Which of the following are the sources of income for the Reserve Bank of India?
Buying and selling Government bonds
Buying and selling foreign currency
Pension fund management
Lending to private companies
Printing and distributing currency notes
Select the correct answer using the code given below. (UPSC Prelims 2025)

Question

The correct answer is [A] I and II only. The Reserve Bank of India (RBI) generates income primarily through its role as the central bank and manager of the country\'s monetary policy and foreign exchange reserves.

Buying and selling Government bonds (Statement I – Correct): This is a major source of income. Under Open Market Operations (OMO), the RBI earns interest on the government securities (G-Secs) it holds. It also gains from the appreciation in the value of these bonds.
Buying and selling foreign currency (Statement II – Correct): The RBI manages India’s Foreign Exchange Reserves. It earns income through the deployment of these foreign assets in sovereign bonds and treasury bills of other nations, as well as through gains from foreign exchange trading.
Pension fund management (Statement III – Incorrect): This is not a function of the RBI. In India, pension funds are regulated and managed by the Pension Fund Regulatory and Development Authority (PFRDA) and various licensed pension fund managers.
Lending to private companies (Statement IV – Incorrect): The RBI is a \"banker to banks\" and the government. It does not provide direct commercial loans or credit facilities to private companies or individuals.
Printing and distributing currency (Statement V – Incorrect): This is an expenditure, not a source of income. While the concept of \"Seigniorage\" exists (the difference between the face value of money and the cost to produce it), the act of printing and distributing itself incurs significant costs for the RBI.

Other sources of RBI income include interest on loans given to commercial banks (Repo rate) and management commissions for handling government debt.

GKToday Admin · Accepted Answer

I and II only The correct answer is [A] I and II only. The Reserve Bank of India (RBI) generates income primarily through its role as the central bank and manager of the country\'s monetary policy and foreign exchange reserves.

Buying and selling Government bonds (Statement I – Correct): This is a major source of income. Under Open Market Operations (OMO), the RBI earns interest on the government securities (G-Secs) it holds. It also gains from the appreciation in the value of these bonds.
Buying and selling foreign currency (Statement II – Correct): The RBI manages India’s Foreign Exchange Reserves. It earns income through the deployment of these foreign assets in sovereign bonds and treasury bills of other nations, as well as through gains from foreign exchange trading.
Pension fund management (Statement III – Incorrect): This is not a function of the RBI. In India, pension funds are regulated and managed by the Pension Fund Regulatory and Development Authority (PFRDA) and various licensed pension fund managers.
Lending to private companies (Statement IV – Incorrect): The RBI is a \"banker to banks\" and the government. It does not provide direct commercial loans or credit facilities to private companies or individuals.
Printing and distributing currency (Statement V – Incorrect): This is an expenditure, not a source of income. While the concept of \"Seigniorage\" exists (the difference between the face value of money and the cost to produce it), the act of printing and distributing itself incurs significant costs for the RBI.

Other sources of RBI income include interest on loans given to commercial banks (Repo rate) and management commissions for handling government debt.

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