Money:

-Double coincidence of wants

-Medium of exchange

Forms of money:
-Currency: Ihe Reserve Bank of India issues currency notes on behalf of the
central government. MEdium of exchange
-Bank: demand deposits,cheque

Loan:
-Deposit/borrow/ROI

-Bank,cooperative society,landlords,moneylenders,traders,relativesa and other

Formal: Supervision
Informal:
Debttrap

poor housholds 85% informal

households with few assets 53%
well-off 28%
rich 10%

Credit:
-profit: positive role in this situation
-loss: pushes the borrower into a situation from which recovery is very
painful.

TERMS OF CREDIT:
- Collateral: It is an asset a browwer owns and uses as a guarantee to a
lender until loan is paid
- Intrest rate:
- Document requirment
- Mode of repayment

Self Helped groups:

-Collect small amount from each
-lend money at less intrest
-eligble for loan after they reach few limits

Monetary policy:(MoP)
-Stabilising the volatile prices.
-Central bank(RBI) has the power to arrest the price fluctuations by means of
monetart polices
-Role: To ensure price stablility caused by,
Inlfation,deflation(Control)
Maintain financial conditions for sustaining growth
-Price stability is the pre-requisite for economic growth

Defination:
-It is a process by which country controls the supply of money and,
-Targeting the rate of intrest for purpose of promoting economic growth and
stablitity

Goals:
-Stabilise the prices
 -reduce unemployment level

Types:taxation and expenditure

Expansionary:When the economy growth is too slow the government lowers taxes
or makes new projects which increases spending and stimulates the economy.
Contractionary:When economy is growth is too high, the governmemnt increases
taxes to slow down spending which destimulates the economy.

Functions of central bank:

Custordy and managment to foregin exchange reserves
Acting bank to bankers
Acting bank to govt
Lender of the last resort
Controller of credit
-Excerise discretionary control over monetry systems

RBI announces MoP 6 times a year(Supply of moeny and ROI)

- economic overview and present and future forecast

Instruments of MoP
-Quantitative(supply of money)
-Bank rate(Discount rate)
-Official rate at which RBI provides loan to
bank(commercial/cooperative/development banks)
-Given by means of:
-Direct lending
-Rediscounting(Buying back) the bills of commercial banks
and treasury bills
#### Money supply need to be incresed they grant loan at lower ROI(Low Bank rate) >
Incre percapita income and vice versa

-repo rate(Repurchase rate)

-Lend loan for short period
-Done by buying bonds with an agrement to sell them at fixed rate
Objective:
- TO inject liquidity in system
- toll to cntrol money supply in market
Diff Bank and Repo:
-long/Short term
-Used to control amount of money in market(Liquidity)

-reverse repo rate:

-RBI borrows funds from other banks at higher ROI to defict money
in market
Why RRR? To control money supply in country
-By selling them govt bonds and securities or ROI,
commiting to buy back from them at future rate
- The bank use RRR to gain intrest by depositing short term
excess funds
-RBI can reduce the liquidity in banking system by incresing the
roi from which it borrows
- banks earn more intrest
-reverse repo rate would not be announced separately but will be
linked to repo rate.
-The reverse repo rate will be 100 basis points below repo rate.
(=minus 1%)
### Increse RRR to reduce liguidity in market
###Policy instruments of rbi : repo and rrr
 -open market operations:(OMO)
-Whenever there is excess of liquidity in market, RBI resorts to
sale "G-secs" > to suck out rupee from system
-Ohter hand liquidity crunch in market, RBI buys securities from
mrkt
Def:Purchase / sale of G-secs by RBI from/to market.
Objective:
- To adjust the liquidity conditions of rupee in the economy
- RBI sell>bank purchase>reduced money > rupee contracts >
reduces credit supply
- RBI purcahse >bank/ppl sells >incresed money > more credit
-gilt-edged securities, or gilts: platform to sell G-secs to ppl
from giltz in bank
#### Buy G-secs to Decrese credit and vice versa

### -Cash reserve ration(CRR):

Def:CRR is the amount fund that banks are bound to keep in RBI as
a percentage of the NDTL(Net Demand and Time Liablilities).
-CRR can only altred by RBI
-RBI doesnt pay intrest for CRR balance
-in RBI premises
-Maintained daily fortnight

Demand(Saving/current) and time(Fixed/RD)

????? NDTL?
Obj: TO ensure adequate liquidity in financial system
Enough solvency for the banks
###CRR reduces>banks need to keep less funds>more to lend>less ROI > increse
inflation
###CRR Increses>less funds>decs money supply> more ROI> decres inflation

How CRR fixed?

-RBI empowed befor 2006, 3-20%
- Present no limt on CRR

-Statutory liguidity ration(SLR):

Def:All bank have to keep a fraction of ndtl in from of liquid
assets
-G-sec,precious metals,Approved securities amongst
others(Ex:Cash,gold,Balances with RBI,Net balance in Current account ,G-sec)
-in bank's premises
-Section 24(24) of Bank regulation act 1949(23% SLR)(As now
21%)
-Maintained daily fortnight
-Narsimham committe(38.5-25% SLR)
###SLR reduces>banks need to keep less funds>more to lend>less ROI > increse
inflation
###SLR Increses>less funds>decs money supply> more ROI> decres inflation

Diff CRR and SLR

-In RBI premises and IN abnk
-Cash and other forms
-CRR is Less than SLR

-Liquidity Adjustment facility(LAF):(Liquidity corridor)

- This is the primary instrument of RBI for modulationg liquidity and
sending intrest rate signals to market
-It refers to diffrence bw repo/reverse repo rate
-The corridor b/w repo and rrr is LAF
 -Min credit limit is Rs.5 cr

-Marginal Standing Facility(MSF):

-It is rate at which banks able to borrow overnight funds from rbi
against G-secs.(Diffe from repo is that its overnight, and at )
-The MSF rate will be 100 basis points higher repo rate.(=Plus 1%)
-Min credit limit is Rs.1 cr

-Qualitative(Qualitative lending):
-It controls the purpose for which loans are assigned to banks

-Moral suasion(RBI refer to not to give out certain loans)

-Margin requirements(More margin(ROI) , less loan and qualitative and
ViVe)
-Rationing of credits:Consusmer credit regualtion and guidelines(Amount
of money, no if installments)
-Direct action()