And also congrates to

students above this

Less than
20/25
= revise more.
 Why 13% are
overthinking it.
WRONG Separate thing
by NPCi
Precautionary. Given in Handout.

Will not solve easy

MCQs, which are
directly given in
lecture / handout.
 MM = M3/M0 → #1 is wrong.
Economy will function IF only CRR < 100% → definitely M3 > M0 so #2 is right
 Both statutory

CRR-SLR Counted on deposit.

CRR-SLR Not counted on assets
(So bad loans don’t come in
picture)
 Correct. Zigzag/updown

Often decreased

Unchanged at 18%
Hawk will ⏫ CRR, SLR, Repo etc.
To make loans expensive
Loans to NBFC.
 Continued..

✅CRR, SLR Bank Rate MSF

✅LAF-Repo ✅LAF-RR SDF

OMO, GSAP Op Twist MSS

Please don’t write ans in
chatbox. Simply click on
Pause
appropriate voteVideo to
button.
Attempt it Yourself
 CRR: Banks’ deposit to RBI. Outgoing Incoming
On which RBI (usually) pays
no interest. CRR: 4 Deposits:
Loans: 96 100

• CRR: we can’t loan that much portion of

deposit to anyone.
• We can’t invest it in gold/Gsec etc.
• Simply keep it aside as a DEPOSIT to RBI.
Explanation-B: CRR is banks’ deposit (=balance) to RBI on which RBI
pays no interest.
Pause Video to
(CRR) Attempt it Yourself
SLR 0.50%
Pause Video to
Attempt it Yourself
SLR ⏬ → liquidity ⏫
SLR 0.50%
Pause Video to
Attempt it Yourself
 Outgoing(100) Incoming (100)
CRR: 4
Deposits
SLR: 18
NDTL: 100
Loanable: 78

Suppose this is ⏬ by
0.50%
Loanable
Funds⏫
Loan
Interest
Rates⏬

CRR
SLR
More factories & showrooms → production good &
services⬆ → GDP⬆ (more in Pill4)

Amazon, Ford, Ferrari setup factories, godowns,

outlets,showrooms in India (FDI: more Pill3)
But taxation, GST, ease of doing biz..many factors

People do more shopping of TV,fridge,cars

Banks ⬇ loan rates

RBI ⬇SLR by 0.50%

 Hyperbole

hyperbole
If SLR ⏫ then it’ll happen

In 2015-direct 4 option
Official answer was D.
Pause Video to
Attempt it Yourself
 SLR

Pause Video to
Attempt it Yourself
No, Even gold/G-Sec/other securities approved by RBI

So #2 is definitely
correct. All depends on
validity of #3
Pause Video to
Attempt it Yourself
 ✅CRR: Banks deposit this
much ₹₹ to RBI
SLR: Invest in cash/gold/G-Sec-
T-Bill & other securities
approved by RBI.
• ✅SLR is maintained by the banks with This amount kept within Bank’s
themselves. locker
• SLR = bank don’t need to send this amount to
RBI’s locker.
 Even gold/G-
Sec/other
securities
approved by RBI

⏫ SLR = ⏬ loans banks can give.

⏬ SLR=⏫ loans. So, it decides the
‘boundary/seema’. Pause Video to
Attempt it Yourself
CRR, SLR Bank Rate MSF

LAF-Repo LAF-RR SDF

OMO Op Twist MSS

 • Because if no borrowers found, then
better to invest money in G-Sec.
Deposits +100 Cr.
CRR -3 Cr. • Govt will pay interest + principal back.
• Let’s call non-SLR quota securities.
SLR (G.Sec) -18 cr. • It’s not a separate ‘type’ of securities
issued by Government,
LEFT ( ) 79 cr. G-sec
• rather a bifurcation to show the
Addl G-Sec 9 securities owned by a bank beyond SLR
requirement. SLR
LEFT ( ) 70 cr…. G-sec
 Asset
@Repo Window: can’t pledge. CRR (only CASH)
✋SLR (G-Sec, Gold, Cash)
G-Sec (beyond SLR quota)✅
Loans
 Asset
CRR (only CASH)
✅SLR (G-Sec, Gold, Cash)
✋G-Sec (beyond SLR quota)
Loans
 REPO= 4% MSF = 4.25%

Repo SLR MSF SLR

G-Sec G-Sec
✋✋ ✅✅
 REPO= 4% MSF = 4.25%

But why would banker borrow from MSF when it’s expensive?
MSF

1. If Banker doesn’t have G-Sec beyond SLR quota then he can’t borrow
from Repo.
2. So he’ll have to go for MSF MSF
 • 3) MSF = these SLR-quota-G-Sec
can be pledged for borrowing
Deposits +100 Cr. from RBI @short term.
• ✋But upto certain limit (e.g. 3cr
CRR -3 Cr. out of 18 cr.) cr
SLR (G.Sec) -18 cr. G-Sec

LEFT 79 cr. • 😰otherwise bank will be left

with no safety-buffer in SLR to
Addl G-Sec 00 fight “Bank run”.
LEFT 79 cr…. SLR-safety
 Repo (2000) MSF (2011)
Rate? X% (decided by MPC committee) X% + 0.25%
Who can All clients of RBI Only Scheduled
borrow? - Bank and Non Bank ( LIC, Commercial Banks,
Primary dealer etc) and RRB More in Pillar#1B1
What can - Any G-Sec / T-Bill bank CAN pledge
be - (But bank can’t use SLR- G-Sec from SLR-
pledged? quota walli) quota
MSF mechanism is same like
Repo. Sell G-sec & buyback
will study later on
Pillar: 1B-1
(Classification)
Scheduled
commercial bank

Regional Rural
Banks

Small Finance Payment

Banks Banks
 Private MCQ
walle asked so
UPSC will copy it!

• Whether RRBs can use MSF or not?= is this imp?

• Ans. ✋ I don’t think UPSC will ask, after analyzing previous
papers..
• It’s given in handout because inexperienced Faaltu-private
Mocktest wallas asking → then Babushonas sucking my
blood in FAQ
→
 Pause Video to
Attempt it Yourself
they did not ask tech.stuff about MSF

Recall other easy

question in past UPSC
1. Deposit = not
asset of bank
2. Money multiplier
3. Repay card and
Pauseof
Function Video
NPCito
Attempt
4. What it Yourself
is CBS?
CRR, SLR Bank Rate MSF

LAF-Repo LAF-RR SDF

OMO, GSAP Op Twist MSS

 Repo MSF 🤯Bank Rate
(2000) (2011) (1934’s RBI Act)
Rate? X% X% + 0.25% =MSF% (since 2012)
Tenure Short term Longer term (How much: books differ)
borrower? Bank,nbfc Only Banks Only banks* (Some books differ)
Collateral? Learned in previous slide • Required (as per some source)
• Not required (as per some source)

• 2000: repo rate system introduced. → THEN Bank rate has become a dormant tool (=not
frequently used by RBI for lending or by banks for borrowing).
• Hence book and web-sources differ on its present day operational status of Bank rate.
• Bank rate mainly for deciding penalty rate. E.g. if CRR not kept then penalty = bank rate + “X”%
3) Bank pledged it 2) Bank
to borrow money. invested in
Sell then “buyback” debt Securities

1) Debt securities
Borrower 🦁Government 🤵Companies
Treasury bills (T-Bill) Bill of Exchange,
Short term Cash Management Commercial Papers,
(less than 1 year) bills (CMB) Promissory Notes.

Long term G-Sec, Bonds / Debentures

(1 year/>) → Sovereign Bonds
 3) Bank pledged it 2) Bank
to borrow money. invested in
Sell then “buyback” debt Securities

• 4) **RBI Act, 1934: “Bank rate is 1) Debt securities

the standard rate Borrower 🦁Government 🤵Companies
• at which RBI buys or rediscounts Treasury bills (T-Bill) Bill of Exchange,
Short term Cash Management Commercial Papers,
first class securities, bills of (less than 1 year) bills (CMB) Promissory Notes.
exchange or other commercial
Long term G-Sec, Bonds / Debentures
papers.(-NCERT)” Sovereign Bonds
(1 year/>) →
Finished till
page 71
 CRR, SLR Bank Rate MSF

LAF-Repo LAF-RR SDF

Let’s play games

without G-Sec OMO, GSAP Op Twist MSS
LAF’2000 MSF’2011
Pledge SLR securities:
Repo: inject money
RBI Injects money

RR: Suck money Each of these require some type of G-Sec pledging /
repurchase. But, what if there is shortage of G-Sec?
😰 G-Sec
 LAF’2000 MSF’2011 • SDF: Banks deposit excess money @RBI to earn
Pledge SLR securities:
interest,
Repo: inject money
RBI Injects money • no G-sec as collaterals (unlike Reverse repo
rate) G-Sec Reverse
RR: Suck money
Repo
Each of these require some type of G-
Sec pledging / repurchase. But, what if
there is shortage of G-Sec? 😰😰😰
 Don’t loose sleep.
Not yet
implemented.

time-waste
 RBI “window operations” through E-kuber platform

Liquidity Adjustment Facility (LAF)

MSF Repo Rate = Policy Rate Reverse Repo

4.25% +0.25 4.00%. -0.65 3.35%.

Clients Clients park
for Rs. for G-Sec
borrow
@short term short term collateral
 RBI “window operations” through E-kuber platform

Liquidity Adjustment Facility (LAF)

MSF Repo Rate = Policy Rate Reverse Repo

100 Basis Point

System
BPS
=1%
4.25% +0.25 4.00%. -0.65 3.35%.
Clients Clients park 90 bps
for short =0.90%
borrow
@short term term
Corridor width: 0.25+0.65= 0.90% = 90 bps
 Ceiling: MSF

Q. Why call it “Width”

Shouldn’t be called “Height”?

Floor: Reverse Repo Ans. Send suggestion to RBI

to change the terminology.
 RBI “window operations” through E-kuber platform

Liquidity Adjustment Facility (LAF)

MSF Repo Rate = Policy Rate SDF

5.15% +0.25 4.90%. -0.25 4.65%.

Clients Clients park NO
borrow for short G-Sec
@short term term
collateral
 RBI “window operations” through E-kuber platform • Reverse Repo rate
not discontinued.
Liquidity Adjustment Facility (LAF) • It’s kept separate.
MSF Repo Rate = Policy Rate SDF

5.15% +0.25 4.90%. -0.25 4.65%.

Clients Clients park NO
borrow for short G-Sec
@short term term
: Corridor width: 0.25+0.25= 0.50% = 50 bps collateral
 Ceiling: MSF

Floor: Reverse Repo. SDF

(2022 onwards)
doubt
CRR, SLR Bank Rate MSF

LAF-Repo LAF-RR SDF

OMO Op Twist MSS

 1) G-Sec issued
Tenure: 1 year or more

Primary Market
• Security issued for 1st time

Secondary Market
• Resold by investors to others
 1) G-Sec issued
Tenure: 1 year or more

Primary Market
• Security issued for 1st time

🤩🤩 I may re-sale, Secondary Market

if I want to EXIT early. • Resold by investors to others
 1) G-Sec issued
Tenure: 1 year or more

Primary Market
• Security issued for 1st time
Repo (Repurchase)
•Selling with promise to buy-back
( )

Open Market Operation

•Selling with no promise to buy-
back( )
Secondary Market
• Resold by investors to others •Buying with no promise to re-sell
 Earlier it’d be directly invested
Through this route
% commission /
fees
Mutual Funds, NBFCs

Retailers’ DEMAT account

 Earlier it’d be indirectly
invested

E-Kuber
Mutual Funds, NBFCs
G-Sec

• 2021: RBI has announced it'll Retailers’ DEMAT account

allow Retail Investors to Open
• “Retail Direct Gilt (RDG) account”
with RBI’s E-Kuber
 This is not
This is available banned. This is
also available
 Tax collection & income is
always lower than cost of
poverty welfare programs.
So have to borrow
Sold through
RBI’s e-kuber G-Sec: 100 Cr. @8% for 1 year
platform
70 cr.
Investors, banks, NBFCs will bid & buy
• Unsold G-sec are
bought by RBI.
• If RBI doesn’t have
10 cr. 20 cr.
cash, it’ll print new
cash
1) 70 cr. G-sec 2) Money in the market 30 cr.

1 kg = Rs.150
3) To combat inflation,
RBI must ⬇ money supply
 1) RBI Sells
10 cr G-Sec to
2)70 60 cr. G-sec absorb ₹₹ 3) Money in the market 30 cr.

1 kg = Rs.150 100

4) Money in the market 20 cr.

Loanable
Funds⏫
Loan
Interest RBI sells G-Sec
Rates⏬ Banker invests in it
Bankers’ Loanable Funds ⏬
Loan Interest Rate ⏫
CRR
Shopping Demand⏬
SLR Inflation ⏬
 1) If RBI sells G-Sec,
it absorbs ₹₹ →
inflation fought;

2) Less money → expensive loans →

• G-SecIf RBI buysdemand
G-Sec, it
decrease⏬ → inflation fought
injects liquidity:
deflation fought
•
 .
No I want to
overcomplicate
it for myself.
 .
No I want to
overcomplicate it
for myself.
 1 kg = ₹5😰
1) Not even 5 rupees.
I want onions for 1 rupee!!
If RBI sells G-Sec, it
absorbs liquidity: inflation
fought;
 3) 1 kg = ₹5 → 30
• G-Sec
If RBI sells G-Sec, it
absorbs liquidity: inflation
• ₹₹ fought;
2) More money → cheaper
loans → higher consumption…

1) If RBI buys G-Sec, it

injects cash/liquidity:
deflation fought
 .
No I want to
overcomplicate
it for myself.
 3) Now, we’ve more cash.
We’ll easily give loans.
दे धनाधन लॉन पास
1) Bank Sell / pledge
G-sec, Bonds… करें ग.े .. 🤩

2) RBI gives them ₹₹

 3) Now, we’ve more cash.
We’ll easily give loans.
दे धनाधन लॉन पास
1) Bank Sell / pledge
G-sec, Bonds… करें ग.े .. 🤩

2) RBI loans them ₹₹

🤩5) My home
sold more easily!
4)🤩 I got home
loan easily!
CRR, SLR Bank Rate MSF

LAF-Repo LAF-RR SDF

OMO, GSAP Op Twist MSS

 Investor sells G-Sec

• Suppose this G-Sec maturing @10 years then girl to Principal +

Interest.
• But on 5th Year, Girl wants to exit early do invest elsewhere in
property, gold-silver, Zomato-shares
•
•
When will you do OMO? ✋Depends on my
When is the next date? Mood/Discretion.
I can’t tell you dates long
? before the event

Traditional OMO
 (Secondary Market) G-sec
acquisition programme
GSAP
• RBI to buy G-Sec from
Secondary market on
specified timetable.
•
 RBI OMO RBI

RBI Buys to ⏫ RBI sells to ⏬

Money supply money supply

OMO-Buy- GSAP=Timetable OMO-SELL-

(Discretionary) pe (Discretionary)

(Secondary Market) G-sec

acquisition programme
GSAP
• RBI to buy G-Sec from
Secondary market on
specified timetable.
•
 1) Investor sells G-Sec
In G-SAP timetable

4) 2) Investor’s money unlocked

Jewelry
biz⏫

How G-SAP can help reviving Economy Post-Corona?

?
 1) Investor sells G-Sec
In G-SAP timetable

• 6) Zomato Biz expansion ⏫

• ⏫Jobs for delivery boys
• ⏫Boom in restaurant Biz

4) 2) Investor’s money unlocked

Jewelry
biz⏫

How G-SAP can help reviving Economy Post-Corona?

?
 Why did not RBI ⏬⏬ repo to revive economy?
Why OMO → GSAP drama?
! GSAP ?

1. investor may not be interested to take

loans, but ‘unlock’ her own money. (
!)
2. Already Repo reduced from 5.##% to
4.##% ( )
3. Can’t repo ⏬⏬ more,
ELSE😰problem for depositors (
)
Outgoing (100) Incoming (100)
CRR, SLR: RBI loans

Time Deposits
Loans may be
@10%-18% Demand Deposits

Depositors
😰We are unhappy.
are happy🤩
Loans are not cheap
Outgoing (100) Incoming (100)
CRR, SLR: RBI loans

Time Deposits
Loans may be
@10%-18% Demand Deposits 2013-2018

Depositors
😰We are unhappy.
are happy🤩
Loans are not cheap
 Why should I pay more to depositors when I get cheap
money from RBI in repo, LTRO, TLRTO etc!?

Outgoing (100) Incoming (100) • 😰Depositors

unhappy
RBI loans • 😰Banks not giving
CRR, SLR: good interest.
Time Deposits • 😰Corona
Loans from lockdown= salary
6.##% or higher Demand Deposits affected.
• 😰I’m not interested
in buying any
We’re happy because expensive item. →
loans are cheap. 🤩 shopping/demand
⏬ → GDP⏬
CRR, SLR Bank Rate MSF

LAF-Repo LAF-RR SDF

OMO, GSAP Op Twist MSS

🎵 (Operation) TWIST 🎶

•
OMO .
• It’s just a special type of
Open market
Operation!
• Understand these basic
concepts 1st:
 Lower risk of default so may be 6-8% interest Higher risk :
so may be 12%

Borrower 🦁Government 🤵Companies

Bill of Exchange,
Short term Treasury bills,
Commercial
(less than 1 year) Cash Management
Papers,
→ → bills
Promissory Notes.
Long term G-Sec, Sovereign Bonds /
(1 year/>) → Bonds Debentures
 Bought @100

₹ 100 Govt repays ₹ 108

8% (coupon rate) After 1 year
1 year

𝑝𝑟𝑜𝑓𝑖𝑡 108 − 100

𝐵𝑜𝑛𝑑 𝑦𝑖𝑒𝑙𝑑 = = ∗ 100 = 8%
𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 100
 2) Secondary market is a
1) ! .
place where securities are
Wants urgent cash before maturity resold to third parties. E.g.
share market, bond market
Had Bought (more in Pillar#1C)
@100
₹ 100
8% (coupon rate)
1 year

4) Govt repays ₹ 108, but after 1 year.

 Bought @100

8% ₹ 100
8% (coupon rate)
1 year
3) Govt repays ₹ 108

𝑝𝑟𝑜𝑓𝑖𝑡 108 − 90
𝐵𝑜𝑛𝑑 𝑦𝑖𝑒𝑙𝑑 = = ∗ 100 = 20%
20% 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 90
Selling price of a ₹ 100 Yield
Face value ka bond
bought @100 8%
bought @95 14% ₹ 100
bought @90 20% 8% (coupon rate)
Bought @80 35% 1 year

Price ⬆ = Yield ⬇
Price ⬇ = Yield ⬆

🤩
 ₹100 = 1kg ₹150 = 1kg

If only 1 buyer If 5 buyers interested

Demand ⬆ = Price ⬆
 😰
₹90 =1 bond

1) I’m the only buyer.

Bhide has no option!
I’ll earn 20% yield ☺☺
 3) Now there are two interested buyers.
I can negotiate selling price of this bond!
Demand ⬆ = bond’s selling Price ⬆

₹90 =1 bond ₹95 = 1 bond

1) I’m the only buyer.

2) He has no option! 2) Bhide master, I’m also
I’ll earn 20% yield ☺☺ interested to buy it!
 3) Now there are two interested buyers. I can
negotiate selling price of this bond!
Demand ⬆ = Price ⬆

₹90 =1 bond ₹95 = 1 bond

4) RBI G-sec yield 😰😰

1) He has no option! Demand ⬆ = Price ⬆= Yield ⬇
I’ll earn 20% yield Better I invest in Ambani bonds, Zomato 2) Bhide master, I’m also
🤩🤩🤩 interested to buy it!
IPO-Shares
 Inflation •Why/how :Ans. 1C (SEBI Sharemarket)
•Lower credit rating (e.g. CCC or D) → • Wants to issue
•Means risk of default is high. Corporate Bond.
Risk / Rating •higher interest rate needs to be offered • Should offer
• • 8% or 12% to
investors?
•Higher the (Bank) deposit interest rate,
•Then higher bond interest rate needs to be
Bank deposit offered to attract households
interest rates
•To shift money from bank savings
account/Fixed Deposits to corporate bonds.
Yield on G-Sec •NEXT SLIDE
 1) Please buy my bond
2) I’m willing to offer 15%
3) I’ll use your ₹₹ to build new factory,
create new jobs, help in economic growth! 6) G-Sec yield ⏬
,
,
!!

• 5) ✋Sorry Mukesh Uncle.

• yield on G-Sec is 20%, so, I'll invest in G-Sec.
Risk very low! ( )
4) Interest 8%
• If Mukesh uncle gives me 21% only then I’ll come but Yield:20%
5) Now buy my bond,
I offer you 15%. 👿

6) Thik hai. Ok 😪😪😪

1) Suppose issued in 2010

2) Interest 8%
but Yield:20%
 4) BEFORE
Operation Twist
1) Suppose issued in 2010
Cost of borrowing high Suppose in 2020

For govt & Compnies

2) Interest 8% New G-sec New reliance bond
but Yield:20% @8%😰 @25%😰

3) If only you give me ManMohan era

interest/yield then I buy (
. )
 old-Gsec

.
Suppose issued in 2010 Suppose issued in 2020
RBI itself bought older stuff

1) Interest 8% New G-sec New reliance bond

but Yield:20% Yield:14% @6% @15%

Now I don’t have much choice in ‘investment’😰

If I don’t want to take ‘risk’ → Modi@6%
If want to take ‘risk’ → Mukesh@15%
 2) 10-14 years-walli
1) Bought ₹10k cr
G-sec (longer duration)
3) Yield⬇ → C-Bond
investment⬆ → job,GDP,growth.
 2) 10-14 years-walli
1) Bought ₹10k cr 3) Yield⬇ → C-Bond
G-sec (longer duration) investment⬆ →
job,GDP,growth.

1) Bhide master got ₹10kcr from RBI (By selling his G-Sec)
What if Bhide buys lots of onions with that ₹₹ → inflation!! 😰😰😰
→ 😰
 2) 10-14 years-walli
1) Bought ₹10k cr 3) Yield⬇ → C-Bond
G-sec (longer duration) investment⬆ → 2) Solution
job,GDP,growth. I should remove
₹10k cr from market.

1) Bhide master got ₹10kcr from RBI (By selling his G-Sec)
What if Bhide buys lots of onions with that ₹₹ → inflation!! 😰😰😰
 Suppose originally,
Money supply =100 cr₹
AFTER Op-Twist?
2) 10-14 years-walli Money supply =100 cr₹
1) Bought ₹10k cr 3) Yield⬇ → C-Bond
G-sec (longer duration) investment⬆ → Because RBI
job,GDP,growth.
➢ ++bought 10kcr ka
maal
➢ -- sold 10kcr ka maal.
sold ₹10k cr So “NET ⬆ in money
supply”
= NEUTRAL / No-change.
4) 1-3 years maturity ki G-sec =Inflation will NOT be
(shorter duration compared caused by it. (#PM-
to 10 years-walli)
Suitlelo-Yojana)
 Q1. Ambani gets ₹ → starts biz → salary for workers → inflation
Q4. EconomicTimes ke daily 50 columns were by their ⬆purchase? Ans. Outside frame of Op-Twist., 500 things
writing how this affects rupee-dollar Currency will happen. LongChain-NOTIMP-MCQ
Exchange Rate, oil price, gold price and
hidden motive of helping Corporate companies
or hidden motive of solving NPA problems.
Ans. Outside frame of Op-Twist., 500 things
will happen. LongChain-NOTIMP-MCQ

• I’ll not look @photoframe,

because I’ve a wandering
mind. ( )
• I can’t concentrate on the
thing that is being taught.
Q3) why RBI sold shorter term walli? And Q2) Why would he buy 1-3 years will G-
not longer term walli? Sec? why doesn’t he buy Ambani bonds?
Ans. Their internal decision based on Ans. May be he prefers “safety/risk-free
supply of G-Sec available. NOTIMP-MCQ investment” in G-Sec.
 OMO

Yield
RBI Buys to ⏫ RBI sells to ⏬ RBI Buy/Sells to
Money supply money supply manipulate Yield

OMO-Buy- GSAP=Timetable OMO-SELL-

Op-Twist
(Discretionary) pe buying (Discretionary)
Long live the Rote Learning
Long live the Rote Learning
Long live the Rote Learning
In PPT, I’ve used fictional numbers easy to understand & Explain e.g. 20%, 15%
In handout more realistic actual numbers given like 6.75%
but as such don’t worry about the numbers here. Just understand logic.
 Pvt Tests: Contrived MCQs. ( )

Reason#1: Quizmaster Reason#2: Deliberately setting

inexperienced.
Not analyzed past papers
Low score in private mock
test =demotivated. 
tough MCQ in free mock test,
to scare u into buying their
‘coaching/material’.
1. Whether I’m asking such
things? Is private mock test a
‘benchmark’ to predict UPSC
papers?
2. Is cut-off 200/200?

UPSC examiner
✋Yield Inversion ✋Negative Yield
in USA in Italy, China
 RBI ke loans
CRR, SLR Bank Rate MSF

RBI mein deposit

LAF-Repo LAF-RR SDF

Market stabilization scheme (MSS)

extremely poor cost benefit in preparing.
We’ll not waste time.
OMO Op Twist MSS
 .
No I want to
overcomplicate
it for myself.

Affect entire economy, but indirectly
You can quantify them as X%, ₹Y
Affect a sector of economy directly
Quantitative, Gen., Indirect
Reserve Ratios (CRR, SLR)
Rates: Bank, MSF, LAF [Repo, RR]
OMO, Op TWIST,G-SAP
MSS, SDF
Qualitative: Selective, Direct
•Moral Suasion, Direct Action
• Margin req / LTV
• Selective Credit Control:
• Credit Rationing, Consumer Credit
control / EMI, PSL
 ?
Pause Video to
Attempt it Yourself
Expansionary / expansionist policy → CRR-SLR-Repo-MSF⏬ → money supply⏫
✋ ?
Pause Video to
Attempt it Yourself
 Pause Video to
Attempt it Yourself
 Pause Video to
Attempt it Yourself
 Pause Video to
Attempt it Yourself
•CRR SLR •Taxation
•Repo Rate •Subsidy Budget is the main tool
•Open market operations •Public Expenditure of fiscal policy presented
•Priority sector lending norms •Borrowing /Public Debt annually
•& other Qualitative and •Public Private Partnership
quantitative tools •Disinvestment
•And other tools
Finance
RBI's monetary
Ministry's Fiscal
policy
policy

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

⏫Savings ( Rate (
domestic, foreign ( (
- RBI → Monetary Policy
- FinMin → Fiscal policy (tax, borrowing, subsidies).

Suppose you don’t know what is the meaning

of #3 and #4.
but we do know #1 and #2 are correct.
Pause Video to
There is only one such combination
Attempt it Yourself
RBI acts as public debt 1) Public debt = fiscal policy
manager- selling G-Sec. 2) there is no option saying
So, #3 is also right. “1, 2 and 3.”
 Pause Video to
Attempt it Yourself
1) RBI sells G-Sec

2) Result:
money supply not ⏫.
Infact ⏬
In such cause-consequence
MCQs, always attack the
wrong thing first.
Pause Video to
Attempt it Yourself
#1 definitely right.
It all depends on
validity of 3

Pause Video to
Attempt it Yourself
 RBI issue
Assets dept Liabilities
Gold (coins, bullion) Money in circulation
Foreign Securities

(Indian) Govt Securities

Rupee coins, 1 rupee note

• If Government borrowing from Central Bank,
then G-Sec in RBI Asset side ⬆ &
• Whatever ⬆ the assets-> liabilities will ⬆ in the
RBI’s balancesheet.
• So currency circulation ought to ⬆!
 :

#1 definitely right.
It all depends on
validity of 3

Pause Video to
Attempt it Yourself
 :

Deposit

Loan

deposit
Official Answerkey from RTI (2012)

ans-key
 Tragedy of commons:
Nobody files representation
thinking ‘others will do it’ &
one week deadline is over!

Lessons:
1) Go by elimination, don’t overthink the logic Limited window for
like Birbal ki Khichdi. 1 week only
2) Don’t waste time debating answerkeys in
online forum. If problem in Q- you can file
online representation to UPSC
 Pause Video to
Attempt it Yourself
5) Now buy my bond,
I offer you 15%. 👿

6) Thik hai. Ok 😪😪😪

 Pause Video to
Attempt it Yourself
→
G-Sec yield/Profit= 6%
⏫ → Minus Inflation = 6%
Real Interest Rate or Real Profit = 0%

Onion price ₹100 → ⏫ ₹106

Gold Investment Profit = 7%
Minus Inflation = (-) 6%
Real Interest Rate or Real Profit = +1%
G-Sec yield/Profit= 6%
Minus Inflation = (-) 6%
Real Interest Rate or Real Profit = 0%

→
→ G-Sec yield⏬
#3 is right #3 is wrong

Indian G-Sec Yield Indian G-Sec Yield

Inflation Inflation
Only one option where
2 and 3 are together
Pause Video to
-> Answer Attempt
is “D”.it Yourself
 1) This requires knowledge of
1) 3A: FPI
2) 3A: Currency Exchange
Rate,
3) So wait and watch.
1. What about 2) But even without knowing
it, u can arrive at answer
actions of USA
Federal
Reserve?
 Pause Video to
Attempt it Yourself
In inflation -> RBI will sell G-Sec to reduce money supply
By Elimination the
answer is B
Pause Video to
Attempt it Yourself
 1) This requires knowledge of
1) 3A: FPI
2) 3A: Currency Exchange
Rate,
3) So wait and watch.
2) But even without knowing
What is meaning it, u can arrive at answer

of statement 2
and 3
Affect entire economy, but indirectly
You can quantify them as X%, ₹Y
Affect a sector of economy directly
Quantitative, Gen., Indirect
Reserve Ratios (CRR, SLR)
Rates: Bank, MSF, LAF [Repo, RR]
OMO, Op TWIST,G-SAP
MSS, SDF
Qualitative: Selective, Direct
•Moral Suasion, Direct Action
• Margin req / LTV
• Selective Credit Control:
• Credit Rationing, Consumer Credit
control / EMI, PSL
 ⬆ • Sir, please try to collect
⬆ Money Inflation more taxes from people.
⬆govt supply • So, you’ve to borrow less
borrowing from RBI = inflation control.
from RBI
Governor 2 AxisBank
madam
.
Bad loans ⏫
In moral suasion,
RBI governor asking
banks to cut loan NIOS: Page 283
rates, isn’t that
‘quantitative’? Q. @Delhi’s *** sir’s notes OMO is given in
qualitative tools then how can you say its
Ans. We follow
quantitative? What is your reference!!?
textbooks Ans. (1) Then ask him to explain, how can I
TN Class12, page 104 explain why he did that? (2) I’m not writing
research paper ke I’ve to give you ‘reference’ for
Please don’t waste time and energy in such things everything. It’ll increase pages & printing cost.
2018, CEA Arvind S. gave 3 pages for a simple thing
that climate change harms farmer.

.
Quantitative, Gen., Indirect
Reserve Ratios (CRR, SLR)
Rates: Bank, MSF, LAF [Repo, RR]
OMO, Op TWIST,G-SAP
MSS, SDF

Qualitative: Selective, Direct

•Moral Suasion, Direct Action
• Margin req / LTV
• Selective Credit Control:
• Credit Rationing, Consumer Credit
control / EMI, PSL
 • Using these laws 1934 •RBI Act Pillar1B1
• I can penalize bank,
non-bank, PSO,
1949 •Banking Regulation Act
Forex dealers for my Pillar
•Foreign Exchange
violating norms. 1999 3
Management Act
•Prevention of money Pillar
• e.g. ordered banks to have “clawback“ 2002
laundering Act 2002 2B
mechanism in Bank-CEO payment.
• If Bank-CEO committed fraud/scam- he’ll can
•Payment & Settlement
be ordered to ‘return’ his previous salaries. 2007
• System Act
Pillar3
Quantitative, Gen., Indirect
Reserve Ratios (CRR, SLR)
Rates: Bank, MSF, LAF [Repo, RR]
OMO, Op.TWIST
MSS, SDF

Qualitative: Selective, Direct

•Moral Suasion, Direct Action
• Margin req / LTV
• Selective Credit Control:
• Credit Rationing, Consumer Credit
control / EMI, PSL
 Gold worth Rs. 1 Lakh

I want to pledge my wife’s ₹ 1 lakh worth gold jewelry

to borrow money for shooting a movie.
 1) Borrower pledging
Gold worth Rs. 1 Lakh

3) To fight
deflation, I must
2) Sorry Mr. Khiladi, I can’t encourage
give ₹1 lakh loan demand

RBI LTV How much loans

Before 75% 75,000
₹ After 80% ₹ 80,000 1 kg = Rs.5
 1) Borrower pledging
Gold worth Rs. 1 Lakh

3) Movie shooting starts.

500 extra dancers & stuntmen’s
daily food Expenditure bourn by
2) 2) Sorry Mr. Khiladi, I
Akshay → Onion Demand⏫
can’t give ₹1 lakh loan

RBI LTV How much loans

Before 75% ₹75,000
After 90% ₹90,000 1 kg = Rs.5, 30
Priority#1: Priority#2, RBI Priority#2,
Day1 se…. when #1 is Priority#1: …. when #1 is
• Finish core done • Control done
Syllabus • Main Answer inflation in • Boost GDP
of a Subject Writing 2-6% range growth rate
• 2020- this was done
• Not primarily for fighting ‘deflation’

• But for boosting demand → GDP growth rate for

post-corona economic revival.
•What is the difference between Margin
requirement and Loan to Value ?
•Explain their difference to me.

•Basic understood with Akshay Kumar

example.
•Beyond that, “A vs B difference” of
these minor topics = NOT IMP for Exam.
PHD

✋✋
Quantitative, Gen., Indirect
Reserve Ratios (CRR, SLR)
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
One Russian person is eligible for
1. Homeloan NOT MORE than 10 lakh Ruble @x%
( )
2. Education loan NOT MORE than 2 lakh Ruble
@y% ( )

Russian Central Bank

• would change these limits
• to shape economy in a particular direction
• e.g. ⬆ homeloan → growth in steel,
cement…
 32.5
49
66

67.5
51
34
…..
1951 1961 1968
Loans to Industrialists Others
 Without giving loans to
32.5 poor/farmers, we can’t achieve:
49 1. Green Revolution:
66 2. Food Security:
3. Inclusive Growth:
67.5
51 4. Poverty Removal:
34

1951 1961 1968

Loans to Industrialists Others
Corruption:

• Crooks would bribe ministers suitcase full of money to pressurize Public Sector Bank (PSBs)
• to give loans to non-viable projects → scam → start new company.

Banks Directorship by elites: similar to Bollywood-Nepotism Gang

• By 1960s: 188 people were in board of top 20 banks & 1452 companies
• ‘Elites /Bollywood NEPO-gang’ types controlled the loan distribution behind curtains.
•

Had to break this cycle

• Late 60s: Green revolution: hybrid seeds, fertilizer to ⏫ food production
• But farmers needed loans to buy these inputs😰
 Failed due to nexus of bizmen.
SCC & incorrect reporting by bankers

NEGATIVE
attitude

Ceiling to Ceiling to →
non-agro big loans

• Non-food sector (=mfg, service) • 1 borrower eligible for <₹1 cr Loan only.
• not eligible for more than “x%” of • If bigger loan req, then get permission
loans given by a bank from RBI.
•
 😰 Failed SCC

NEGATIVE Positive
way attitude

Consumer Priority
Ceiling to Ceiling to big
Credit Sector
non-agro loans
Control Lending
Quantitative, Gen., Indirect
Reserve Ratios (CRR, SLR)
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
 • For this example, we are
considering
• ‘loan interest rate=0%’
Initial norms During recession
• for the sake of simplicity
Car price ₹1,20,000 Car•Loan 120000
Min. Downpayment ₹ 20,000 ( ) 2,000
0%
Min. Each Installment ₹ 10,000 x 10 months 1000 x 118 months
 Initial norms During recession
Car Price ₹1,20,000 Car Loan 120000
Min. Downpayment ₹ 20,000 ( ) 2,000
Min. Each Installment ₹ 10,000 x 10 months 1000 x 118 months

My monthly salary My monthly income

is ₹50,000= so I is ₹5,000= so I can
can afford this.🤩 not afford this😰.
 Scene where demand ⏬
production, jobs falling.
More Pill4C

Initial norms During Recession ( )

Car price ₹1,20,000 ₹1,20,000
Min. Downpayment ₹20,000( ) ₹ 2,000⏬
Min. Each Installment 10,000 x 10 months ₹ 1000 x 118 months
GDP ⏫
Production⏫
Demand⏫ \
Now even poor people can buy, because installment are affordable
 SCC

NEGATIVE
Positive Way
way

Consumer Priority
Ceiling to Ceiling to big
Credit Sector
non-agro loans
Control Lending

–
Reached upto page 82
 Quantitative, Gen., Indirect
Reserve Ratios (CRR, SLR)
Rates: Bank, MSF, LAF [Repo, RR]
OMO & MSS, SDF

Weightage to
PSL Quotas? Backward Qualitative: Selective, Direct
Districts •Moral Suasion, Direct Action
• Margin req / LTV
Penality for • Selective Credit Control:
PSLC
Non- • Credit Rationing, Consumer Credit
Certificates
compliance control / EMI, PSL
• 1968: first time RBI used the word “priority sector”
• ordered banks to give atleast 40% of their total loans to
• 1) agri 2) small industries 3) exports…. by 1985.
 Category Min
PSL-Quota Asset Liability
Weaker sections 12%
CRR+SLR: __
Time, Demand
Deposits
Loanable funds _

– .
 Don’t be stressed
over exact figures

Rural / urban livelihood mission

schemes. More in Pillar#6
 Category Min
PSL-Quota Asset Liability
Weaker sections (SC,ST,Women, 12%
CRR+SLR: __
PH….) Time, Demand
Agriculture: all type of farmers 8% Deposits
Agro Loanable funds _
(small, marginal, big)..
Agriculture: 10% 18%
*Marginal Farmer (upto 1ht);
*Small farmer (>1 upto 2ht)
Bank is free to give more loans than this quota,
but this is the minimum requirement.
%
.
 Micro Small Medium

Investment • ≯1 cr • ≯10 cr • ≯50 cr

AND • and • and • and

Turnover • ≯5 cr • ≯50 cr • ≯250 cr

Not in handout at present. Since we’ll
see it at Pillar1D and then Pillar4B
Pillar1D: Financial
Inclusion
•Mudra loans
•What is MSME?
•What is their definitions, turnover
limit etc Aachar, Papad, Agarbatti, Almaari …. = MSME ✅
•Ans. Pillar1D: MUDRA loans.

Pillar4B
•issues in Pillar4B: mfg industries
NOT MSME. These are large companies
 Category Min.PSL-
Quota Asset (100) Liability (100)
Weaker sections (SC,ST,Women, 12%
CRR+SLR: __
PH….) Time, Demand
Agriculture: all types of farmers 8% Deposits
Loanable funds _

Agriculture: *Marginal Farmer (upto 10%

1ht); *Small farmer (>1 upto 2ht)
Micro Enterprises, 7.50%
Khadi-Village industries

– .
 Cat Min.PSL-
Quota Asset (100) Liability (100)
Weaker sections (SC,ST,Women, 12% CRR+SLR: __
PH….) Time, Demand
Deposits
Agriculture: all farmers 8% Loanable funds _

Agriculture: *Marginal Farmer (upto 10 %

1ht); *Small farmer (>1 upto 2ht)
Micro Enterprises, Khadi-Village 7.50%
industries
Above parties and additionally, 2.50%
+ Small & Medium Enterprises,
affordable housing, education loans, Many other categories, given in your handout. Read peacefully
social infra, renewable energy,… just for ‘word association’. How/WHY: not req.
 Cat Min.PSL-
Quota Asset (100) Liability (100)
Weaker sections 12% CRR+SLR: __
(SC,ST,Women, PH….) Time, Demand
Deposits
Agriculture: all farmers 8% Loanable funds _

Total
Agriculture: *Marginal Farmer (upto 10 %
1ht); *Small farmer (>1 upto 2ht)
Micro Enterprises, Khadi-Village 7.50%
industries
Above cat. + other categories like 2.50%
Small & Medium ent, Startup, Remaining 60% of the loans
40% of the loans can goto anyone (including
Affordable Housing, Education Loans,
Social Infra, Renewable Energy,…
should go here. these PSL-walla)
 Do I’ve to
remember Before 2020
old quotas? quotas were different From 2020 :quotas
changed.
We learned latest
quotas

• Ans. No. But comparision is given because

quota reforms to be implemented in Phase-
Wise manner by 2023-24.
• So everytime there will be newspaper explained
series. Need not raise blood pressure. Because
already latest norms taught to you.
 Micro Small Medium

Investment • ≯1 cr • ≯10 cr • ≯50 cr

AND • and • and • and

Turnover • ≯5 cr • ≯50 cr • ≯250 cr

Not in handout at present. Since we’ll
see it at Pillar1D and then Pillar4B
 •Not older than 10 years AND
• → MSME
Age •(
)
• MSME → Startup
Annual •Not more than ₹100 cr AND
turnover •( ) •

•innovation in goods/services.
•
Function
startup .
MSME
 BEFORE AFTER 🤩All types of
✅Startups in Startups eligible,
Agro-Food upto
Processing
₹50 cr loans

✅Startups in
MSME

PSL ✋Other startups

e.g. Unacademy
quota loans
 Reliance not
‘startup’.
But can get PSL
Need not memorize everything. ✅Just remember few examples loans upto
for how it help in Economic growth, environment protection, 30cr (renewable)
UN-SDG goals (REF: Pillar6) 10 cr (hospital)
 Quantitative, Gen., Indirect
Reserve Ratios (CRR, SLR)
Rates: Bank, MSF, LAF [Repo, RR]
OMO & MSS, SDF

Weightage to
✅PSL Backward Qualitative: Selective, Direct
Quotas? Districts •Moral Suasion, Direct Action
• Margin req / LTV
Penality for • Selective Credit Control:
PSLC
Non- • Credit Rationing, Consumer Credit
Certificates
compliance control / EMI, PSL
 • I’ll not do hardwork of finding really
needy Farmers in backward districts
• I’ll easily finish quota by focusing on
big developed districts like Pune,A’bad

PSL Gujarat- Maharashtra

Jharkhand
😰
Step#1: In the past, How many PSL loans
given in a district vs its population?

PSL-
 Asset Liability (x)
CRR+SLR:
Deposits
Loans: 250
 Asset Liability (x)
2) Weightage sys for districts
CRR+SLR:
Forward/ Backward Deposits
developed district Loans: 250
(e.g. A’bad) (Dantewada)
• -10% weight • +25% weight

₹100 loan
₹90
😰 so he may have
to loan more qty to
achieve target
 Asset Liability (x)
2) Weightage sys for districts
CRR+SLR:
Forward/ Backward Deposits
developed district Loans: 250
(e.g. A’bad) (Dantewada)
• -10% weight • +25% weight

₹100 loan
₹90 ₹80 loan
😰 so he may have ₹100 PSL calculation: weightage/scoring
sys
to loan more qty to 🤩
achieve target
 Need not prepare
actual definition

Actual definition of PSL

40 per cent of Adjusted
Net Bank Credit (ANBC)
or credit equivalent
amount of off-balance
sheet exposure (OBE),
whichever is higher
But we need not do
b.Com/PHD on this
We’ll learn these subtypes
peacefully in 1B-1banking
classification lecture.

40%
40%
N/A 75%
40%
40%
75%

75%

Payment Banks can’t give

loan, so PSL doesn’t apply.
Foreign bank with <20 branches in
India:
•internal quotas are different

Regional Rural Banks (RRB)

•weaker section 15%

BUT ✋NOT IMP 4 IAS

 SCB: scheduled ✋This much depth
commercial not required!
banks (Meaning Foreign ✋
1b1) Banks in
India #🕰 - - -

40%
20 branches <20
40% or more branches
40%
40%
40% quota including • 40% PSL quota loan quota
75%
internal quota for farmer, from
75% weaker section etc. • But their internal quota
Can’t loan, so doesn’t apply.
Just like Indian scheduled different. HOW much%?
commercial banks. NOTIMP.✋
Home loans in Before 2018 Afterwards Ceilings
Metropolitan Areas (with Home Loans upto 28 35 lakhs upgraded to
population of 10 lakhs lakh account for
rising prices in
/>)
housing
Other areas Home loans upto 20 25 lakhs sector.
lakhs
Affordable housing Family must have annual - EWS: 3 lakhs or less
projects for EWS/LIG income of 2 lakh or less - LIG: 6 lakhs or less
Always look at the previous five years
✋This much technical depth not required
papers, to gauge the ‘depth’ and
✋
‘span’ necessary.
 Bank •Lends to

Microfinance •Lends to
Company

What is Microfinance
company? PSL Counted in
Ans. Pillar#1b1: Bank- borrowers Bank’s PSL quota-
NBFC classification
fulfillment.
lecture.
 7 lakh
Bank NBFC ‘co-
lending’
(5 lakh) (2 lakh) for farmer’s
tractor loan

More in Bank-NBFC
classification lecture. 5lakh Counted in Bank’s PSL quota-fulfillment.
But why is bank not giving farmer
7 lakh?
Ans. Looking at his credit history,
banker may not be feeling
confident to give him 7 lakhs!
 Let’s frame some crazy MCQs
from this.

Why did not u teach this?

?
Because it’s not imp4EXAM
 ✅Weightage
✅PSL
to Backward Quantitative, Gen., Indirect
Quotas?
Districts Reserve Ratios (CRR, SLR)
Rates: Bank, MSF, LAF [Repo, RR]
Penality for OMO & MSS, SDF
PSLC
Non-
Certificates
compliance

@RBI: Qualitative: Selective, Direct

•Moral Suasion, Direct Action
• Margin req / LTV
→ • Selective Credit Control:
• Credit Rationing, Consumer Credit
? control / EMI, PSL
 PSL target !
RBI Governor
? REPO RATE
? !!

Small marginal Farmer:₹10

Suppose
Interest: 7%
Tenure: 3 years Penality !!
 NABARD

PSL short fall

EXIM
SIDBI
1) PSL quota shortfall: ₹10 → RBI will order bank to give it to NHB
2) They’ll return it after may be 10 years. Interest 4.25% MUDRA
Years, interest % are hypothetical.
3) If “Directly” given • banks’ money will get LOCKED in for long time @ low interest
Suppose in some other institute.
Interest 7%
• So, in a way, this is the ‘hidden-penalty’ for not full-filling PSL
Tenure 3 years loans.
 underperformer
Overachiever Amir Sharman Joshi
Khan (4 research ( 2 research paper
paper published)
published)
 Bhai Amir! plz sell me
your one research paper
for ₹ 5,000!

Overachiever underperformer
Amir Khan Sharman Joshi
(4-1) → 3 (2+1) → 3
 Cat
Weaker sections
Agriculture: all farmers
PSL-Quota
2) But, We don’t
a have such network
in rural areas!😰
b

Agriculture: *Marginal Farmer (upto c

1ht); *Small farmer (>1 upto 2ht)
Micro Enterprises, Khadi-Village d
1) I already
industries
crossed this
Above parties + Small & Medium e
target Enterprises, affordable housing,
=Overachieving education loans, social infra, 3) give us your excess quota, in
bank. 🤩 renewable energy,… form of certificates,
we’ll pay you some money.
 RBI E-Kuber

12 cr. 8 cr.
loan loan

• Then give us your excess quota, in form of

certificates,
• we’ll pay you some money. E.g 50,000
SBI SBI gets Seller fee
e.g. ₹5 lakh
RBI E-Kuber

12 cr. loan 8 cr. loan

Left with 10 Achieved 10

• Overachiever gets Seller fee (determined by supply demand of

players. )
• PSLC =a type of Short term accounting instrument.
• Farm loans → Govt pays interest subsidy/interest subvention
,
• Government sometimes gives loan waivers.
,
• It is not RBI’s monetary policy.
• It is fiscal policy. More in Pillar1D & 2
 • , ?
• .
• .

Handout is the primary thing for revision .

Powerpoint is only for ‘explanation’
PPT doesn’t contain all factual details
 ✅Quantitative, Gen., Indirect
Reserve Ratios (CRR, SLR)
Rates: Bank, MSF, LAF [Repo, RR]
OMO & MSS, SDF

• How it is made in real ✅Qualitative: Selective, Direct

life? •Moral Suasion, Direct Action
? • Margin req / LTV
• Selective Credit Control:
• MPC Committee • Credit Rationing, Consumer Credit control
• Bi-monthly policies / EMI, PSL