Money & Banking Foundations

Purpose of this module: Before learning RBI policy rates, deposits, loans, NPAs, digital payments or banking regulation, a learner needs a clear mental model of money and banking. This module builds that model. It explains what money does, why banks exist, how India measures money supply, how bank lending interacts with deposits, how banks earn income, how interest and compounding work, and the banking terms that appear repeatedly throughout the rest of the course.

What you will learn

By the end of Module 01, you should be able to:

1. explain the main functions of money and distinguish money from wealth, income and currency;
2. explain why banks are financial intermediaries and what economic problems they solve;
3. describe reserve money and the Indian monetary aggregates M1, M2, M3 and M4;
4. distinguish demand deposits from time deposits and narrow money from broad money;
5. explain, using a simplified balance sheet, how bank lending can create deposits;
6. explain why credit creation is not unlimited;
7. distinguish interest income, interest expense, spread, net interest income and net interest margin;
8. calculate simple and compound interest and understand nominal and real returns; and
9. correctly use core banking terms such as asset, liability, capital, liquidity, solvency, yield, leverage and provision.