💧 1. Liquidity (तरलता)
📌 Definition
Liquidity = एक asset को बिना value खोए cash में convert करने की ease और speed।
Cash: Highest liquidity — already cash है, कोई conversion नहीं।
🥇 Gold vs. Bike — Liquidity Comparison
Gold: ज़्यादा liquid — High acceptability। Jeweller के पास जाओ, immediately cash मिलेगी।
Bike: कम liquid — Buyer ढूंढना पड़ेगा, value loss हो सकती है (distress sale)।
📊 Liquidity Order (Highest → Lowest):
💵 Cash
>
🥇 Gold
>
📄 Cheque
>
📜 Bond
Demand Deposit (Savings/Current Account) is more liquid than Term Deposit (Fixed Deposit) — क्योंकि Demand Deposit anytime withdraw हो सकती है।
Demonetization (Nov 2016) के बाद लोगों के पास पुराने notes थे — वो useless हो गए। Banks में lines लगीं। Cash की liquidity instantly disappear हो सकती है — यह crisis था।
Liquidity Order = Cash > Gold > Cheque > Bond। Demand Deposit > Term Deposit। यह sequence exam में आता है।
🔄 2. Evolution of Money — Barter System & Its Limitations
📌 Barter System (वस्तु-विनिमय प्रणाली)
Historical Context: Harappan Civilization में कोई standardized currency नहीं थी — economy Barter System पर चलती थी।
Definition: Goods for Goods exchange करना। तुम्हारे पास जो मुझे चाहिए, मेरे पास जो तुम्हें चाहिए — directly exchange।
⚠️ Limitations of Barter System:
| Limitation | Explanation | Example |
|---|
| Double Coincidence of Wants |
Transaction तभी होगी जब दोनों parties exactly वही चाहें जो दूसरे के पास है — same time पर |
Person A के पास Fish है, Person B के पास Meat — लेकिन B को fish नहीं चाहिए → Transaction fail |
| Lack of Divisibility |
कुछ goods divide नहीं हो सकती बिना value खोए |
Shoes ₹200 की → T-shirt ₹100 की। Person A "आधे shoes" नहीं दे सकता। Both or nothing। |
| Lack of Store of Value |
Commodities perishable हैं — future के लिए store नहीं हो सकती |
Fish को future generations के लिए store नहीं कर सकते — वो सड़ जाएगी |
💡 Discovery of Money — Significance
- Money ने Barter की limitations solve कीं — common medium of exchange बना।
- Double coincidence of wants की ज़रूरत खत्म हुई।
- लोग agriculture के अलावा other professions (teaching, business) में specialize कर सके — क्योंकि money से food खरीद सकते थे।
Barter System की 3 limitations: Double Coincidence of Wants + Lack of Divisibility + Lack of Store of Value। Harappan Civilization = Barter System।
💵 3. Types of Money (पैसे के प्रकार)
1. 📜 Fiat Money (विधिग्राह्य मुद्रा)
Definition: Government द्वारा legal tender declared currency। Central Bank (RBI) issue करती है।
Key: Physical commodity (Gold/Silver) से backed नहीं है।
Crucial Concept — Intrinsic vs Face Value:
- Face Value: Note/Coin पर लिखी value (₹10, ₹100)
- Intrinsic Value: उस note/coin बनाने का actual cost (paper/metal)
- Rule: Face Value > Intrinsic Value — तभी Fiat Money काम करती है।
Old thick ₹5 coins को Bangladesh में smuggle किया जाता था — वहाँ metal को razor blades बनाने के लिए melt करते थे! Metal की value ₹5 से ज़्यादा थी (Intrinsic > Face Value) → Government ने वो coins discontinue किए।
2. 🤝 Fiduciary Money (विश्वास-आधारित मुद्रा)
Definition: Payer और payee के बीच trust (fiduciary relationship) के आधार पर accept होने वाला medium of exchange।
Examples: Cheques, Tokens, Bitcoins।
Key Difference from Fiat: Fiduciary acceptance mandatory by law नहीं — अगर trust टूटा (cheque bounce हुआ) तो acceptance falls।
आपने cheque दिया — वो accept किया गया क्योंकि trust था। लेकिन अगर वो bounce हो गया → trust खत्म → वो person अगली बार cash demand करेगा।
3. 💳 Plastic Money (प्लास्टिक मुद्रा)
Definition: Electronic fund transfers के ज़रिए payment — electronic money भी कहते हैं।
Debit Card:
Account में है उतना ही spend कर सकते हैं।
Credit Card:
"Spend Now, Pay Later" — borrowed money।
Prepaid Card:
Pहले load करो, फिर spend।
4. 🔥 Hot Money (गर्म धन)
Definition: Funds जो investors short-term opportunities (high interest rates, stock market gains) के लिए quickly countries/markets के बीच move करते हैं।
Nature: Highly volatile — conditions worsen होने पर rapidly withdraw।
Example: Foreign Portfolio Investment (FPI)।
2022 में जब USA ने interest rates बढ़ाईं → India से FPI funds अमेरिका चले गए (higher returns वहाँ) → Rupee weak हुआ → यही Hot Money है।
Fiat = Government declared legal tender। Fiduciary = Trust based। Plastic = Electronic। Hot Money = FPI, highly volatile।
⚙️ 4. Functions of Money & Demand for Money
📦 Primary Functions (2)
A. Medium of Exchange:
Goods और services buy/sell करने का intermediary। Barter की Double Coincidence problem हल।
B. Measure of Value (Unit of Account):
Products को specific value में quote करना। (Meat = ₹100, Book = ₹200)
🔄 Secondary Functions (2)
A. Standard of Deferred Payment:
Future payments facilitate करना — EMI, loans। Credit system की base।
B. Store of Value:
Wealth future के लिए store और transfer करना। Perishable goods की तरह नहीं सड़ता।
Additional Characteristics of Money
- Highly Portable: Easy to carry — जेब में रखो।
- Durable: Easily degrade नहीं होता।
- Divisible: Small units में divide हो सकता है।
- Homogeneous: सभी units same value।
🤔 Why People Hold Money? — Keynes के 3 Motives
| Motive | Description | Example |
|---|
| 1. Transaction Motive | Day-to-day transactions और current needs के लिए | Groceries, bills, vegetables, transport |
| 2. Precautionary Motive | Unforeseen emergencies या unexpected expenses के लिए | Sudden illness, accidents, disasters के लिए savings |
| 3. Speculative Motive | Future investment opportunities का फायदा उठाने या financial losses avoid करने के लिए cash hold करना | Gold/Stock prices favorable होने का इंतज़ार |
📉 Speculative Demand for Money & Interest Rates
Inverse Relationship: Speculative demand ∝ 1/Rate of Interest
🔴 High Interest Rates:
→ People bonds/assets में invest करते हैं (high returns)
→ Cash hold करना costly
→ Speculative demand for money ↓
🟢 Low Interest Rates (Recession):
→ Returns कम, rates और गिर सकती हैं
→ Cash hold करना prefer करते हैं
→ Speculative demand for money ↑
Interest Rate = Opportunity Cost of Holding Money। जब interest high होती है, cash hold करने का cost high होता है।
🪤 The Liquidity Trap (तरलता जाल)
Definition: Situation जहाँ interest rates extremely low हों और लोग invest/spend करने की बजाए cash hold prefer करें।
Result: Monetary Policy ineffective हो जाती है।
- Infinite Elasticity: Money demand perfectly elastic हो जाती है।
- Graph: Liquidity Preference Curve horizontal हो जाती है।
- Policy Failure: RBI money supply बढ़ाए तो भी लोग वो extra cash रख लेते हैं — spending नहीं बढ़ती।
Japan 1990s में Liquidity Trap में था — interest rates ~0%, लेकिन लोग खर्च नहीं करते थे, economy recover नहीं हो रही थी। Monetary Policy completely ineffective थी।
Liquidity Trap = Very low interest rates + Cash preference + Monetary Policy ineffective। Keynes का concept।
💹 5. Types of Money in the Economy
1. Currency in Circulation
Currency with Public: Ordinary लोगों के पास spending के लिए।
Currency with Banks (Vault Cash): Banks के पास daily operations के लिए।
Vault Cash = Credit creation का part नहीं — यह idle cash है, lend नहीं हो रही।
2. Deposits with Banks
Demand Deposits (DD): Savings + Current — anytime withdraw, highly liquid।
Term Deposits (TD): FD, RD — fixed period, less liquid।
3. Deposits with RBI
Banker's Deposits: CRR balances जो banks RBI के पास रखती हैं।
Other Deposits: Foreign central banks, IMF, World Bank, Government institutions से।
4. Postal Deposits
Post Office Savings Bank (POSB) manage करता है।
Bank deposits जैसे ही — demand और term दोनों types।
📊 Currency Deposit Ratio (CDR)
CDR = Money held by public in Currency ÷ Money held by public in Deposits
Seasonal Trend: Festive seasons (Diwali, etc.) में CDR बढ़ता है — लोग ज़्यादा cash withdraw करते हैं spending के लिए।
Diwali आई → लोगों ने savings account से cash निकाला → CDR बढ़ा। January के बाद → पैसे वापस bank में → CDR कम हुआ।
📊 6. Measures of Money Supply (M0, M1, M2, M3, M4)
📌 Overview
RBI Monetary Aggregates (M0 to M4) use करती है economy में total money measure करने के लिए — ताकि monetary policy formulate हो सके।
M0
High-Powered Money / Reserve Money / Monetary Base
= Currency in Circulation + Banker's Deposits with RBI + Other Deposits with RBI
M1
Narrow Money (Most Liquid)
= Currency with Public + Demand Deposits with Banks + Other Deposits with RBI
M2
Broader than M1
= M1 + Saving Deposits with Post Office Savings Bank
M3
Broad Money (Most Used)
= M1 + Net Time Deposits (Term Deposits) with Commercial Banks
M4
Most Comprehensive (Least Liquid)
= M3 + Total Deposits with Post Office (excluding National Savings Certificates)
📌 M0 — "High-Powered Money" क्यों?
M0 को High-Powered इसलिए कहते हैं क्योंकि यह credit creation का base है। लेकिन vault cash और CRR components directly public transactions के लिए use नहीं होते।
M0 = Total liability of the monetary authority (RBI + Govt)।
📋 Summary Table:
| Aggregate | Name | Formula | Liquidity |
|---|
| M0 | High-Powered Money | Currency in Circulation + Banker's Deposits with RBI + Others | Base Money |
| M1 | Narrow Money | Currency with Public + Demand Deposits + Other Deposits with RBI | ⭐⭐⭐⭐ Highest |
| M2 | — | M1 + Post Office Savings Deposits | ⭐⭐⭐ |
| M3 | Broad Money | M1 + Time Deposits (FD/RD) with Banks | ⭐⭐ |
| M4 | — | M3 + Total Post Office Deposits | ⭐ Lowest |
M3 = Broad Money = Most widely used for monetary policy analysis। RBI mainly M3 देखती है।
M1 > M2 > M3 > M4 in terms of Liquidity। M4 में ज़्यादा locked-in components हैं।
M1 = Narrow Money = Most Liquid। M3 = Broad Money = RBI policy analysis के लिए। M4 = Least Liquid। M3 में FD/RD भी हैं।
🌐 7. Interbank Offer Rates — LIBOR & MIBOR
📌 Context
Banks short-term needs (CRR maintain करना) के लिए एक-दूसरे से borrow करती हैं। इन transactions की interest rate market forces decide करती हैं — Offer Rates के against benchmark।
🌍 LIBOR (London Interbank Offer Rate)
- Role: Global benchmark rate — loans, mortgages, और financial products worldwide के लिए।
- Status: Discontinued after 31 December 2021 — manipulation scandals की वजह से।
- Replaced by: SOFR (Secured Overnight Financing Rate) — US Dollar transactions के लिए।
🇮🇳 MIBOR (Mumbai Interbank Offer Rate)
- Role: India का version of LIBOR — domestic interbank lending के लिए।
- Current Status: 2015 में replaced by FBIL-Overnight MIBOR (Financial Benchmark India Private Ltd)।
LIBOR = Discontinued Dec 2021 → Replaced by SOFR। MIBOR (India) = 2015 में replaced by FBIL-Overnight MIBOR।
📈 8. Money Market vs Capital Market + T-Bills
| Feature | Money Market | Capital Market |
|---|
| Duration | Short-term (Less than 1 year) | Long-term (More than 1 year) |
| Purpose | Short-term fund requirements meet करना | Long-term capital for investment raise करना |
| Instruments | Call Money, Notice Money, T-Bills | Stocks, Bonds, Debentures |
📋 Money Market Instruments
1. Call Money:
Duration: 1 day (Less than 24 hours) — Overnight।
Use: Overnight requirements।
2. Notice Money:
Duration: 2 to 14 days।
Use: Slightly longer short-term needs।
📄 Treasury Bills (T-Bills)
Definition: Government of India द्वारा issued, RBI द्वारा managed short-term debt instruments।
- Tenors: 91 Days, 182 Days, 364 Days
- Category: Money Market instruments (1 year से कम maturity)।
- Zero-Coupon Securities: Regular interest नहीं मिलता।
- How they work: Discount पर issue, face value पर redeem। Difference = investor का profit।
₹100 का T-Bill ₹95 पर issue किया। Maturity पर ₹100 मिलेगा। ₹5 = profit (interest)। RBI ने यह ₹5 का discount implicit interest बना दिया।
T-Bills: 91/182/364 days। Zero-coupon। Issued at discount, redeemed at face value। Issued by Govt, managed by RBI।
⚠️ 9. Banking Assets & Non-Performing Assets (NPAs)
Key Perspective: Bank के लिए Loan = Asset (income generate करता है)। Borrower के लिए same Loan = Liability (repay करनी है)।
Classification of Assets (Timeline):
✅
Regular Assets — सब ठीक है
Borrower time पर Interest + Principal दोनों pay कर रहा है।
⚠️
Stressed Assets — Warning Stage (0-90 days overdue)
Payment overdue है लेकिन 90 days का threshold cross नहीं हुआ।
❌
NPA → Substandard Assets (90 days to 12 months overdue)
90 days से ज़्यादा overdue = NPA बन गया। 12 months तक इसी category में।
❓
Doubtful Assets (12 months से ज़्यादा overdue)
Substandard में 12 months से ज़्यादा रहा → Doubtful।
💀
Loss Assets — Uncollectible
Recovery की कोई chance नहीं। Practically write-off।
⚡ NPA — Key Definition
Loan/Advance NPA बनता है जब interest या principal payment 90 days से ज़्यादा overdue हो।
Impact: Asset bank के लिए income generate करना बंद कर देता है।
😤 Willful Defaulters (जानबूझकर डिफॉल्टर)
Definition: Borrowers जिनके पास repay करने की capacity है लेकिन deliberately नहीं करते।
Example: Vijay Mallya — classic example of willful defaulter।
NPA = 90 days से ज़्यादा overdue। Stressed = < 90 days। Substandard = 90 days to 1 year। Doubtful = > 1 year। Loss = Uncollectible।
🔧 10. NPA Resolution Mechanisms
🏦 Bad Bank (India 2021 Budget)
Concept: एक financial entity जो commercial banks से NPAs (bad loans) खरीदती है। इससे commercial bank की balance sheet साफ होती है और वो फिर से lending focus कर सकती है।
India में Structure (2021):
NARCL
National Asset Reconstruction Company Limited
Role: Banks से bad loans acquire करती है।
IDRCL
India Debt Resolution Company Limited
Role: Assets manage करती है, recover करने की कोशिश करती है।
📋 A. SARFAESI Act, 2002
Full Form: Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act।
Purpose: Banks को power देता है कि वो court जाए बिना defaulting borrowers का collateral (property) seize कर सकें।
Significance: Willful Defaulters को tackle करने का major tool। Secured loans efficiently recover करना।
Vijay Mallya की properties को banks ने SARFAESI Act use करके seize किया — बिना court approval के। यही Act की power है।
📋 B. Insolvency and Bankruptcy Code (IBC), 2016
Insolvency: Financial state — entity debts pay नहीं कर सकती।
Bankruptcy: Insolvency की legal declaration।
Objective: "Twin Balance Sheet Problem" resolve करना।
(Banks = bad loans से stressed + Corporates = debt से stressed)
Process: CIRP (Corporate Insolvency Resolution Process)
- Time Limit: 180 days (extendable by 90 days = Total 270 days)
- Decision: Company revive करें या liquidate करें।
NCLT
National Company Law Tribunal
Initial cases
NCLAT
National Company Law Appellate Tribunal
Appeals
SARFAESI 2002 = Without court, seize collateral। IBC 2016 = CIRP (180+90=270 days), NCLT+NCLAT। NARCL = acquires bad loans। IDRCL = manages + recovers।
🌍 11. International Banking Regulations — Basel Norms
📌 Why Basel Norms?
Banking systems globally interconnected हैं। अगर एक major bank fail हो (जैसे 2008 Lehman Brothers crisis) → पूरी दुनिया affect होती है। इसे prevent करने के लिए Basel Norms बनाए गए।
- Established by: Bank for International Settlements (BIS) — HQ: Basel, Switzerland
- Body: Basel Committee on Banking Supervision (BCBS) — formed by G10 countries' central bank governors in 1974।
- Goal: Banks "Shock Absorbers" बनें — enough capital cushion हो।
The Three Accords:
Basel I — 1988
Focus: Credit Risk only।
Introduced: CAR (Capital Adequacy Ratio) minimum 8% of Risk-Weighted Assets (RWA)।
India adopted guidelines: 1999।
Basel II — 2004
Expanded risk coverage: Credit Risk + Market Risk + Operational Risk।
Refined RWA (Risk-Weighted Assets) definition।
Basel III — 2010
Post-2008 crisis के बाद। Increased capital requirements।
CAR = 12.9% mandated।
Tier 1 Capital: 10.5% | Tier 2 Capital: 2%
📊 Capital Adequacy Ratio (CAR) / CRAR
CAR = (Tier 1 Capital + Tier 2 Capital) ÷ Risk Weighted Assets (RWA) × 100
Risk Weighted Assets (RWA)
Different loans के different risks होते हैं।
Govt. loan = 0% risk
Volatile business = 100% risk
Tier 1 Capital (Core)
Equity, disclosed reserves।
Highly liquid और permanent।
Tier 2 Capital (Supplementary)
Subordinated debt, undisclosed reserves।
Less liquid।
SBI ने ₹100 crore loans दिए: ₹50 crore Govt. को (0% risk = ₹0 RWA) + ₹50 crore small businesses को (100% risk = ₹50 crore RWA)। Total RWA = ₹50 crore। CAR = Capital/RWA × 100 = minimum 12.9% होना चाहिए।
Basel I (1988) = 8% CAR। Basel II (2004) = Credit+Market+Operational risk। Basel III (2010) = 12.9% CAR (Tier 1=10.5%, Tier 2=2%)। BIS HQ = Basel, Switzerland।
⚡ Quick Revision — सभी Key Facts एक नज़र में
| Topic | Key Fact |
|---|
| Liquidity Order | Cash > Gold > Cheque > Bond |
| Most Liquid Deposit | Demand Deposit (Savings/Current) > Term Deposit |
| Barter System Used During | Harappan Civilization |
| Barter Limitations (3) | Double Coincidence + Lack of Divisibility + Lack of Store of Value |
| Fiat Money | Government declared legal tender, Central Bank issues, not backed by Gold |
| Fiat Money Rule | Face Value > Intrinsic Value |
| ₹5 Thick Coin Discontinued | Metal value > ₹5 (Intrinsic > Face Value) — smuggled to Bangladesh |
| Fiduciary Money | Trust-based — Cheques, Tokens, Bitcoin |
| Plastic Money | Debit Card (own money), Credit Card (borrowed), Prepaid |
| Hot Money | Short-term, volatile — FPI example |
| Primary Functions of Money | Medium of Exchange + Measure of Value |
| Secondary Functions of Money | Standard of Deferred Payment + Store of Value |
| Keynes 3 Motives | Transaction + Precautionary + Speculative |
| Speculative Demand ∝ | 1/Rate of Interest (Inverse relationship) |
| Liquidity Trap | Very low interest + Cash preference + Monetary Policy ineffective |
| Vault Cash | Credit creation का part नहीं — idle cash |
| CDR (Currency Deposit Ratio) | Currency with public ÷ Deposits with public। Festive season में ↑ |
| M0 | High-Powered Money = Currency in Circulation + Banker's Deposits with RBI + Others |
| M1 (Narrow Money) | Currency with Public + Demand Deposits + Others with RBI। Most Liquid |
| M2 | M1 + Post Office Savings Deposits |
| M3 (Broad Money) | M1 + Time Deposits with Commercial Banks। Most used for policy |
| M4 | M3 + Total Post Office Deposits। Least Liquid |
| LIBOR Discontinued | 31 December 2021 — Replaced by SOFR |
| MIBOR Replaced | 2015 — FBIL-Overnight MIBOR |
| Money Market Duration | Less than 1 year |
| Capital Market Duration | More than 1 year |
| Call Money Duration | 1 day (Overnight) |
| Notice Money Duration | 2 to 14 days |
| T-Bills Tenors | 91 days, 182 days, 364 days |
| T-Bills Nature | Zero-coupon, issued at discount, redeemed at face value |
| T-Bills Issued by | Government of India, Managed by RBI |
| NPA — Threshold | 90 days से ज़्यादा overdue = NPA |
| Stressed Assets | < 90 days overdue (Warning stage) |
| Substandard Assets | NPA for 90 days to 12 months |
| Doubtful Assets | Substandard > 12 months |
| Loss Assets | Uncollectible — No recovery chance |
| Willful Defaulter Example | Vijay Mallya |
| NARCL | Acquires bad loans from banks |
| IDRCL | Manages assets + Tries to recover value |
| SARFAESI Act | 2002 — Banks seize collateral WITHOUT court |
| IBC | 2016 — CIRP: 180 + 90 = 270 days |
| NCLT | National Company Law Tribunal — IBC initial cases |
| NCLAT | National Company Law Appellate Tribunal — IBC appeals |
| Basel Norms Established by | BIS — Basel, Switzerland + BCBS (G10, 1974) |
| Basel I — Year | 1988 — CAR minimum 8% (Credit Risk) |
| Basel II — Year | 2004 — Credit + Market + Operational Risk |
| Basel III — Year | 2010 — CAR 12.9% (Tier 1 = 10.5%, Tier 2 = 2%) |
| India Adopted Basel I | 1999 |
| CAR Formula | (Tier 1 + Tier 2 Capital) ÷ RWA × 100 |
| Govt. Loan RWA | 0% risk weight |