE RATE was counted using MCLR was counting using
1. Deposit Interest (Cost of Funds) 1. Components given in handout
How’s 2. CRR Cost but not imp as such from exam
components 3. Operating Cost point of view.
counted? 4. Min. rate of return 2. Changes in Repo rate will reflect
more intensely than base rate
system.
@bank’s discretion. So even if RBI changed repo Update every 1-1 month. Disclose
Update rate, it may not reflect here.
frequency? data recalculate on website.
• RBI did not say count only “REPO RATE”. MCLR
formula uses Deposit rate, repo rate… so it’s ‘fair’
to the bank as well.
• This technical CA is way older than D-2 years so
don’t loose sleep, beyond basic word association.
Pause Video to
• ✋✋ MCLR , it Yourself
Attempt
 1991: RBI gave Benchmark
Post nationalization:
M.Narsimham- Prime Lending Rate
Govt “administered”
deregulate (BPLR) Methodology

2019: External
2010: Base Rate 2016: MCLR
Benchmark

So banks not transmitting my repo rates

cuts. #time2teachthemlesson…

8 6.25
1) MCLR on new loans
Jan.2015 from 1st April 2016 Nov.2016
RBI Repo Banks Avg. Lending Rates
4) MCLR= “operating cost”
is high due to bad
loans…so  can’t
reduce loan rates.
2) Look I’m following
easy / dovish money
policy. Please
cheapen your loan.
 !“
8.15 8.45 ”

So banks not
6.25 Repo rate just 25 bps⬆ 6.5 transmitting my repo
rates cuts properly.

2017, April 2018, Aug #Moral-suasion-useless

RBI Repo SBI's MCLR
 1991: RBI gave Benchmark
Post nationalization:
M.Narsimham- Prime Lending Rate
Govt “administered”
deregulate (BPLR) Methodology

2019: External
2010: Base Rate 2016: MCLR
Benchmark

So banks not transmitting my repo rates cuts. So banks not transmitting my repo
#time2teachthemlesson… rates cuts. #time2teachthemlesson…
 Loan
External Risk
Spread Interest
Benchmark Premium
Rate

Select any single benchmark

• RBI repo rate (4%)
• 91-day T-bill yield (6.56%)
• 182-day T-bill yield (6.73%)
• Any other benchmarks by Financial
Benchmarks India website
 Spread or Loan
External Risk
margin or Interest
Benchmark Premium
profit Rate

Recalculate
Select any one benchmark Depending on bank’s risk with atleast
• RBI repo rate (4%) on: ( ) once every
• 91-day T-bill yield (6.56%) - Category (bike, home) 3-3 months.
• 182-day T-bill yield (6.73%) - Borrower (salaried,
• Any other benchmarks by Financial self-employed, past
Benchmarks India website credit history..)
 Spread or
External Loan
margin or Risk
Benchmark Interest
profit Premium
(REPO) Rate
(2.65)

loan
Recalculate with atleast once
yellow every 3-3 months.
• e.g. after giving loan If repo⏬ → then
BANKER can’t switch to “G-Sec yield” as After giving loan,
“benchmark” Banker can’t change
• after giving loan banker Can’t ⏫spread. YELLOW part.
 Repo⏬

Loan interest⏬
 Repo⏬

Loan interest⏬
 MSME definition, we’ll see in pillar4C

personal loans Loans to

(taken for any retails loans Loans to micro medium
sudden (home, vehicle, & small enterprises
emergency electronics etc) enterprises (from
expenditure) 1/April/2020).

🤩Older /Existing borrowers (Base Rate /MCLR walle)

can switch this new External Benchmark system after paying fees to bank
3) What if old borrower joined during Base Rate or
MCLR Rate? Jab External Benchmark NAHI tha.

• Then they can switch their loan

account to “EXTERNAL Benchmark”
by paying some fees.
1) If Repo reduced then WHAT IF
SBI changes its benchmark to T-
bill YIELD?

Once a benchmark selected, then SBI

can’t switch it like that mid-way.
3) Will existing borrower benefit when repo changed?

• Axis Bank- every 3-3 months they

feed new data in formula.
• So, accordingly, old borrower will
have to pay less interest.
• Further BankingGK not req.
✅Bi-monthly ✅Tools → Quantitative,
Updates Gen., Indirect
Reserve Ratios (CRR, SLR)
✅MCLR, External Rates: Bank, MSF, LAF [Repo, RR]
OMO, Op Twist
Benchmark

Limitations of
Monetary Policy ✅Tools → Qualitative:
Selective, Direct
Impact of US Policy • Moral Suasion, Direct Action
• Margin req / LTV
• Selective Credit Control:
Mains Model Ans. • Credit Rationing, Consumer
Credit control / EMI, PSL
 critiques

Failed to control inflation: Failed to boost

GDP growth:

Non-transmission of monetary policy

( )
 😰

Even if crude oil becomes cheap.

Government ⬆taxes on petrol diesel so
govt can earn more ₹₹ for welfare supply
scheme→ what can RBI do? # demand
supply
demand
 Even if RBI ⏬ CRR:
it doesn’t greatly affect
money multiplier.
!?
2) We rely more on borrowing from US-Feds so repo changes will be
instantly reflected in lending rates.
 !

2) Repo is not the primary raw material for our biz. so, repo had little impact in
changing loan rates. (until external benchmark system)
 We’ve to fight inflation
=Hawkish Policy
= Repo⏫ Rajan Era (2013-16) Urjit Era (2016-18)

• High repo rate → loans not getting cheap

• → ⏬biz expansion, home/auto/edu loans  →
⏬factory production, new jobs 
• → →
→
Asset (100) Liability (100)
CRR, SLR: RBI loans

Time Deposits
Loanable Demand Deposits

Depositors
We are unhappy. are happy
Loans are not cheap
Asset (100) Liability (100)
CRR, SLR: RBI loans
•
Time Deposits
MF/
Loanable Demand Deposits • Corona lockdown=
salary affected. I’m
not interested in
buying any
We’re happy loans are cheap. expensive item. →
But nobody buying things  demand⏬ →
govt should ⬇taxes (Pill2). GDP⏬
• 😰Cheap Loans → rich Indian buy 2-5 home for
‘investment’ → shortage of homes → housing
inflation
.

• Better to ⏫Repo rate to combat inflation.

 Since RBI not
effectively combating
Inflation.

😰High level
😰Low GDP 😰High level Stagflation
of
growth of inflation
unemployment

Philips Curve:
⏫Inflation → ⏫Job . But ✋upto a certain level only.
If onions sell for ₹5000/kg → no one will buy → onion farming jobs will not ⏫
 Savings Account Interest Rates

3.5

2019 Corona-2020

Corona-2020
• RBI has reduced repo rate, and also provided long term loans in
TLTRO So banks NOT greatly desperate to acquire the raw material
(i.e. money) from deposits
•
⏬,
repo- .
 Year 2020-21 (Amount in Trillions)

Loans to
household/bizman
45%

Bankers' Investment
in G-Sec
55%
price stability economic job creation social justice
( growth ( (
(
fixing the bad loan/NPA problem in banking sector:
• → 📑Pillar#1b2

developing the infrastructure:

• → 📑Pillar#5

promoting the ease of doing business:

• → 📑Pillar#4

financial inclusion and less-cash economy.

• : 📑Pillar#1a1, 1D
Bi-monthly Updates ✅Tools → Quantitative,
(2020, 2021, 2022-Feb) Gen., Indirect
Reserve Ratios (CRR, SLR)
MCLR, External Rates: Bank, MSF, LAF [Repo, RR]
Benchmark OMO, Op Twist

Limitations of Monetary
Policy ✅Tools → Qualitative:
Selective, Direct
Impact of US Policy • Moral Suasion, Direct Action
• Margin req / LTV
• Selective Credit Control:
Mains Model Ans. • Credit Rationing, Consumer
Credit control / EMI, PSL
 CRR⏬, Repo⏬
OMO-> Dollar Supply⏫

Cheap loans →
Revive Economy

Suppose Credit
Card Loans @1%
 FPI: Borrow$$ from USA→ Convert ₹₹
Invest in Indian Sharemarket to earn
may be 5% profit per month

CRR⏬, Repo⏬
OMO-> Dollar Supply⏫

Cheap loans →
Revive Economy
1% →
Suppose Credit →
Card Loans @1%
 This will be called
CRR⏫, Repo⏫
OMO-> Dollar Supply⏬ FED TAPERING
Expensive loans → Demand⏬
→ Inflation⏬ → ⏬
→
Suppose Credit Card
Loans @✋1%
→ ⏬ →
Loans @ ✅5%
 1) FPI was earning 4%
This will be called in Indian market
But, sells off his
FED TAPERING Indian shares
CRR⏫, Repo⏫
OMO-> Dollar Supply⏬

Expensive loans → Demand⏬

→ Inflation⏬

Suppose Credit Card

Loans @✋1%
Loans @ ✅5%
Forex Dealers
who convert Rs
into Dollar for
fees

When Supply Increased Supply Decreased

Onion become Cheap $ Expensive

Weak $ Strong
Dollar
($1=₹80 → ₹40) ($1=₹40 → ₹80)
Forex Dealers
who convert Rs
into Dollar for
fees

When Supply Increased Supply Decreased

Onion become Cheap $ Expensive Means
₹ weak
Weak $ Strong
Dollar
($1=₹80 → ₹40) ($1=₹40 → ₹80)
KHEL Khatam
✅Bi-monthly ✅Tools → Quantitative,
Updates Gen., Indirect
Reserve Ratios (CRR, SLR)
✅MCLR, External Rates: Bank, MSF, LAF [Repo, RR]
OMO, Op Twist
Benchmark

Limitations of
Monetary Policy ✅Tools → Qualitative:
Selective, Direct
Impact of US Policy • Moral Suasion, Direct Action
• Margin req / LTV
• Selective Credit Control:
Mains Model Ans. • Credit Rationing, Consumer
Credit control / EMI, PSL
BRAINSTORM. We’ll solve on Tomorrow lecture.
 done
• Money: barter to Bitcoin
A-1
Only mains Ans
• RBI’s monetary policy
• CRR, SLR, Repo etc pending
A-2
1) MBFI 2) Budget 3) Intl. Trade
Handout
• Classification of Banks-NBFC uploaded
B-1

• Burning issues in Banking sector

B-2 • NPA, IBC, BASEL…

4) Sectors of
• SEBI Sharemarket 5) Infrastructure 6) HRD
Economy
C

• Insurance, Pension, Fin.

D Inclusion
Audio/Video
Problem?

Edu Doubt?
Ask through
GDP is the Market value of
More in pillar4
All final goods & services

Produced within domestic

territory of a country
For a given time period, usually 1
year
 GDP ₹ Lakh Cr
145 146
140
134
?
2018 2019 2020 2021
 GDP ₹ Lakh Cr
145 146
140
134
?
2018 2019 2020 2021
8.9
GDP GROW TH RATE %
4.2

2019 2020 2021

-7.7
 Economic Growth I💊🤰👨‍🏫
don’t care about
Economic Development
✋Air pollution
Focused on measuring ⏫ in the It measures whether economic growth
✋Inequality
production of goods and services in a has✋Child
resulted in improving
labour the quality of
country. life & the socioeconomic structure
country?
Quantitative measurement: GDP, Qualitative measurements such as
Consumption, Government Spending, Human Development Index, Life
Investment, Net Exports etc Expectancy, Infant & Mother Mortality,
Literacy Rate etc.
 Economic Growth 💊🤰👨‍🏫 Economic Development
(pillar4) (pillar6)
It measures the ⏫ in the production of It measures whether economic growth
goods and services in a country. has resulted in improving the quality of
life & the socioeconomic structure
country?
Quantitative measurement: GDP, Qualitative measurements such as
Consumption, Government Spending, Human Development, 👨‍🏫 Literacy, Life
Investment, Net Exports etc Expectancy, 💊🤰Infant & Mother
Mortality, etc.
•CRR SLR •Taxation
•Repo Rate •Subsidy Budget is the main
•Open market operations •Public Expenditure tool of fiscal policy
•Priority sector lending •Public Private Partnership presented
norms •Disinvestment
•& other Qualitative and
annually
•And other tools
quantitative tools On the first
Finance working day of
RBI's monetary
Ministry's Fiscal February**
policy
policy
Together they help shaping the Economy…

⏫Investment: ⏫GDP ( ⏬Unemployment ⏬Inflation Currency Exchange

⏫Savings ( Rate (
domestic, foreign ( (
Not just RBI. Definition
should be universally
applicable

What is Macro?Ans.#4Z

✋It doesn’t have to be word-by-word like this. Social justice how? Ans. PSL: weaker
But similar on these lines. section, SC/ST etc
✅Dance ki definition: rhythmic movement of ✋MonPol ki
the body, usually to music and for purpose of definition:
expressing an idea or emotion “RBI makes a policy
✋Dance ki definition: Hrithik Roshan performs known as monetary
an activity known as dance, in Bollywood movies policy”
 ✅Define • Seen in previous slide

• In India, RBI is responsible for framing the

monetary policy. It helps in economic growth in
following manner…..
✋Origin • Poor intro: because you’re talking about
“player” rather than “process/policy”.
• ✋“Dance Essay: Dance is an activity done by
Hrithik Roshan to entertain cinema viewers”

• “Monetary policy involves repo,CRR etc. it helps

✋directly in economic growth in following manner:….’
example
• That you should give only after defining.
3 ways to introduce any Answer Define Origin Data
Human Development What is it?
•1) Good life expectancy 2) education 3) earning capacity.
•More in Pillar#6

Human Development: significance of Banks

•Banking habits → savings for bad time/retirement/drunkard-
gambler husband.
•Education loans, home loans (instead of slum: crime, disease)
•Entrepreneurship: loans to start business.
•EMI: Computer, Tablet → E-Learning
•Mixer/Washing machine: drudgery of women
250 words= not req to add all these points but I’ve given for illustration
CRR & SLR
• Solvency of banks
• protect against “bank runs”.
• Confidence of people.
PSL
• Weaker section
• separate targets for s/m farmers
• Affordable housing, Education loans.
• Renewable energy, social infra
Other Qualitative Tools
• LTV gold loans, EMI

REPO, OMO: inflation control

• Affordable food & nutrition required for healthy and long life
What about this?
 GDP ₹ Lakh Cr
145 146
140
134
?
2018 2019 2020 2021
8.9
GDP GROW TH RATE %
4.2

2019 2020 2021

-7.7
Economic growth: how to achieve?

•Investment, Employment, Production, GDP, export ⬆

•More in 📑Pillar#4C

How monetary policy helps?

•Repo rate, LTRO, TLTRO, On-Tap windows…

•Op-Twist: corporate borrowing cheaper
•PSL loans:
•Housing → Steel, Cement⏫
•MSME → entrepreneur ⏫
•Farm loans → Agriculture production, export, GDP
Introduction •Define Monetary Policy
•Monetary Policy is useful medicine
Body1🤩🤩 •Monetary Policy is catalyst for economy
•<from Previous ANSWER>
•Monetary Policy is NOT Panacea
Body2😰😰 •Monetary Policy is sometimes
an obstacle to economic growth

Conclusion •Govt and RBI trying to ⏫ things.

 😰Government
😰Suppy: Bad
Borrowing & Taxation,
Monsoon, Crude Oil
black money, bad loans

😰Infrastructure: 😰Ease Of Doing Biz,

Electricity,Road,Internet Law And Order.
Obstacle

😰Poor education 😰Dual fight:

system: if youth doesn’t inflation control vs
have Education, Skill economic growth
3 ways to introduce any Answer Define Origin Data
Reduced⏬
•⏬CRR to 3%
•⏬Repo to 4%
•⏬Reverse Repo by changing the corridor

New windows opened

•LTRO, on-Tap windows etc.
✋We will study them under the respective pillars
 Audio/Video
Problem?

Edu Doubt?
Ask through

Op Twist, G-SAP = write short noets

in ur own words.
 •✅Money: barter to Bitcoin
A-1

•✅RBI’s monetary policy Handout

A-2 •CRR, SLR, Repo etc
uploaded
•Classification of Banks-NBFC 1) MBFI 2) Budget 3) Intl. Trade
B-1

•Burning issues in Banking sector

B-2 •NPA, IBC, BASEL…

•SEBI Sharemarket
C

4) Sectors of
•Insurance, Pension, Fin. Inclusion 5) Infrastructure 6) HRD
D Economy