Where your rupee goes

When you deposit money, the bank doesn’t keep it in a box with your name on it. It owes it to you. Your balance is the bank’s liability: a promise to pay you on demand.

The bank lends what you lent it to a home buyer, a shop, a factory. The gap between what it pays you and what it charges them is how it earns a living.

When a bank gives a ₹50 lakh home loan, it doesn’t hand over someone else’s savings. It types ₹50 lakh into the builder’s account. That is a brand-new deposit.

So the loan created money. This is why almost all of India’s money is bank deposits, and only about one rupee in eight is cash.

If a bank lent every rupee, a busy Monday of withdrawals could break it. So the RBI makes every bank keep two cushions, as a share of its deposits (NDTL).

CRR, the cash reserve ratio: 3% sits in the bank’s RBI account, earning nothing.

SLR, the statutory liquidity ratio: 18% is held in safe assets that can be sold fast, mostly government bonds.

Move the sliders.

When the RBI cut the CRR from 4% to 3% in 2025, in four steps, it freed about ₹2.5 lakh crore for banks to lend.

The rule is met on average over each fortnight, not every day. On 16 October 2026 banks held ₹8.44 lakh crore at the RBI against a requirement of ₹8.33 lakh crore.

The SLR is quieter: it guarantees the government a steady buyer for its bonds. Banks hold more than the minimum anyway, because bonds are what they pledge to borrow.

All day, money moves between banks. You pay a shop that banks elsewhere. A company pays salaries into a hundred banks. Taxes go to the government’s account at the RBI.

Each payment ends as money moving from one bank’s RBI account to another’s. By evening some banks have more than they need there, and some less.

The ones with spare money lend it overnight to the ones that are short. This is the money market.

Three kinds of overnight loan:

Call money. Banks lend to each other on trust alone. Small, but its average rate is the number the RBI watches.

TREPS. Tri-party repo: loans backed by government bonds, with CCIL guaranteeing both sides. Mutual funds lend here too. By far the biggest.

Market repo. The same, arranged directly between two parties.

When the RBI lends to a bank, it is also a repo. The rate it charges is the repo rate.

The RBI can’t order banks to lend to each other at a rate. Instead it makes two standing offers any bank can take, any day:

Floor, SDF 5.25%. Park spare money with the RBI, risk-free. No bank lends to another for less.

Ceiling, MSF 5.75%. Borrow overnight from the RBI against bonds. No bank pays another more.

Target, repo 5.50%. Where the RBI wants the overnight rate to sit.

Drag the chart: spare money decides where in the corridor the rate lands.

How much spare money the banks hold in total is called liquidity. Too much, and rates sink to the floor. Too little, and they press on the ceiling.

So the RBI pumps money in or drains it out, with tools that last a few days, tools that last for good, and its trades in dollars.

Every dollar it buys to stop the rupee rising is paid for in new rupees. Currency and rates are never really separate.

On 7 October the RBI raised every rate in the corridor by a quarter point. The call rate moved up the same day.

On Friday 16 October, banks parked ₹1.59 lakh crore at the floor; a few borrowed ₹8,316 crore at the ceiling. Reverse repo auctions held ₹56,825 crore more. In all, about ₹2 lakh crore was drained that day.

Why drain it? Banks had about ₹10 lakh crore of lasting spare money. Left alone, it would drag rates to the floor and undo the hike.

Since 2016 the law has given the RBI one main target: inflation near 4% a year, within a band of 2% to 6%.

Six people set the rate: three from the RBI including the Governor, and three experts appointed by the government. This is the Monetary Policy Committee. It meets six times a year.

By August 2026 inflation had risen to 4.8%, and the RBI expects close to 5.8% over the next three quarters.

So on 7 October it raised the rate from 5.25% to 5.50%, its first hike since February 2023. It says the next move will be a hike or a pause, not a cut.

Next meeting: 2–4 December 2026.

Hover over the chart.

For years, RBI cuts reached borrowers months late, if at all. So since October 2019, every new floating-rate loan to a person or a small business must follow an outside benchmark.

Almost every bank picked the repo rate. Your rate is repo plus a fixed spread, reset at least every three months. This is an EBLR loan.

Move the repo rate and watch the EMI.

Company loans and older loans still use the MCLR, each bank’s own benchmark, built from what its deposits cost.

Most deposits are fixed deposits, locked in at their old rate until they mature. So a bank’s costs change slowly, and it reprices what it pays you only when it needs new money.

The government spends more than it collects and borrows the gap by selling IOUs. The RBI keeps its account and holds the auctions.

Up to a year: treasury bills. Longer, out to 50 years: G-secs. States sell SDLs, also through the RBI.

Buyers: banks (the SLR makes them), insurers, provident funds, mutual funds and, since India joined global bond indices in 2024, foreigners. Banks’ net lending to the government: ₹78 lakh crore.

The RBI may not buy government bonds at the auction itself, so the government can’t simply have its debt printed. It buys only later, from the market, when it wants to add money.

The RBI earns interest on its bonds and dollar reserves. After setting some aside, it hands the surplus to the government every year.

Everything so far is the same thing: a promise to pay back later, cut to a different length and backed by a different promise.

Lined up, they form a ladder from one night to fifty years. The short end is the money market; the long end is the bond market.

Pick an instrument to see who borrows, who lends and what backs it.

You hold a bond paying 7%. New bonds start paying 7.5%. Nobody will pay you full price for yours, so its price falls until a buyer earns the market rate on it.

That market rate is the yield. Prices and yields always move in opposite directions, which is why banks, the biggest bond holders, watch every MPC meeting.

Move the yield.

Not everyone deals with the RBI. The closer the ring, the more directly it does.

Banks and primary dealers are in the middle: they hold accounts there and can borrow. Payment firms can move money through it. Funds, insurers and NBFCs reach it only through markets.

Companies and people reach it through a bank.

A company has ₹500 crore it won’t need for a month. It puts the money in a liquid mutual fund.

The fund lends part of it overnight in TREPS to a bank that is short, and buys 91-day T-bills with the rest.

The company never touched the RBI. But its cash just filled a bank’s reserve gap and funded the government for three months, at a rate set by the corridor.

Money between banks only ever moves in their RBI accounts.

UPI feels instant because banks trust each other for a few hours, then settle the net amount at the RBI in batches.

RTGS, the RBI’s system for large payments, is the opposite: each payment settles alone, in real time.

Press Play, or step through.

In 2025–26 Indians made 241.6 billion UPI payments worth ₹314 lakh crore, about ₹1,300 each. Two in three were payments to shops.

In September 2026 it averaged 802 million payments a day.

Count isn’t value. A tea stall’s ₹40 and a company’s ₹500 crore bond payment run on different rails, built for different jobs.

The average RTGS payment in 2025–26 was about ₹6.5 crore.

• RTGS · RBI Big payments, ₹2 lakh and up, settled one by one in real time. Average payment: ₹6.5 crore.
• NEFT · RBI Any amount, in batches every half hour, around the clock. Salaries, rent, invoices.
• IMPS · NPCI Instant transfers by account number, up to ₹5 lakh.
• UPI · NPCI Instant payments to an address or QR code. 802 million a day.
• Cards Visa, Mastercard and NPCI’s RuPay. RuPay credit cards now work on UPI.
• NACH · NPCI Bulk and recurring: salaries in, EMIs and SIPs out, benefits paid into accounts.

When the rupee falls too fast, the RBI sells dollars. When it rises, it buys them.

Each trade takes rupees out of the banks or puts them in. That is why a strong inflow of dollars can leave banks flush with spare money, and why the RBI then has to drain it to keep rates where it wants.

Two layers of accounts. Six kinds of player. One corridor of rates that every loan, deposit and bond is priced against.

Pick a layer to light it up.

Your app still shows one number.

Now you know what’s behind it.