Under the MCLR system, banks were slow to pass on Repo Rate cuts to customers. EBLR links lending rates directly to an external benchmark (like Repo), ensuring that any policy rate change by RBI is immediately reflected in the borrower's interest rate.

The Clean Note Policy ensures the supply of good quality banknotes to the public and prevents writing on notes, enhancing their life and usability.

M3 (Broad Money) = M1 + Time Deposits with banking system. It captures the total money supply available in the economy. M1 is Narrow Money. M0 is Reserve Money.

The RBI uses two types of credit control: Quantitative and Qualitative. **Quantitative tools** (like **CRR, SLR, Repo Rate**) affect the overall *volume* of credit in the economy. **Qualitative (Selective) tools** (like Moral Suasion, Margin Requirements, Rationing) affect the *distribution* or direction of credit to specific sectors. Therefore, changing CRR/SLR is a quantitative, not qualitative, tool.

The **Reverse Repo Rate** is the interest rate at which the RBI absorbs liquidity from banks against the collateral of eligible government securities. When there is **excess liquidity** in the system (which could fuel inflation), the RBI increases the Reverse Repo Rate or conducts VRRR auctions to encourage banks to park their surplus funds with the central bank, thereby removing money from circulation.

The **Bank Rate** is defined in Section 49 of the RBI Act as the "standard rate at which the Bank is prepared to buy or re-discount bills of exchange." In modern practice, it acts as a penal rate (aligned with the MSF rate) charged by the RBI on banks for shortfalls in meeting reserve requirements (CRR/SLR) or for long-term lending. Unlike Repo, it does not necessarily involve the sale/repurchase of securities.

The amended RBI Act (2016) specifies the mandate of the Monetary Policy Committee (MPC). Its primary objective is to maintain **price stability** (controlling inflation within the 2-6% band). However, the Act explicitly states that this must be done **"while keeping in mind the objective of growth."** This dual mandate acknowledges that extremely tight monetary policy to control inflation could harm economic growth, so a balance must be struck.

The **Repo Rate** (Repurchase Rate) is the key policy rate signaled by the RBI. It is the rate at which the RBI lends money to commercial banks for the short term against government securities. Being the benchmark policy rate, changes in the Repo Rate directly influence the cost of funds for banks, which in turn affects the lending and deposit rates for the entire economy. It anchors the money market interest rates.

The **Reverse Repo Rate** is the rate banks earn when they deposit surplus funds with the RBI. By **increasing** this rate, the RBI makes it more attractive and profitable for banks to keep their money with the central bank rather than lending it out in the market. This action effectively **absorbs liquidity** from the banking system, reducing the money supply available for lending, which helps in controlling inflation.

The Standing Deposit Facility (SDF) was operationalized in April 2022 to act as the floor of the LAF corridor, replacing the Fixed Rate Reverse Repo Rate. Unlike Reverse Repo, the SDF allows banks to park excess liquidity with the RBI without the need for the RBI to provide collateral (government securities) in return. This empowers the RBI to absorb unlimited liquidity without being constrained by its holding of government securities.

Operation Twist is a special Open Market Operation (OMO) where the RBI buys long-term government securities and simultaneously sells short-term securities. The goal is to lower long-term interest rates (yields) to spur investment and growth, while keeping short-term liquidity largely unchanged.

Legal Tender is money that cannot be refused in settlement of a debt. Currency notes and coins are legal tender. Cheques are "fiduciary money" because they can be refused (e.g., if bounces) and represent a claim rather than cash itself.

As the Lender of Last Resort, RBI provides financial assistance to commercial banks when they face temporary liquidity crises and have exhausted all other sources. It also provides Ways and Means Advances (WMA) to State Governments.

WMA is a temporary liquidity support given by the RBI to the government (Central & State) to bridge short-term gaps between their revenue receipts and expenditures. It must be repaid within 90 days.

M1 is known as Narrow Money because it includes the most liquid assets: Currency with public + Demand Deposits with banking system + Other deposits with RBI.