QUESTION

Medium

Economy

Prelims 2025

Which of the following are the sources of income for the Reserve Bank of India?

I. Buying and selling Government bonds II. Buying and selling foreign currency III. Pension fund management IV. Lending to private companies V. Printing and distributing currency notes

Select the correct answer using the code given below.

Select an option to attempt

Explanation

Statement I is Correct: The RBI earns a significant portion of its income from interest on Government Securities (G-Secs) held in its portfolio and through Open Market Operations (OMO).

Statement II is Correct: Income is generated from the deployment of foreign exchange reserves in foreign sovereign bonds, treasury bills, and deposits with other central banks, as well as from foreign exchange trading.

Statement III is Incorrect: The RBI is not a pension fund manager. Pension funds are regulated by PFRDA and managed by specific fund managers.

Statement IV is Incorrect: The RBI is the "Banker to Banks." It does not lend directly to private individuals or corporate entities; it provides liquidity to commercial banks and the government.

Statement V is Incorrect: While "Seigniorage" is an economic concept of profit, in accounting terms, currency notes are liabilities. The actual income recorded in the RBI's profit and loss account comes from the interest earned on the assets (G-Secs/Gold) held to back that currency, not the printing process itself.

Note: After the release of the UPSC ANSWER KEY 2025, we have updated the correct answer to A.

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