Learn RBI payment systems in detail, including NEFT, RTGS, UPI, NPCI, NACH, IMPS, payment regulation, FMIs, digital payments, RBI-DPI, TReDS and customer protection.

RBI Payment Systems: Complete Guide to NEFT, RTGS, UPI, NPCI and Digital Payments

India’s payment ecosystem has moved from coins, hundis and paper instruments to an extraordinarily sophisticated digital infrastructure involving RTGS, NEFT, UPI, NACH, IMPS, card networks, Aadhaar-based payments and other technology-driven systems. At the centre of this evolution is the Reserve Bank of India.

Understanding RBI payment systems is therefore not merely about memorising the names of digital-payment products. It requires understanding why payment systems matter, what role RBI performs, how payment systems are regulated, how settlement occurs, and how India’s retail and large-value payment architecture fits together.

For RBI Grade B, RBI promotion examinations and banking examinations, this distinction is crucial.

What is a payment system?

A payment is essentially a transfer of money from a payer to a payee, normally for discharging an economic obligation.

Payment systems are the infrastructure and arrangements through which these transfers are initiated, processed, cleared and settled.

Central banks have historically been connected with payment systems because money itself depends on trust. The evolution from metallic money to paper and fiduciary money increased the importance of institutional mechanisms capable of maintaining confidence in money.

Three roles of RBI in payment systems

One of the best ways to understand RBI’s role is:

Provider + Regulator + User

RBI as system provider

Central banks have traditionally developed or operated payment infrastructure. Large-value payment systems are frequently operated by central banks, and settlement can ultimately occur in central-bank money.

This is important because central-bank money provides a highly secure settlement asset, while the central bank can provide liquidity against collateral during stress.

RBI as regulator

RBI:

oversees payment systems;
establishes rules;
operates within a legal framework;
facilitates safe and efficient payment infrastructure;
works to reduce systemic risk.

RBI as user

RBI itself participates in payment infrastructure because it is:

banker to banks;
banker to government.

This also allows it to observe and respond to disruptions in payment systems.

Payment and Settlement Systems Act, 2007

The Payment and Settlement Systems Act, 2007 provides the legal framework for regulation and supervision of payment systems in India.

Under Section 3, RBI is the designated authority.

The Act also provides for the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS).

Two concepts are particularly important:

Netting

Multiple payment obligations are offset and the resulting net obligation is settled.

Settlement finality

Settlement finality means that the relevant obligation has been discharged through a transfer of funds or securities that has become irrevocable and unconditional.

This distinction matters because the PDF identifies RTGS as the major system operating on a gross settlement basis, while other payment systems generally function on net settlement arrangements.

Evolution of India’s payment systems

India’s payment history is much older than electronic banking.

The Mauryan-era adesha represented an early form of payment instruction, while hundis became important instruments for remittance, credit and trade.

Modern paper currency appeared in the late eighteenth century. The Paper Currency Act of 1861 subsequently gave the Government of India the monopoly over note issue.

The Negotiable Instruments Act, 1881 created a legal framework for cheques, bills of exchange and promissory notes.

With the establishment of RBI in 1935, Clearing Houses in the Presidency towns came under RBI.

From MICR to CTS

The rapid growth of cheque volumes in the 1980s made manual processing increasingly difficult.

The answer was:

MICR — Magnetic Ink Character Recognition

MICR processing centres began with Mumbai in 1986, followed by Chennai/New Delhi in 1987 and Calcutta in 1989.

The next major development was:

CTS — Cheque Truncation System

CTS was introduced first in New Delhi in 2008.

Instead of physically moving cheques throughout the clearing process, cheque information and images are processed electronically.

Easy memory trick

MICR reads the cheque.
CTS truncates the cheque.

NEFT vs RTGS

Two of India’s most important payment systems are NEFT and RTGS.

NEFT

The National Electronic Funds Transfer system is a nationwide retail electronic payment system.

It facilitates one-to-one transfers and is operated by RBI.

The system operates 24×7, with settlement in half-hourly batches.

RTGS

Real Time Gross Settlement is India’s systemically important large-value payment infrastructure.

RTGS settles transactions:

in real time;
on a gross basis;
in RBI books.

It was first introduced in 2004 and upgraded to Next Generation RTGS in 2013.

RTGS has operated 24×7×365 since 14 December 2020.

NEFT reached 24×7×365 operation from 16 December 2019.

The fundamental difference

NEFT = batch settlement

RTGS = real-time gross settlement

NPCI and India’s retail payment ecosystem

The National Payments Corporation of India was established in 2008 as an RBI/Indian Banks’ Association initiative.

It is a not-for-profit organisation created to build payment and settlement infrastructure.

NPCI has subsequently become central to numerous retail-payment systems.

These include:

NFS;
IMPS;
UPI;
NETC;
RuPay;
AePS;
APB;
BBPS and other infrastructure.

What is UPI?

Unified Payments Interface (UPI) is a digital payment architecture that allows multiple bank accounts to be accessed through a participating bank’s application.

It supports:

person-to-person payments;
merchant payments;
collect requests;
multiple identifiers;
24×7 transactions.

Unlike a traditional wallet, UPI itself does not function by holding customer funds within the UPI system. Transactions directly involve the linked bank account.

The PDF also notes that the UPI ecosystem includes savings accounts, overdraft accounts, prepaid wallets, RuPay credit cards and pre-sanctioned credit lines under the framework described.

IMPS vs UPI

Both are important NPCI systems but should not be treated as identical.

IMPS

Designed for:

instant;
24×7;
interbank;
electronic fund transfer.

UPI

Provides:

account linking;
merchant payments;
P2P collect;
multiple payment identifiers;
application-based payment experience.

The easiest conceptual distinction is:

IMPS = instant transfer infrastructure

UPI = interoperable payment interface/ecosystem

NACH

NACH, or National Automated Clearing House, is designed for:

bulk payments;
repetitive payments;
recurring transactions.

It gradually subsumed ECS.

NACH has pan-India reach and is available all days of the week from 1 August 2021 according to the PDF.

Examples include:

salary payments;
dividends;
interest;
utility collections;
other recurring/bulk payments.

Other major NPCI systems

NETC

The National Electronic Toll Collection programme provides interoperable electronic toll payments.

Its most visible component is FASTag, which uses RFID technology.

AePS

Aadhaar enabled Payment System enables banking transactions through micro-ATMs using Aadhaar authentication.

Services include cash withdrawal, cash deposit, transfers and balance enquiry.

Aadhaar Payment Bridge

APB supports government benefit and subsidy transfers, helping implement Direct Benefit Transfer.

RuPay

RuPay is India’s indigenous card network developed by NPCI.

NCMC

The National Common Mobility Card is an interoperable transport card based on the RuPay mechanism. It was launched on 4 March 2019.

Financial Market Infrastructure

Payment systems are not all classified identically.

Systemically important payment infrastructure is part of the broader concept of Financial Market Infrastructure.

An FMI can include:

payment systems;
Central Securities Depositories;
Securities Settlement Systems;
Central Counterparties;
Trade Repositories.

FMIs are essential for financial stability, but their systemic importance also means that failures can transmit shocks across financial markets.

The Principles for Financial Market Infrastructures were issued by CPSS and IOSCO in April 2012 and contain 24 principles.

CCIL

The Clearing Corporation of India was established in April 2001.

It provides clearing and settlement infrastructure for:

Government securities;
foreign exchange;
money markets.

It acts as a central counterparty in several RBI-regulated market segments and also performs Trade Repository functions for OTC interest-rate and forex derivatives.

Payment Aggregator vs Payment Gateway

This distinction is frequently misunderstood.

Payment Aggregator

A PA:

connects merchants with acquiring institutions;
receives customer payments;
pools funds;
transfers them to merchants.

Payment Gateway

A PG:

supplies technology infrastructure;
routes payment transactions;
does not handle funds.

Memory

Aggregator = aggregation of money

Gateway = gateway for information/payment routing

Card security and tokenisation

RBI’s framework allows card tokenisation.

Tokenisation replaces sensitive card details with tokens.

Its objective is to reduce:

data exposure;
fraud;
risks from storage of card information.

Customer consent is important.

Another important card-security concept is Additional Factor Authentication, which can include:

PIN;
OTP;
other permitted authentication factors.

Positive Pay

Positive Pay is intended to improve cheque security.

For high-value cheques of ₹50,000 and above, banks re-confirm important cheque details supplied by the issuer before clearing under the framework described in the PDF.

The objective is straightforward:

verify key details before payment.

RBI Digital Payments Index

The RBI-DPI measures the degree of digital-payment penetration and development.

Its base period is:

March 2018 = 100

It is published semi-annually.

The five parameters are:

Parameter	Weight
Payment Enablers	25%
Payment Infrastructure — Demand	10%
Payment Infrastructure — Supply	15%
Payment Performance	45%
Consumer Centricity	5%

The highest weight is therefore Payment Performance — 45%.

RBI and digital-payment customer protection

Payment innovation creates risks, so RBI has also focused on:

cyber resilience;
customer liability;
tokenisation;
e-mandates;
ODR;
direct non-bank access to centralised payment systems.

Eligible non-bank entities obtained direct access to RBI-operated RTGS and NEFT centralised payment systems from 28 July 2021 under the framework described.

This can reduce dependence on banks and ensure settlement in central-bank money.

Online Dispute Resolution

RBI introduced ODR guidelines in August 2020.

They became effective from:

1 January 2021

The framework aims for dispute resolution that is:

transparent;
rule-based;
system-driven;
user-friendly;
unbiased;
minimally manual.

Initially, failed digital transactions were an important focus.

RBI’s payment-system vision

The long-term evolution of India’s payment system is based on increasing:

accessibility;
affordability;
security;
convenience;
interoperability;
digital penetration.

The Payment System Vision documents provide the roadmap for this evolution.

The PDF highlights the broader objective of making payment options available anytime and anywhere, while also supporting the global outreach of India’s domestic payment systems.

Final exam takeaway

Do not memorise India’s payment ecosystem as a random list.

Use this architecture:

RBI

Regulator + Provider + User

↓

Large-value / systemic

RTGS

↓

Retail transfer

NEFT

↓

Retail ecosystem

NPCI

↓

Instant

IMPS

↓

Interface

UPI

↓

Bulk

NACH

↓

Toll

NETC

↓

Aadhaar

AePS + APB

↓

Cards

RuPay

↓

Bills

BBPS

↓

MSME receivables

TReDS

↓

Infrastructure

CCIL / FMI

↓

Measurement

RBI-DPI

↓

Protection

Tokenisation + AFA + ODR + cyber resilience

That is the conceptual structure behind RBI’s payment-system function.

RBI’s Functions and Working — Master Transformation

CHAPTER 13 — PAYMENT AND SETTLEMENT SYSTEMS

13.1 Why payment systems matter

Central banks have historically been closely associated with payment and settlement systems because well-functioning payment systems support:

economic activity;
stable financial markets;
efficient transmission of monetary policy;
mitigation of systemic risk;
trust in money.

The historical origin of central banking itself is linked to the evolution from:

Metal → Paper → Commodity money → Fiduciary money

“Fiducia” means trust. The central bank’s institutional role is therefore closely connected with maintaining trust in money.

Definition: Payment

A payment is the transfer of money from the payer to the payee, usually to discharge an obligation arising when an economic agent acquires real or financial resources.

13.2 Three roles of central banks in payment systems

This is a very important conceptual classification:

P-R-U

Provider – Regulator – User

Role	What it means
System Provider	Develops/operates payment systems and facilitates settlement
Regulator	Oversees/supervises systems and sets rules
User	Uses payment systems as banker to banks and government

A. System Provider

Central banks traditionally:

develop payment systems;
operate large-value payment systems;
allow settlement in central-bank books;
provide liquidity against collateral where necessary.

Settlement in central bank money is important because the central bank can provide liquidity, including lender-of-last-resort support, against collateral.

B. Regulator

Central banks:

oversee payment systems;
set rules;
provide a legal framework;
act as catalyst/facilitator;
promote secure and efficient transactions;
support monetary-policy transmission;
help mitigate systemic risk.

C. User

The central bank itself participates in payment systems because it is:

banker to banks;
banker to government.

This also gives it an important position during payment-system disruptions.

13.3 Evolution of payment instruments in India

Ancient/early instruments

Coins were among the earliest payment instruments.
Adesha existed during the Mauryan period.
Adesha was an order on a banker to pay money to a third party and corresponded broadly to a bill of exchange.
Hundis became one of India’s most important traditional credit instruments.
Their use was widespread in the 12th century.
Hundis served three functions:
1. Remittance instrument
2. Credit instrument
3. Trade/bill-of-exchange instrument

Paper currency

Modern paper currency appeared in the late 18th century through private and semi-government banks.

Important early issuers included:

Bank of Hindoostan;
General Bank in Bengal and Behar;
Bengal Bank.

Later, Presidency Banks obtained note-issue rights within prescribed limits.

Paper Currency Act, 1861

This transferred the monopoly of note issue to the Government of India, ending private and Presidency Bank note issue.

13.4 Evolution of non-cash instruments

Important milestones:

Year	Development
1770	Bank of Hindoostan established; cheques introduced
1833	Cash credit accounts introduced by Bank of Bengal
1839	Bank of Bengal began buying/selling bills of exchange
1881	Negotiable Instruments Act
1921	Imperial Bank; cheque-based settlement
1935	RBI took over Clearing Houses in Presidency towns

The Negotiable Instruments Act, 1881 provided the legal framework for:

cheques;
bills of exchange;
promissory notes.

13.5 RBI and Payment & Settlement Systems Act, 2007

Under Section 3 of the Payment and Settlement Systems Act, 2007, RBI is the designated authority for regulation and supervision of payment systems.

The PSS Act provides for:

regulation and supervision;
RBI as designated authority;
constitution of the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS);
legal recognition of netting;
settlement finality.

Settlement finality

Settlement finality means discharge of an obligation through transfer of funds/securities that has become:

irrevocable, and
unconditional.

An important distinction in the PDF:

RTGS is the payment system in which settlement is gross; other payment systems generally operate on a net settlement basis.

Institutional structure

BPSS → exercises statutory powers/functions
Department of Payment and Settlement Systems → assists BPSS.

13.6 Payment System Vision

Since 1998, RBI has periodically issued a Payment System Vision document with a three-year roadmap for implementation.

13.7 Cheque modernisation

MICR

The rapid increase in cheque volumes in the 1980s created problems with manual sorting.

Solution:

MICR = Magnetic Ink Character Recognition

Important dates:

1986 — Mumbai
1987 — Chennai and New Delhi
1989 — Calcutta

MICR centres were initially run by banks.

CTS

Cheque Truncation System (CTS):

introduced first in New Delhi in 2008;
replaced physical movement of cheques with electronic processing;
MICR centres were consolidated into three grids:
- New Delhi;
- Chennai;
- Mumbai;
subsequently integrated into a single national CTS grid at Chennai.

CTS-2010 introduced standardised cheque features and fraud-prevention measures.

Memory

MICR = Read the cheque
CTS = Stop moving the cheque

13.8 ECS, NACH, NEFT and RTGS

ECS

Introduced in the early 1990s.

Two forms:

System	Direction	Example
ECS Credit	One-to-many	Salary, dividend, interest
ECS Debit	Many-to-one	Utility payments

ECS evolved from local → regional → national.

NACH

National Automated Clearing House

Operated by NPCI.

It gradually subsumed ECS and provides:

pan-India processing;
bulk/repetitive payment processing;
transaction/file-based processing;
all-days availability from 1 August 2021.

NEFT

National Electronic Funds Transfer

RBI-run retail payment system;
facilitates one-to-one fund transfers;
available to individuals, firms and corporates;
walk-in customers can also remit cash subject to permitted limits;
operates 24×7;
settlement occurs in half-hourly batches.

RTGS

Real Time Gross Settlement

first introduced in India in 2004;
upgraded to NG-RTGS in 2013;
operates on real-time and gross settlement basis;
operates in RBI books;
24×7×365 since 14 December 2020.

NEFT became 24×7×365 from 16 December 2019.

High-yield comparison

NEFT	RTGS
Retail-oriented	Large-value/systemically important
One-to-one	Gross settlement
Batch settlement	Real-time settlement
24×7×365	24×7×365
Half-hourly batches	Individual transactions settled gross

13.9 NPCI

National Payments Corporation of India (NPCI) was established in 2008.

It was an initiative of:

RBI;
Indian Banks’ Association.

Established under the PSS Act framework to create robust payment and settlement infrastructure.

It was incorporated as a not-for-profit company under:

Section 25, Companies Act 1956;
now Section 8, Companies Act 2013.

Objective:

provide infrastructure for banking-system payments;
promote retail-payment innovation;
improve efficiency;
widen payment-system reach.

13.10 Financial Market Infrastructure — FMI

An FMI is a multilateral system involving participating institutions and the operator, used for:

clearing;
settling;
recording payments;
securities;
derivatives;
other financial transactions.

FMI broadly covers:

Systemically Important Payment Systems;
Central Securities Depositories;
Securities Settlement Systems;
Central Counterparties;
Trade Repositories.

Why FMIs matter

They:

promote financial stability;
facilitate economic activity;
but can also concentrate and transmit systemic risks.

PFMI

Principles for Financial Market Infrastructures

Issued by:

CPSS;
IOSCO.

Published in April 2012.

There are 24 principles.

13.11 RTGS as FMI

RTGS:

implemented March 2004;
owned and operated by RBI;
is a Systemically Important Payment System (SIPS);
settles interbank payments in real time and gross;
settlement occurs in RBI books;
also settles MNSB files from ancillary systems.

NG-RTGS

Implemented in 2013.

Features include:

ISO 20022 standards;
advanced liquidity management;
future-date functionality;
scalability.

Updated on 15 March 2023, including FCRA code and other operational/security improvements.

13.12 Securities Settlement System

RBI’s Public Debt Office (PDO), Mumbai manages/operates securities settlement for Government securities.

Settlement

Outright G-Secs: DVP Model 3, T+1.
Repo: T+0 or T+1.
PDO also acts as depository for dematerialised G-Secs.

13.13 CCIL

Clearing Corporation of India Limited (CCIL):

established April 2001;
CCP;
clearing and settlement for:
- G-Secs;
- foreign exchange;
- money markets.

It acts as CCP in:

G-Sec segment;
USD-INR;
forex forwards.

It also provides:

non-guaranteed settlement for INR interest-rate derivatives;
non-guaranteed settlement of cross-currency trades through CLS arrangements;
Trade Repository function for OTC interest-rate and forex derivatives.

13.14 Retail payment systems

Paper-based

Includes:

cheques;
demand drafts;
payment orders.

Primarily cleared through CTS.

From September 2020, non-CTS/ECCS clearing houses were migrated to CTS.

Card-based

Three basic categories:

Debit card
Credit card
Prepaid card

Ways to use:

dip — chip;
tap — NFC;
swipe — magnetic stripe.

13.15 Card tokenisation

Tokenisation replaces sensitive card details with a unique token.

Objectives:

security;
reduced fraud;
consumer-data protection.

Important:

customer consent is required;
merchants cannot store actual card details under the framework described;
tokenisation is device/merchant-use constrained as prescribed.

Additional Factor Authentication — AFA

Card-present and card-not-present transactions issued in India are secured through AFA.

Examples:

PIN;
dynamic OTP;
static code.

13.16 Positive Pay System

Introduced to verify important cheque details.

Banks re-confirm key details for high-value cheques of ₹50,000 and above from the issuer before clearing.

Think:

Positive Pay = “Confirm before clearing.”

13.17 NACH, NEFT and NPCI ecosystem

NFS

National Financial Switch

taken over by NPCI from IDRBT in 2009;
connects ATMs across India;
allows sub-membership;
facilitates participation of smaller/regional banks, RRBs and local cooperative banks.

IMPS

Immediate Payment Service

NPCI-operated;
24×7;
instant;
interbank;
multiple channels:
- mobile;
- internet;
- ATM;
- SMS;
- branch.

UPI

Unified Payments Interface

UPI:

links multiple bank accounts into one application;
supports fund routing;
merchant payments;
P2P collect requests;
works 24×7;
directly accesses bank accounts rather than storing funds like a wallet.

Identifiers include:

Virtual Payment Address;
Account number + IFSC;
mobile + MMID;
Aadhaar;
one-time Virtual ID.

An MPIN is required for payment confirmation under the framework described.

NPCI’s own UPI-based app:

BHIM — Bharat Interface for Money

The PDF notes linkage of:

savings accounts;
overdraft accounts;
prepaid wallets;
RuPay credit cards;
pre-sanctioned bank credit lines.

13.18 NETC and FASTag

NETC = National Electronic Toll Collection

Provides:

interoperable toll payment;
clearing;
settlement;
dispute management.

FASTag:

RFID-based;
affixed to vehicle windscreen;
enables electronic toll payment;
supports nationwide interoperability.

13.19 Bharat QR

Developed at RBI’s instance by:

MasterCard;
VISA;
NPCI.

QR code enables payment using:

card-linked account;
VPA;
IFSC + account;
Aadhaar.

13.20 AePS

Aadhaar enabled Payment System

Bank-led model allowing interoperable financial inclusion transactions through micro-ATMs using Aadhaar authentication.

Services include:

cash deposit;
cash withdrawal;
intra-bank transfer;
inter-bank transfer;
balance enquiry;
mini statement.

13.21 USSD *99#

Designed particularly for accessibility to customers without smartphones.

Provides:

interbank fund transfer;
balance enquiry;
UPI PIN setting/changing;
other basic services.

It uses:

*99#

and supports regional-language interaction.

13.22 Aadhaar Payment Bridge

APB is an NACH system developed by NPCI.

Its major purpose:

channel government subsidies/benefits;
facilitate DBT;
link government departments/sponsor banks with beneficiary banks/beneficiaries.

13.23 RuPay

NPCI’s indigenous card network.

Designed as:

domestic;
open-loop;
multilateral payment system.

It allows Indian banks and financial institutions to participate in electronic payments.

13.24 NCMC

National Common Mobility Card

launched 4 March 2019;
interoperable transport card;
supports:
- travel;
- toll;
- retail shopping;
- cash withdrawal.

Uses RuPay mechanism.

qSPARC — Quick Specification for Payment Application of RuPay Chip

It is a dual-interface open-loop payment specification.

13.25 NIPL

NPCI International Payments Limited

incorporated 3 April 2020;
wholly owned subsidiary of NPCI;
international arm;
takes UPI and RuPay outside India.

13.26 Other retail payment initiatives

White Label ATMs

ATMs:

set up;
owned;
operated

by non-banks.

Purpose: expand ATM reach, particularly semi-urban/rural areas.

PPI

Prepaid Payment Instruments

Can be:

closed;
semi-closed;
open.

Banks and non-banks can issue PPIs subject to RBI authorisation.

Open PPIs allowing cash withdrawal can be issued only by banks under the framework described.

Full-KYC PPIs must have interoperability through:

authorised card networks for card PPIs;
UPI for wallet PPIs.

BBPS

Bharat Bill Payment System

Integrated bill-payment platform supporting:

mobile apps;
mobile banking;
physical agents;
bank branches;
UPI;
cards;
cash;
PPIs.

Structure:

BBPCU + BBPOUs

NPCI Bharat BillPay Ltd (NBBL) is the authorised BBPCU.

13.27 TReDS

Trade Receivables Discounting System

Digital platform for financing MSME trade receivables.

Process:

MSME invoice → Factoring Unit → Financiers bid → MSME selects bid

Important:

financing is without recourse to MSMEs;
insurance companies may participate as fourth participant;
factoring-eligible entities can participate as financiers;
secondary market is permitted on TReDS.

13.28 Payment Aggregator vs Payment Gateway

Payment Aggregator — PA

receives customer payments;
pools funds;
transfers funds to merchants;
connects merchants with acquiring banks.

Payment Gateway — PG

provides technological infrastructure;
routes/facilitates payment processing;
does not handle funds.

Exam trap

PA handles/pools funds.
PG provides technology and does not handle funds.

13.29 Payment-system customer protection

Important initiatives:

Direct non-bank access to CPS

From 28 July 2021, eligible non-bank entities could obtain direct access to RBI-operated Centralised Payment Systems:

RTGS;
NEFT.

Benefits:

lower dependence on banks;
lower payment costs;
faster payments;
settlement in central-bank money;
greater certainty of finality.

Cyber resilience

Non-bank PSOs are required to have:

governance framework;
CISO;
risk assessments;
encryption;
secure coding;
MFA;
monitoring;
incident reporting;
response plans;
third-party security;
employee training;
audits.

Limited liability

For unauthorised transactions, customer liability depends on:

negligence;
timing of reporting.

Under the framework in the PDF:

report within 3 days → zero maximum liability;
report between 4–7 days → capped liability;
beyond 7 days → liability according to issuer’s board-approved policy.

13.30 e-Mandates

Framework introduced in August 2019.

From 12 December 2023, AFA-free recurring transactions could be executed up to ₹1 lakh per transaction for:

mutual-fund subscriptions;
insurance-premium payments;
credit-card bill payments.

13.31 RBI Digital Payments Index

RBI-DPI

Base:

March 2018 = 100

Published semi-annually.

Five parameters

Remember:

E-D-S-P-C

Parameter	Weight
Payment Enablers	25%
Payment Infrastructure — Demand	10%
Payment Infrastructure — Supply	15%
Payment Performance	45%
Consumer Centricity	5%

Highest weight = Payment Performance — 45%.

13.32 PIDF

Payments Infrastructure Development Fund

launched January 2021;
extended up to 31 December 2025 according to the PDF.

Objectives:

increase payment acceptance infrastructure;
promote smaller regions;
Tier 3–6 centres;
financial inclusion.

Support includes:

PoS terminals;
payment acceptance infrastructure;
soundboxes;
Aadhaar-enabled biometric devices.

Subsidy:

60%–90%

13.33 ODR

Online Dispute Resolution

Guidelines introduced:

August 2020

Effective:

1 January 2021

Features:

transparent;
rule-based;
system-driven;
user-friendly;
unbiased;
minimal manual intervention.

Initially focused particularly on failed digital-payment transactions.

CHAPTER 13 — RAPID REVISION

Payment system central-bank roles: Provider + Regulator + User
PSS Act: 2007
BPSS: Board for Regulation and Supervision of Payment and Settlement Systems
MICR: 1986 Mumbai
CTS: 2008 Delhi
NPCI: 2008
RTGS: 2004
NG-RTGS: 2013
NEFT 24×7: 16 Dec 2019
RTGS 24×7: 14 Dec 2020
NACH all days: 1 Aug 2021
FMI principles: 24, April 2012
CCIL: April 2001
NFS: NPCI took over in 2009
NCMC: 4 Mar 2019
NIPL: 3 Apr 2020
ODR: Aug 2020 → effective Jan 2021
DPI base: March 2018 = 100
DPI largest weight: Payment Performance 45%
PIDF: Jan 2021
PA: handles/pools funds
PG: technology; does not handle funds

CHAPTER 14 — CURRENCY MANAGEMENT

14.1 Statutory foundation

Currency management is a core RBI function.

Section 22, RBI Act, 1934

RBI has the sole right to issue banknotes, except one-rupee notes.

One-rupee notes and coins

Government of India:

issues ₹1 notes;
produces/mints coins.

RBI:

puts coins into circulation under Sections 38 and 39 of RBI Act.

14.2 Currency in circulation

Currency includes:

RBI banknotes;
₹1 note;
rupee coins;
small coins.

The PDF notes:

25 paise and below withdrawn from circulation from 30 June 2011;
CIC/GDP reached 14.4% in 2020, compared with 10.7% in 2017;
subsequently declined to around 12.0% as described in the 2024 edition.

14.3 Currency terminology

Currency in Circulation — CIC

Includes:

banknotes;
rupee coins;
small coins.

Notes in Circulation

Includes notes issued by:

Government of India up to 1935;
RBI thereafter;

less notes held in RBI Banking Department.

₹1 notes are treated as rupee coins for this classification and therefore excluded from “Notes in Circulation.”

14.4 Evolution of paper currency

Important chronology:

Year	Development
1770	Bank of Hindostan
1861	Paper Currency Act; Government monopoly
1913	Office of Controller of Currency
1928	Nashik currency press
1934	RBI Act
1935	RBI takes over note issue
1968	Security Paper Mill, Hoshangabad
1974	Dewas government press
1995	BRBNMPL established
1996	Mysuru & Salboni BRBNMPL presses
2018	Varnika ink factory commercial production

14.5 BRBNMPL

Bharatiya Reserve Bank Note Mudran Private Limited

Established by RBI in:

1995

Currency presses:

Mysuru;
Salboni.

Purpose:

augment note-production capacity;
support indigenisation;
produce Mahatma Gandhi New Series;
automation and ERP.

BNPMIPL

Bank Note Paper Mill India Private Limited

Produces:

Cylinder Watermarked Bank Note (CWBN) paper

Varnika

BRBNMPL ink factory at Mysuru.

Commercial production began:

August 2018

Capacity:

1,500 metric tonnes annually

Produces inks for:

offset;
intaglio;
numbering;
colour shifting.

14.6 Currency-management architecture

Currency management covers the entire lifecycle:

Requirement → Printing → Distribution → Circulation → Withdrawal → Processing/Destruction

Section 23

RBI’s Issue Department is separate from Banking Department.

Departmental structure

Department of Currency Management (DCM)
→ Central Office, Mumbai

Issue Offices
→ operational currency management.

The PDF lists 19 Issue Offices:

Ahmedabad, Bengaluru, Bhopal, Belapur, Bhubaneswar, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, New Delhi, Patna and Thiruvananthapuram.

14.7 Currency chests

Currency Chests are storehouses of:

banknotes;
rupee coins.

Small Coin Depots store:

small coins.

They are primarily located at commercial-bank branches, with some at cooperative/RRB institutions and one at RBI Kochi.

Role

Currency chests are essentially:

“extended arms of RBI”

They help:

distribute currency;
retrieve currency;
meet regional requirements.

14.8 Note design

Under Section 25 RBI Act:

Government of India decides design/form/material;
based on recommendations of RBI Central Board.

Current series in the PDF:

Mahatma Gandhi (New) Series

Introduced during 2016–17.

Denominations introduced:

₹10, ₹20, ₹50, ₹100, ₹200, ₹500, ₹2,000.

14.9 MG New Series — denomination/motif table

Denomination	Colour	Reverse motif	Identification mark
₹2,000	Magenta	Mangalyaan	Rectangle
₹500	Stone Grey	Red Fort	Circle
₹200	Bright Yellow	Sanchi Stupa	H
₹100	Lavender	Rani ki Vav	Triangle
₹50	Fluorescent Blue	Hampi with Chariot	—
₹20	Greenish Yellow	Ellora Caves	—
₹10	Chocolate Brown	Sun Temple, Konark	—

Memory chain

2,000 → Mangalyaan
500 → Red Fort
200 → Sanchi
100 → Rani ki Vav
50 → Hampi
20 → Ellora
10 → Konark

14.10 Annual currency requirement

RBI determines printing requirements in consultation with Government of India.

Major drivers:

real GDP/economic activity;
inflation;
interest rates;
digital-payment growth.

Banknote demand

Total demand:

Incremental demand + Replacement demand + contingency adjustment

Replacement demand depends on estimated lifespan.

Replacement rate:

1 ÷ average lifespan in years

Coin demand is forecast separately because coins have much longer lives; therefore only incremental demand is considered for coins under the described methodology.

14.11 Currency distribution models

Three global models:

1. Wholesale model

Example: Australia

Banks purchase notes directly from central bank and bear transportation/storage.

2. Retail model

Examples: China and France

Central bank maintains stocking points for public/institutional requirements.

3. Semi-retail model

India

RBI makes currency available to currency-chest branches.

RBI bears:

transportation;
moving costs.

Banks bear:

static cost of maintaining currency chests.

Memory

Australia = Wholesale
China/France = Retail
India = Semi-retail

14.12 Clean Note Policy

Section 27

RBI must ensure clean notes remain in circulation.

Soiled notes are:

withdrawn → sent to Issue Offices → verified/processed → destroyed if non-issuable

CVPS

Currency Verification and Processing System

Performs:

examination;
authentication;
counting;
sorting;
destruction processing.

SBS

Shredding and Briquetting System

Non-issuable notes are shredded and converted into briquettes.

14.13 Soiled vs mutilated vs imperfect notes

Soiled note

Dirty/limp due to excessive use.

Also includes a two-piece note where:

both pieces belong to the same note;
together form the complete note.

Mutilated note

A note:

with a portion missing; or
composed of more than two pieces.

Imperfect note

Wholly/partially:

obliterated;
shrunk;
washed;
altered;
undecipherable;

but not a mutilated note.

14.14 Note exchange

Soiled notes:

can be exchanged at all bank branches.

Mutilated/defective notes:

facility available at all bank branches under Note Refund Rules framework described.

Adjudication

For denominations:

up to ₹20 → full or no value;
₹50 and above → full, half or no value depending on area of largest undivided piece.

Special procedure exists for extremely brittle/burnt/charred/stuck notes at RBI Issue Offices.

14.15 Counterfeit currency

Counterfeiting can:

reduce confidence in currency;
generate losses;
artificially increase effective money supply;
potentially contribute to price effects;
reduce acceptability of paper money.

The PDF notes Bharatiya Nyaya Sanhita, 2023 Sections 178–182 concerning counterfeiting currency/banknotes.

Bank procedure

Counterfeit notes:

should be detected using machines;
customer account should not be credited for forged notes;
counterfeit notes must not be returned;
must not be destroyed by bank branches/treasuries.

Threshold

Up to 4 pieces in one transaction: consolidated monthly report to police.

5 or more in one transaction: immediate forwarding to police and FIR.

14.16 Security features

Major security features:

Watermark
Security thread
Latent image
Micro lettering
Intaglio printing
See-through register
Fluorescence
Colour-shifting ink
Ascending font
Angular bleed lines
Identification marks

Watermark

Contains:

Mahatma Gandhi portrait;
denomination numeral/electrotype.

Security thread

₹100 and above:

colour-shifting;
green → blue when tilted.

Latent image

Visible at a particular angle.

Micro lettering

Tiny inscriptions including:

India;
भारत.

Intaglio

Raised printing that can be felt by touch.

See-through register

Part of design printed on both sides aligns when viewed against light.

Fluorescence

Optical fibres and fluorescent ink glow under UV light.

Colour-shifting ink

₹200 and above:

green → blue.

14.17 Banknote salient features

A banknote includes:

issuer name;
guarantee clause;
promissory clause;
Governor’s signature;
number panel;
denomination;
Mahatma Gandhi portrait;
language panel.

The language panel contains denomination in 15 languages according to the PDF.

14.18 Demonetisation chronology

First demonetisation

12 January 1946

₹500, ₹1,000 and ₹10,000.

Second major demonetisation

16 January 1978

Higher denominations including ₹1,000, ₹5,000 and ₹10,000.

2016

8 November 2016

₹500 and ₹1,000 specified banknotes lost legal-tender status.

The SBN liability ceased under the specified statutory framework from:

31 December 2016

14.19 CBDC

Under Section 22A RBI Act, denominations prescribed under Section 24 do not apply to digital banknotes.

e₹-R

Retail CBDC pilot launched:

1 December 2022

e₹-W

Wholesale CBDC.

According to the PDF as at 31 March 2024:

e₹-R: 237.8 lakh pieces in circulation;
e₹-W: ₹5.70 crore value;
total e₹ circulation: ₹234.04 crore.

Important conceptual distinction:

e₹-R has denominations in the pilot.
e₹-W does not have a specific denomination.

14.20 MANI

MANI = Mobile Aided Note Identifier

Launched:

January 2020

Purpose:

assist visually challenged persons in identifying denominations.

Features:

recognises MG and MG New Series;
works from front/reverse;
can recognise partially folded notes;
audio identification;
vibration mode;
later expanded to 11 regional languages in addition to Hindi and English;
works offline;
free;
available on Android/iOS.

Critical trap

MANI does NOT authenticate whether a note is genuine or counterfeit.

14.21 Currency management technology

Old:

ICCOMS

Replaced by:

CyM — Currency Management module

within RBI’s:

e-Kuber

Benefits:

better inventory management;
near-real-time accounting;
transit accounting;
improved CIC tracking.

14.22 ₹2,000 withdrawal

₹2,000 note introduced:

November 2016

Printing stopped:

2018–19

Withdrawal announced:

19 May 2023

Reason in the PDF:

original objective fulfilled;
other denominations available adequately;
denomination not commonly used;
notes nearing estimated lifespan;
Clean Note Policy.

Value in circulation:

₹3.56 lakh crore on 19 May 2023

↓

₹7,409 crore on 31 July 2024

Returned:

97.92%

14.23 Star series

From August 2006, replacement notes for defective notes in packets of 100 serially numbered notes began using the STAR series.

A star appears:

between prefix and serial number

It identifies a replacement/reprinted note.

Do not confuse

Star ≠ counterfeit

It is a legitimate replacement banknote identifier.

CHAPTER 14 — RAPID REVISION

Section 22 → note issue
Section 23 → Issue Department
Section 24 → denominations
Section 25 → design
Section 27 → clean notes
Section 33 → Issue Department assets
Section 34 → Issue Department liabilities
Section 38/39 → coins circulation

India’s distribution model: Semi-retail
Currency management headquarters: DCM, Mumbai
Issue Offices: 19
BRBNMPL: 1995
Mysuru + Salboni presses: 1996
Varnika: Mysuru, commercial production 2018
MG New Series: 2016–17
MANI: January 2020
e₹-R pilot: 1 Dec 2022
₹2,000 withdrawal: announced 19 May 2023
Star series: replacement for defective notes
Clean Note: Section 27

CHAPTER 15 — BANKER TO BANKS AND GOVERNMENTS

This chapter has two major limbs:

Banker to Banks + Banker to Governments

15.1 RBI as Banker to Banks

Banks need infrastructure for:

interbank transfers;
settlement;
liquidity;
CRR maintenance.

RBI provides:

smooth interbank clearing/settlement;
efficient fund-transfer mechanisms;
accounts for statutory cash reserves;
lender-of-last-resort support.

15.2 Lender of Last Resort

RBI may rescue a:

solvent bank + temporary liquidity problem

when other lenders are unwilling to provide funds.

Purpose:

protect depositors;
prevent bank failure;
prevent contagion;
preserve financial stability;
protect the economy.

Legal basis

Section 17: banking business/transactions
Section 42: CRR maintenance

15.3 Current accounts with RBI

Eligible entities generally maintain one current account.

Categories include:

scheduled/non-scheduled banks;
Indian financial institutions;
foreign institutions;
other RBI-approved entities.

Accounts are opened in e-Kuber at the Regional Office corresponding to the entity’s head/corporate office.

Uses

CRR;
interbank settlement;
inter-institutional transfers;
payments to RBI/government departments.

Restrictions

No:

third-party transactions;
overdraft;
intraday overdraft.

15.4 RTGS Settlement Account

Banks maintain a separate Settlement Account for RTGS.

It is centrally maintained by:

Mumbai Regional Office (MRO).

15.5 Foreign institutions

Under Section 17(13) RBI can act as agent/correspondent of foreign banks/institutions and open rupee accounts.

Institutions listed include:

IMF;
IBRD;
IDA;
ADB;
African Development Fund.

15.6 Loans and advances to banks

RBI may provide loans/advances to eligible institutions under Sections 17 and 18.

Banks can obtain liquidity through:

Repo;
Term Repo;
MSF.

Typically against Government securities as collateral.

Other eligible institutions include:

NABARD;
EXIM Bank;
SIDBI;
Primary Dealers.

15.7 RBI as Banker to Government

Three roles:

Banker

Handles receipts/payments and accounts.

Agent

Manages public debt and issues new loans/T-bills.

Adviser

Advises on matters such as:

deficit financing;
currency devaluation;
trade policy;
foreign-exchange policy.

15.8 Legal provisions

Section 20

RBI has an obligation to accept money for Central Government account and make payments up to available credit.

Section 21

RBI has the right to conduct Central Government banking business, including:

exchange;
remittance;
banking operations;
public debt management.

Section 21A

RBI may undertake State Government banking business through agreement.

All State Governments except Sikkim have banking agreements with RBI.

For Sikkim:

limited agreement for public debt management.

Section 45

RBI can appoint agency banks.

15.9 Central Government accounts

Maintained in e-Kuber.

Principal accounts are maintained at:

Central Accounts Section (CAS), Nagpur

Accounts include:

Central Government Civil;
Railway Fund;
Post Fund;
Telecommunication Fund;
Defence Fund;
Departmentalised Ministries;
Agency Transaction Account.

15.10 State Government accounts

Principal account:

“Government Deposit Account – State”

maintained at CAS Nagpur.

Minimum balance differs between states according to:

budget size;
economic activity.

As at 31 July 2024, the PDF records:

25 State Governments + 2 UTs integrated with e-Kuber for e-payments;
18 State Governments integrated for e-receipts under specified models.

15.11 Government account types

Personal Ledger Account

current-account-like;
operated by specified government officers;
drawings limited to available balance.

Drawing Account

Government officer can operate on government balances without amount limitation under the stated authority.

Assignment / Letter of Credit Account

Drawing account where a specified amount is allotted for a specified period.

15.12 Agency banks

Historical chain:

1935 → Imperial Bank as RBI agent

↓

1955 → SBI

Under the 1976 scheme, ministries/departments were assigned public-sector banks for handling transactions.

Under the framework described in the PDF, RBI has appointed:

12 public sector banks
20 private sector banks
1 foreign bank/WOS

as agency banks.

Scheduled Payments Banks and Scheduled Small Finance Banks became eligible in 2021.

15.13 Government Banking Division — GBD

GBD handles core banker-to-government operations.

Receipts

receive money;
classify/account;
issue receipts;
daily balancing.

Payments

cheques;
interest warrants;
transfers;
classification;
account maintenance;
daily balancing.

Collection

CTS-related cheque collection and processing.

Remittance

Inland: Remittance and Clearing Service;
Foreign: through SBI/other banks.

Statements

Prepared for seven main account categories:

State
Central Civil
Railways
Post
Telecommunications
Defence
Departmentalised Ministries

Other responsibilities include:

agency-bank inspection;
month-end balance transfer;
agency commission;
court-related matters;
financial arrangements for missions abroad.

15.14 e-Receipts and e-Payments

Working Group report:

February 2014

Standardised model implemented:

May 2015

Key recommendations:

State treasury portals;
e-challans;
e-scrolls;
automatic reconciliation;
digital signatures;
bank/treasury integration.

e-Kuber model

Provides straight-through processing:

Government Treasury → e-Kuber → Banking/Payment System

Benefits:

just-in-time payments;
better cash management;
automated reconciliation.

15.15 GST

GST payments may be made through:

internet banking;
debit/credit cards;
UPI;
NEFT/RTGS;
OTC.

Important identifiers:

CPIN → CIN

CPIN = Common Portal Identification Number
CIN = Challan Identification Number

Agency banks settle funds with RBI on T+1 along with transaction details.

RBI’s role

RBI is the sole aggregator of GST-related transactions.

15.16 CAS, Nagpur

Central Accounts Section

Major functions:

maintain principal Central/State Government accounts;
calculate Daily Position;
monitor minimum balances;
WMA/OD/SDF operations;
invest surplus government funds;
daily agency-bank settlement;
inter-government transactions;
administer CSF/GRF;
government-bond-related settlement;
policy inputs.

Daily Position

Consolidation of balances in government accounts at the end of the day.

15.17 SNA SPARSH

Introduced:

1 August 2023

For release of Centrally Sponsored Scheme funds.

Integrated systems:

PFMS + State IFMIS + RBI e-Kuber

Key idea:

Just-in-time release

RBI acts as primary banker without agency-bank involvement in this mechanism.

CHAPTER 15 — RAPID REVISION

Banker to Banks: CRR + settlement + liquidity + LOLR
Section 17: RBI banking business
Section 42: CRR
Section 20: obligation regarding Central Government banking
Section 21: right regarding Central Government banking
Section 21A: State Government banking
Section 45: agency banks
CAS: Nagpur
RTGS settlement account: MRO Mumbai
Sikkim: no normal banking agreement; limited debt-management agreement
Central Govt minimum balance: ₹10 crore daily; ₹100 crore Friday; ₹5,000 crore March 31 as per PDF
SNA SPARSH: 1 Aug 2023
GST: RBI sole aggregator

CHAPTER 16 — INTERNAL DEBT MANAGEMENT

16.1 Sovereign debt management

Sovereign debt management means establishing and executing a government debt strategy to:

raise required funds;
achieve cost objectives;
manage risks;
develop a liquid and well-functioning G-Sec market.

RBI acts as debt manager for:

Central Government;
State Governments;
specified UTs,

through statutory provisions/agreements.

16.2 RBI’s debt-management functions

RBI manages:

issuance of Government securities;
interest payments;
repayment;
debt certificates;
registration;
cash management;
WMA;
surplus cash investment.

Departments

IDMD — Internal Debt Management Department

Central Office.

PDO — Public Debt Office

Bank offices.

16.3 Constitutional/statutory basis

Article 292

Central Government borrowing:

on security of Consolidated Fund of India.

Sections 20 & 21 RBI Act

Central Government entrusts debt/cash management to RBI.

GS Act, 2006

Government securities issuance and servicing.

GS Regulations, 2007

Operational regulatory framework.

Article 293

State borrowing:

within India;
against Consolidated Fund;
subject to legislative limits.

If State has outstanding Central Government loans, further borrowing requires Central Government consent.

16.4 State debt management agreements

All State Governments +:

Puducherry;
Jammu & Kashmir

have agreements with RBI for debt management according to the PDF.

For banking:

all States except Sikkim;
Puducherry;
Jammu & Kashmir

have banking agreements.

16.5 Medium-Term Debt Management Strategy

Three pillars:

C-R-M

Cost optimisation
Risk mitigation
Market development

The objective is to secure market borrowing:

cost-effectively;
with prudent risk;
while developing a liquid G-Sec market.

16.6 Debt consolidation

Passive consolidation

Primarily through:

Re-issuance

Accounts for nearly 95% of bond issuances according to the PDF.

Active consolidation

Through:

switches;
buy-backs.

Do not confuse

Passive = re-issue
Active = switch/buy-back

16.7 Monitoring Group on Cash and Debt Management

MCGDM

Standing committee.

Co-chaired by:

Secretary, Department of Economic Affairs, Ministry of Finance;
RBI Deputy Governor in charge of IDMD.

Functions include:

borrowing programme;
policy/plans;
half-yearly borrowing calendar.

16.8 Market Borrowing Programme

IDMD manages:

Centre;
States;
UTs.

It handles:

issue;
servicing;
retirement;
interest payments;
debt certificates;
registration.

16.9 Auction calendar

For Central Government dated securities:

weekly auctions;
calendar issued at half-yearly intervals.

For:

T-bills → quarterly indicative calendar;
State securities → half-yearly indicative calendar.

Weekly auction days

Tuesday → State Government securities

Wednesday → Treasury Bills

Friday → Central Government dated securities

Settlement:

T+1

This is an excellent factual MCQ/one-liner area even though we are not creating MCQs.

16.10 Government borrowing instruments

Fixed-rate bonds

Fixed coupon over maturity.

Example:

7.10% GS 2034

means:

7.10% coupon;
Government security;
maturity 2034.

Floating Rate Bonds

Coupon linked to benchmark and reset periodically.

The PDF states the benchmark is generally linked to the 182-day Treasury Bill.

Zero-coupon securities

Examples:

Treasury Bills;
Cash Management Bills.

Issued:

at discount

Redeemed:

at face value

Return:

Face value − Issue price

Sovereign Gold Bonds

denominated in grams of gold;
alternative to physical gold;
interest-bearing;
redemption linked to prevailing gold price at maturity.

Floating Rate Savings Bond, 2020 (Taxable)

Characteristics:

interest-bearing;
non-tradeable;
7-year maturity;
linked to NSC rate;
+35 bps spread;
reset half-yearly:
- 1 July;
- 1 January.

Inflation Indexed Bonds

Protect against inflation erosion.

Inflation measures referenced:

CPI;
WPI.

Bonds with call/put options

Provide:

call → issuer flexibility;
put → investor flexibility.

Issued rarely.

Special securities

Examples:

oil bonds;
fertilizer bonds;
UDAY bonds.

Issued for specific purposes.

Sovereign Green Bonds

Used to mobilise resources for green infrastructure.

Proceeds directed toward projects intended to reduce carbon intensity.

16.11 Primary Dealers

PD system introduced:

1995

Objectives:

strengthen G-Sec infrastructure;
develop underwriting;
develop market making;
improve secondary trading;
serve as conduit for OMOs.

As on 1 September 2024, PDF records:

7 standalone PDs;
14 bank PDs.

Standalone PDs must register as NBFCs under Section 45-IA RBI Act.

Obligations

PDs must participate actively in:

primary market;
secondary market;
underwriting;
G-Sec investment;
market making;
secondary-market turnover;
retail quotes through RBI Retail Direct.

16.12 G-Sec investors

Largest investor class:

Commercial banks

followed by:

insurance companies;
provident funds;
pension funds;
mutual funds.

RBI has progressively opened G-Sec markets to FPIs in a calibrated manner.

16.13 RBI as Cash Manager

RBI manages daily government liquidity.

Temporary mismatch:

WMA / OD

Surplus:

Central Government

Invested in:

variable-rate repo;
fixed-rate reverse repo.

State Government

Invested in:

14-day Intermediate Treasury Bills

The PDF describes these as non-auctioned discounted instruments at reverse repo rate minus 2%.

16.14 Ways and Means Advances

Section 17(5)

RBI can provide WMA.

Nature:

Uncollateralised advance

Purpose:

temporary mismatch between receipts and payments

16.15 Central Government WMA

WMA limit:

fixed separately for each half-year;
RBI in consultation with Central Government.

When borrowing exceeds WMA:

Overdraft

At 75% utilisation of WMA limit, RBI may trigger fresh market borrowing.

Interest:

WMA → repo rate;
OD → repo + 2%.

OD must be cleared within:

10 consecutive working days

according to the PDF.

16.16 State Government WMA

State-specific limits.

State governments also have:

SDF

Against collateral of Government securities.

Against:

CSF/GRF → repo − 2%;
Auction Treasury Bills → repo − 1%.

Because SDF is collateralised, its rate is below WMA.

Order of use

SDF → WMA → OD

WMA:

repo rate for up to 3 months;
repo + 1% beyond three months.

OD:

maximum 14 consecutive working days;
maximum 36 days in a quarter.

16.17 CSF and GRF

Consolidated Sinking Fund — CSF

Buffer for repayment of state liabilities.

Used for amortisation of loans including:

bank loans;
NSSF-related liabilities.

Guarantee Redemption Fund — GRF

For redemption of guarantees when contingent liabilities are invoked.

Both are maintained with RBI.

At present, investment is voluntary.

16.18 Budget Stabilisation Fund

Odisha has a:

Budget Stabilisation Fund

Purpose:

mitigate revenue shocks;
reduce volatility’s impact on state finances.

16.19 RBI Retail Direct

Launched:

12 November 2021

Objective:

allow retail investors direct access to G-Sec markets.

Retail investors can open:

Retail Direct Gilt (RDG) Account

They can directly buy/sell government securities in primary/secondary markets.

The scheme also covers:

Sovereign Gold Bonds;
Floating Rate Savings Bonds.

PDs must provide secondary-market liquidity to RDG investors through NDS-OM segments.

CHAPTER 16 — RAPID REVISION

Article 292 → Centre borrowing
Article 293 → State borrowing
GS Act → 2006
GS Regulations → 2007
MTDS: Cost + Risk + Market
Passive consolidation: Re-issuance
Active: Switch + Buy-back
MCGDM: DEA + RBI DG
PD system: 1995
State auction: Tuesday
T-bills: Wednesday
Central dated securities: Friday
Settlement: T+1
WMA: temporary mismatch
SDF: collateralised
Central OD: 10 consecutive working days
State OD: 14 consecutive working days / 36 days per quarter
Retail Direct: 12 Nov 2021

CHAPTER 17 — UNDERSTANDING RBI BALANCE SHEET

This chapter is highly important because it integrates the functions studied throughout the book into RBI’s financial statements.

17.1 Why RBI’s balance sheet is different

A central bank’s balance sheet differs from a commercial bank/company because:

it is the monetary authority;
it issues currency;
it creates monetary liabilities backed by assets;
it acts as banker to government;
it acts as banker to banks;
it conducts monetary/financial-market operations;
it manages foreign assets/reserves;
profit maximisation is not its primary objective.

The traditional central-bank balance sheet revolves around:

Issuer of currency
Banker to Government
Banker to Banks

17.2 Stylised central-bank balance sheet

Liabilities

Currency
Government deposits
Bank deposits
Other liabilities
Capital
Reserves

Assets

Gold
Loans/advances
Government securities
Foreign assets
Other assets

17.3 RBI financial statements

RBI’s operations influence:

Weekly Statement of Affairs;
Balance Sheet;
Income Statement.

Unlike commercial institutions:

RBI is not operated primarily for profit.

17.4 Legal provisions

Section 53(1)

RBI must prepare/transmit a weekly account of:

Issue Department;
Banking Department.

Section 53(2)

Within two months after annual account closure, RBI sends:

annual accounts;
Central Board report on RBI’s working.

Regulatory formats

WSA format:

29 September 2020 notification

Balance Sheet and Income Statement formats:

11 November 2020 notifications

Regulations

Regulation 22(a) → Balance Sheet
Regulation 22(b) → Income Statement
Regulation 23(v) → unit of presentation

“Profit & Loss Account” was renamed:

Income Statement

from 2014–15, based on recommendations of Technical Committee-I chaired by Y.H. Malegam.

17.5 Two balance sheets → one balance sheet

Section 23 required Issue Department to be:

separate;
distinct from Banking Department.

Therefore historically RBI prepared:

Issue Department balance sheet;
Banking Department balance sheet.

This continued until:

2013–14

From 2014–15, RBI began preparing a single combined Balance Sheet, after revision of formats following Technical Committee-I recommendations.

Accounting year

From FY 2020–21:

July–June → April–March

Frequency

WSA: weekly, week ending Friday
Balance Sheet + Income Statement: annual, 31 March

17.6 RBI Balance Sheet — liabilities

Main components:

Capital
Reserve Fund
Other Reserves
Deposits
Risk Provisions
Revaluation Accounts
Other Liabilities
Issue Department liabilities
Notes Issued

17.7 Capital

Section 4

RBI was established in 1935 as a private shareholders’ bank.

Initial paid-up capital:

₹5 crore

Nationalised:

1 January 1949

Ownership:

Government of India

Paid-up capital continues to be:

₹5 crore

17.8 Reserve Fund

Section 46

Original Reserve Fund:

₹5 crore

Created through Central Government contribution in approved securities.

Additional:

₹6,495 crore

from gold revaluation gains up to October 1990.

Total:

₹6,500 crore

The fund has remained static because subsequent unrealised gold/foreign-currency valuation gains/losses are recorded in:

Currency and Gold Revaluation Account (CGRA).

17.9 Other reserves

National Industrial Credit — Long-Term Operations Fund

Section 46C

Created:

1964

Initial corpus:

₹10 crore

Since 1992–93:

₹1 crore annual contribution

National Housing Credit — Long-Term Operations Fund

Section 46D

Created:

1989

Initial corpus:

₹50 crore

Since 1992–93:

₹1 crore annual contribution

17.10 Deposits

Central Government

Sections:

20 & 21

PDF figures:

₹10 crore daily minimum;
₹100 crore Friday minimum;
₹5,000 crore on 31 March.

State Governments

Section 21A.

Minimum balance required daily according to agreements.

Banks

Section 42.

Purpose:

CRR;
payment/settlement liquidity.

Foreign financial institutions

Section 17(12AB).

Repo borrowing/lending arrangements.

Others

Includes:

domestic/international financial institutions;
foreign central banks;
mutual funds;
reverse repo deposits;
SDF;
Depositor Education and Awareness Fund etc.

17.11 Risk provisions

Contingency Fund — CF

Created:

1997–98

Purpose:

unexpected/unforeseen contingencies;
securities depreciation;
monetary-policy risks;
exchange-rate policy risks;
systemic risks;
risks arising from special central-bank responsibilities.

Asset Development Fund — ADF

Created:

1997–98

Purpose:

internal capital expenditure;
investments in subsidiaries/associated institutions.

17.12 Revaluation accounts

This is an important conceptual area.

CGRA

Currency and Gold Revaluation Account

Records unrealised gains/losses from:

foreign currency assets;
gold.

IRA

Investment Revaluation Account

Records unrealised mark-to-market gains/losses on:

rupee securities;
oil bonds;
foreign dated securities.

Subcategories:

IRA-RS;
IRA-FS.

FCVA

Foreign Exchange Forward Contracts Valuation Account

Records unrealised MTM gains/losses on outstanding forward contracts.

PFCVA

Provision for Forward Contracts Valuation Account

Contra-entry for unrealised losses in FCVA.

17.13 Surplus transferable to Government

Section 47

RBI’s surplus is transferable to Central Government after:

expenditure;
provisions;
bad/doubtful debts;
depreciation;
staff/superannuation provisions;
statutory-fund contributions.

Transfer takes place after Central Board approval, generally at its May meeting.

Section 48

RBI is exempt from:

Income Tax;
Super Tax;
tax on income.

17.14 Bills payable

Represents outstanding/unclaimed amounts relating to:

Demand Drafts;
Payment Orders

issued by RBI.

17.15 Miscellaneous liabilities

Residual category containing items such as:

interest on earmarked securities;
leave encashment;
employee medical provisions;
global provision;
amounts payable relating to SBNs/demonetisation.

17.16 Liability of Issue Department

Section 34

Includes:

Government of India currency notes taken over by RBI;
RBI notes issued since 1 April 1935;
notes issued to and held by Banking Department.

17.17 Assets of Banking Department

Notes, Rupee Coin, Small Coin

Currency held for RBI’s own operational requirements.

Gold — BD

Physical gold:

held in India;
held abroad.

Foreign custody includes:

Bank of England;
BIS;
Switzerland.

This gold also forms part of India’s foreign-exchange reserves.

Foreign investments — BD

Includes:

foreign securities;
deposits with foreign central banks/commercial banks;
BIS;
India Infrastructure Finance Company UK;
BIS/SWIFT shares;
SDR acquired from Government of India.

17.18 Domestic investments — BD

Includes investments in:

Government of India dated securities;
State Government securities;
Treasury Bills;
Special Oil Bonds.

These are mainly acquired during monetary-policy operations.

17.19 Bills purchased and discounted

RBI has legal authority to:

purchase;
sell;
rediscount bills of exchange/promissory notes.

But the activity:

is not being carried out

according to the PDF.

17.20 Loans and advances

Central Government

Section 17(5)

WMA;
OD.

Purpose:

temporary receipt-payment mismatch.

State Governments

Section 17(5)

SDF;
WMA;
OD.

SDF is collateralised against Government securities.

Commercial/cooperative banks

Relevant provisions include Sections:

17(12)(AB);
17(3A);
17(3B);
17(4).

Primarily through:

LAF Repo;
MSF.

NABARD

Section 17(4E):

short-term loans against securities/stocks, repayable:

on demand; or
fixed period not exceeding 18 months.

Others

Includes loans/advances to:

NHB;
SIDBI;
DICGC;
PD liquidity support;
Repo/Term Repo with PDs.

17.21 RBI subsidiaries

Section 17(8AA).

PDF identifies wholly owned subsidiaries:

DICGC;
BRBNMPL;
ReBIT;
IFTAS;
RBIH.

Associate institution:

NCFE

17.22 Assets of Issue Department

Gold — ID

Physical gold held in India as backing for notes issued.

Rupee coins

Small portion purchased from Government.

Foreign investments — ID

Includes:

foreign securities;
deposits;
BIS;
foreign institutions;
BIS/SWIFT shares;
SDR acquired from Government.

Domestic investments — ID

Includes:

GoI dated securities;
State securities;
T-bills;
Special Oil Bonds.

Domestic bills/commercial paper

RBI can purchase these, but the PDF says:

activity has not been undertaken for a long period.

17.23 RBI foreign-exchange reserves vs RBI balance sheet

Very important distinction.

India’s foreign-exchange reserves consist of:

FCA + Gold + SDR + Reserve Tranche Position (RTP)

But not all are on RBI’s balance sheet.

On RBI balance sheet

FCA;
Gold;
SDR acquired from Government of India.

Not on RBI balance sheet

SDR holdings remaining with Government of India;
RTP.

Memory

FER = F + G + S + R

RBI BS ≠ entire FER

17.24 Income Statement

Central-bank profit is not the primary objective.

Nevertheless, RBI’s surplus/dividend is an important fiscal revenue source for Government.

“Profit & Loss Account” became:

Income Statement

from 2014–15.

17.25 RBI income

Interest income

Foreign

foreign securities;
foreign repo/reverse repo;
overseas deposits.

Domestic

rupee securities;
LAF;
SDF;
MSF;
loans and advances.

Other income

Foreign:

amortisation;
foreign-security sale/redemption gains/losses;
forex gains/losses;
miscellaneous.

Domestic:

discount;
exchange;
commission;
rupee-security premium/discount amortisation;
sale/redemption gains/losses;
rent;
property sale gains/losses;
provisions no longer required;
miscellaneous.

Commission income includes fees from Central/State Governments for:

loan flotation;
public debt management.

17.26 RBI expenditure

Major expenditure heads:

printing of notes;
remittance of currency/treasure;
agency charges;
interest;
employee costs;
postage/telecommunication;
printing/stationery;
rent/taxes/insurance/lighting;
repairs and maintenance;
Directors/Local Board expenses;
auditors;
law charges;
depreciation;
miscellaneous;
provisions.

Agency charges

Include:

agency-bank commission;
underwriting commission to PDs;
handling charges;
custodian fees.

17.27 Accounting principles

RBI follows basic accounting principles such as:

double-entry bookkeeping;
distinction between real and financial assets.

But there are:

no universally accepted accounting standards followed by all central banks.

RBI discloses its accounting policies annually under:

Significant Accounting Policies

17.28 Audit of RBI

Section 50

Not less than two auditors must be appointed.

At present, according to the PDF:

2 Statutory Central Auditors
3 Statutory Branch Auditors

Total:

5 auditors

Their remuneration is fixed by Central Government.

Section 51

Central Government can appoint:

Comptroller and Auditor General of India

to examine/report on RBI accounts.

17.29 The single most important balance-sheet logic

For exam purposes, understand this chain:

RBI performs functions

↓

Monetary policy / OMO / LAF / currency issue / forex reserve management / banker to banks / banker to government

↓

These create/change:

Assets + Liabilities + Income + Expenditure

↓

These appear in:

RBI Balance Sheet + Income Statement + Weekly Statement of Affairs

This is why the balance sheet is not merely an accounting chapter; it is a compressed representation of RBI’s functions.

MASTER “DO NOT CONFUSE” TABLE — CHAPTERS 13–17

Do not confuse	Correct distinction
Payment vs settlement	Payment = transfer; settlement = final discharge
NEFT vs RTGS	NEFT = batch; RTGS = real-time gross
PA vs PG	PA handles/pools funds; PG provides technology
FMI vs retail system	FMI has systemic importance
MICR vs CTS	MICR reads/sorts; CTS truncates physical cheque movement
Currency vs Notes in Circulation	Currency includes coins; Notes in Circulation is narrower
Soiled vs mutilated	Soiled = dirty/limp; mutilated = missing portion/more than two pieces
MANI vs authentication	MANI identifies denomination, not authenticity
₹1 note vs RBI notes	₹1 note issued by GoI; RBI issues other banknotes
RBI vs Government for coins	GoI mints; RBI puts coins into circulation
Wholesale vs retail vs semi-retail	India = semi-retail
SDF vs WMA	SDF collateralised; WMA uncollateralised
WMA vs OD	OD begins beyond WMA limit
Passive debt consolidation vs active	Passive = reissue; active = switch/buy-back
CSF vs GRF	CSF = debt repayment; GRF = guarantees
Issue Department vs Banking Department	Currency function vs other RBI functions
CGRA vs IRA	CGRA = forex/gold; IRA = securities
FCVA vs PFCVA	FCVA = unrealised forward valuation; PFCVA = contra provision
RBI profit vs commercial profit	Profit is not RBI’s primary objective
FER vs RBI balance sheet	Entire FER does not necessarily appear on RBI BS

CHRONOLOGY CHAIN — CHAPTERS 13–17

Memorise this as a single chain:

1861 — Paper Currency Act
→ 1881 — Negotiable Instruments Act
→ 1935 — RBI takes note issue/Clearing Houses
→ 1986 — MICR Mumbai
→ 1988 — DFHI
→ 1995 — BRBNMPL + PD system
→ 1998 — Payment System Vision
→ 2001 — CCIL
→ 2004 — RTGS
→ 2006 — Government Securities Act
→ 2007 — PSS Act
→ 2008 — NPCI + CTS Delhi
→ 2009 — NFS to NPCI
→ 2013 — NG-RTGS
→ 2014–15 — Single RBI Balance Sheet + P&L renamed Income Statement
→ 2016 — MG New Series + demonetisation + e₹ groundwork
→ 2019 — NEFT 24×7 + NCMC
→ 2020 — RTGS 24×7 + MANI + SBN developments
→ 2021 — NACH all days + PIDF + Retail Direct
→ 2022 — e₹-R pilot
→ 2023 — ₹2,000 withdrawal + SNA SPARSH
→ 2024 — currency/payment/debt-management developments recorded in the edition.

ULTRA-HIGH-YIELD NUMBERS

Number/date	Remember
₹5 crore	RBI original/continuing paid-up capital
19	RBI Issue Offices
15 languages	Language panel
₹50,000	Positive Pay threshold cited
24	PFMI principles
2004	RTGS
2008	NPCI + CTS
2009	NFS to NPCI
2012	PFMI
2013	NG-RTGS
2014–15	Single BS; P&L → Income Statement
2018	Varnika commercial production
2019	NEFT 24×7; NCMC
2020	RTGS 24×7; MANI
2021	PIDF; Retail Direct; NACH all days
2022	e₹-R pilot
2023	SNA SPARSH; ₹2,000 withdrawal
₹1 lakh	AFA-free recurring e-mandate limit for specified categories
₹3.56 lakh crore	₹2,000 notes in circulation, 19 May 2023
₹7,409 crore	₹2,000 notes in circulation, 31 July 2024
97.92%	₹2,000 notes returned by 31 July 2024
10 days	Central Govt OD maximum
14 days	State Govt consecutive OD maximum
36 days	State Govt OD maximum in a quarter
18 months	Maximum fixed period for specified NABARD RBI advances

RAPID REVISION SHEET — CHAPTERS 13–17

Payment Systems

PSS Act 2007 → RBI designated authority → BPSS

Payment = payer → payee

Central bank:

Provider + Regulator + User

RTGS = gross + real-time + RBI books

NEFT = retail + half-hourly batches

NPCI = 2008

CCIL = 2001

FMI = systemic infrastructure

PFMI = 24 principles

UPI = bank-account-based digital payment architecture

IMPS = instant 24×7

NACH = bulk/repetitive

NETC = toll

AePS = Aadhaar

APB = DBT

BBPS = bills

TReDS = MSME receivables

PA = funds

PG = technology

DPI = March 2018 base = 100

Currency

Section 22 = issue

Section 23 = Issue Department

Section 24 = denominations

Section 25 = design

Section 27 = clean notes

Section 34 = Issue Department liability

India = semi-retail distribution

BRBNMPL = 1995

MANI = denomination identification, not authentication

CBDC retail pilot = Dec 2022

Star = replacement note

1946 → 1978 → 2016 = demonetisation chain

Banker to Banks/Governments

Section 17 = RBI banking business

Section 20 = obligation re Central Government

Section 21 = right re Central Government

Section 21A = State Government agreement

Section 42 = CRR

Section 45 = agency banks

CAS = Nagpur

Sikkim = exception for normal State banking agreement

GST = RBI sole aggregator

SNA SPARSH = just-in-time government funds

Debt Management

Article 292 = Centre

Article 293 = States

GS Act = 2006

MTDS = Cost + Risk + Market

Passive = Reissue

Active = Switch/Buy-back

PD = 1995

Tuesday = State securities

Wednesday = T-bills

Friday = Central dated securities

WMA = temporary mismatch

SDF = collateralised

OD = beyond limits

RBI Balance Sheet

Capital = ₹5 crore

Nationalisation = 1 Jan 1949

Reserve Fund = ₹6,500 crore

CF + ADF = 1997–98

CGRA = forex + gold

IRA = securities

FCVA = forwards

PFCVA = provision/contra

2014–15 = single Balance Sheet

2020–21 = April–March accounting year

FER = FCA + Gold + SDR + RTP

But RBI BS ≠ entire FER

Section 47 = surplus

Section 48 = tax exemption

Section 50 = auditors

Section 51 = CAG examination power