Money supply
What counts as money in India, how RBI measures it, how bank lending creates it, and how fast it moves
RBI money data as on 30 September 2026; GDP for 2025-26 as updated on 31 August 2026
Verified 16 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask the room how much of India's money they think is notes and coins. Most guesses are well above the real share. The answer on the next slide sets up the whole deck.
Most of India's money is not notes and coins. It is bank deposits.
On 30 September 2026, currency with the public was about ₹12.50 of every ₹100 of broad money (M3), per RBI. Nearly all the rest was money held in bank accounts.
Trainer notes
Currency with the public was ₹42.07 lakh crore out of M3 of ₹337.66 lakh crore, which is 12.46%. 'Other' deposits with RBI make up a further 0.38%; the rest is bank deposits.
Four measures RBI uses
Each step adds money that takes a little longer to spend.
- M0
Reserve money
Currency in circulation + banks' deposits with RBI + 'other' deposits with RBI. Mostly RBI's own liabilities.
- M1
Narrow money
Currency with the public + demand deposits with banks + 'other' deposits with RBI. Money ready to spend.
- M3
Broad money
M1 + time deposits with banks, such as fixed deposits. RBI publishes it for the 15th and last day of each month.
Wider measures
M2 and M4 add post office deposits. NM2 and NM3 split bank deposits at one year; L1 to L3 add other lenders.
Source: RBI Handbook 2025-26, Notes on Tables, 31 Jul 2026. RBI says 'reserve money'; M0 is the usual label.
Trainer notes
Demand deposits are current accounts and the demand part of savings accounts; RBI splits savings accounts into a demand part and a time part. 'Currency in circulation' includes cash held by banks; 'currency with the public' excludes it. The NM and L measures come from RBI's 1998 Working Group on Money Supply; the headline figure in RBI's weekly data is M3.
What broad money is made of
| ₹ lakh crore | |
|---|---|
| Currency | 42.07 |
| Demand dep. | 38.91 |
| Time dep. | 255.42 |
| Other (RBI) | 1.27 |
Read the chart
- Time deposits, such as fixed deposits, were ₹255.42 lakh crore: about 76% of M3.
- Currency with the public was ₹42.07 lakh crore, about 12.5% of M3.
- M1 (bars one, two and four) was ₹82.25 lakh crore, about 24% of M3.
- M3 in total: ₹337.66 lakh crore.
Source: RBI Weekly Statistical Supplement, 9 Oct 2026, Money Stock: Components and Sources (as on 30 Sep 2026). M1 and the shares are our arithmetic.
Trainer notes
Exact figures in ₹ crore: currency with the public 42,07,251; demand deposits 38,90,599; time deposits 2,55,41,542; 'other' deposits with RBI 1,27,084; M3 3,37,66,475. M1 is the sum of the first, second and fourth items, as RBI defines it.
How a bank loan creates money
AN INVENTED BANK
A bank lends ₹10,00,000 to a shop owner. It does not hand her notes. It credits her current account with ₹10,00,000.
All figures are assumed.
- Her deposit rises by ₹10,00,000 and no one else's falls. Deposits are part of M3, so M3 rises by ₹10,00,000.
- She pays a supplier who banks elsewhere. The deposit moves to his bank. M3 does not change; the money has changed hands.
- His bank keeps cash with RBI against deposits. At a 3% CRR that is broadly 3% × ₹10,00,000 = ₹30,000.
- When the loan is repaid out of a deposit, that deposit is cancelled against the loan. M3 falls by ₹10,00,000.
Result: Lending creates deposits; repayment cancels them. Bank credit is the largest source of M3.
Illustration with an invented bank and assumed figures. CRR of 3% as published by RBI for October 2026.
Trainer notes
This is the Bank of England's description in 'Money creation in the modern economy' (2014): the loan comes first and the deposit is created with it. CRR is actually worked out on a bank's net demand and time liabilities, with a lag, so the ₹30,000 is a simplification. Banks cannot lend without limit: demand for loans, capital rules and the interest rates RBI sets all hold them back.
Where broad money comes from
The same ₹337.66 lakh crore of M3, seen from the other side of the books, on 30 September 2026.
| Source | What it means | ₹ lakh crore |
|---|---|---|
| Bank credit to the commercial sector | Mainly bank loans to businesses and households. Each new loan creates a deposit. | 238.50 |
| Net bank credit to government | Government securities and loans held by RBI and banks, less government cash balances with RBI. | 94.16 |
| Net foreign exchange assets | Foreign assets of RBI and banks, net. Dollars RBI buys from outside the banks are paid for in rupees. | 76.28 |
| Government's currency liabilities | Coins in the hands of the public. Coins are issued by the Government; notes are issued by RBI. | 0.43 |
| Less: net non-monetary liabilities | Items on the books of RBI and banks that are not money, such as their capital and reserves. | −71.69 |
Source: RBI Weekly Statistical Supplement, 9 Oct 2026, Money Stock: Components and Sources (as on 30 Sep 2026). The five lines add up to M3, bar rounding.
Trainer notes
Bank credit to the commercial sector grew 18.8% in the year to 30 September 2026, faster than M3. When the government spends from its account with RBI, or RBI buys dollars from outside the banks, money in the hands of the public rises; when RBI sells dollars to them, it falls.
Velocity: how hard money works
The idea
How many times, on average, the stock of money is used in a year to buy the economy's final goods and services.
- GDP÷M3
The formula
Velocity = nominal GDP for the year ÷ the average money stock in that year. Using M3 gives the velocity of broad money.
- 1.19
India, 2025-26
Nominal GDP ₹345.37 lakh crore ÷ average M3 ₹290.20 lakh crore = 1.19. Using M1 instead: 345.37 ÷ 71.21 = 4.85.
Take-away: The quantity equation ties these together: money × velocity = prices × real output.
Sources: MoSPI Press Release on National Accounts Statistics 2026, 31 Aug 2026; RBI Handbook of Statistics 2025-26, Table 38. Our arithmetic.
Trainer notes
Velocity is not counted directly. It is what you get when you divide GDP by money, so a narrower money measure gives a higher velocity. RBI's Table 234 shows 1.35 for 2025-26, but that row does not match Table 38 (its ratios imply GDP of ₹389 to ₹405 lakh crore), so we use MoSPI's GDP and Table 38. The quantity equation is true by definition; on its own it says nothing about what causes what.
Velocity of broad money since 1970
| GDP ÷ average M3 | |
|---|---|
| 1970-71 | 4.48 |
| 1980-81 | 2.85 |
| 1990-91 | 2.28 |
| 2000-01 | 1.63 |
| 2010-11 | 1.27 |
| 2020-21 | 1.11 |
| 2024-25 | 1.26 |
Read the chart
- In 1970-71, GDP was about 4.5 times the average stock of broad money.
- By 2010-11 the ratio was 1.27: M3 had grown much faster than GDP.
- It dipped to 1.11 in 2020-21 and was 1.26 in 2024-25.
- 2025-26: about 1.19 on new-base GDP. Bars above use older GDP.
Source: RBI Handbook 2025-26, Table 234 (older GDP series), 31 Jul 2026; selected years. 2025-26: our arithmetic on MoSPI new-base GDP.
Trainer notes
RBI's method divides GDP at current market prices by the average of M3 over the year. Bars up to 2024-25 use the older GDP series; on MoSPI's new base 2024-25 is ₹317.99 lakh crore, about 1.21, so the step to 1.19 is partly a change of series. A lower velocity means money holdings grew faster than income. That is a description, not a judgement. The 2025-26 figure is our calculation from the previous slide.
Where things stand
RBI data as on 30 September 2026. They change every fortnight; check the date before you quote them.
- M3, YEAR ON YEAR
- 16.9%₹337.66 lakh crore. Growth in the year to 30 Sep 2025 was 9.6%.
- RESERVE MONEY (M0)
- 8.7%Year-on-year growth. ₹52.78 lakh crore on 30 Sep 2026.
- COMMERCIAL CREDIT
- 18.8%Year-on-year growth in bank credit to the commercial sector.
- M3 ÷ M0
- 6.4M3 was about 6.4 times reserve money on 30 Sep 2026.
Source: RBI Weekly Statistical Supplement, 9 Oct 2026: Money Stock and Reserve Money tables, as on 30 Sep 2026. M3 ÷ reserve money is our arithmetic.
Trainer notes
For the full year 2025-26, M3 grew 15.3% (31 March over 31 March, Handbook Table 231). The 6.4 is a 30 September spot ratio; Table 234's M3/RM uses year averages. State the figures and stop: we do not say what they mean for markets, rates or any fund.
If you learnt this from older material
What older decks say
- M0 is notes and coins in circulation and in bank vaults.
- M2 adds retirement accounts; M3 adds Euro-dollar deposits.
- A bank keeps 10% of a deposit and lends out the other 90%.
What holds now
- RBI's reserve money (M0): currency in circulation plus banks' and 'other' deposits with RBI.
- RBI uses neither. Its M3 is M1 plus time deposits with banks.
- A loan creates a new deposit. The CRR was 3% in October 2026.
Take-away: Since 15 December 2025, RBI publishes money supply for the 15th and the last day of each month.
Sources: RBI Handbook of Statistics 2025-26, Notes on Tables; RBI WSS, 9 Oct 2026; Bank of England Quarterly Bulletin 2014 Q1.
Trainer notes
The older decks mixed in definitions that RBI does not use. The fortnight change came with the Banking Laws (Amendment) Act, 2025; before it, bank data were reported for alternate Fridays.
Four things people get wrong
Misconception'Money supply means notes in circulation.'
What is trueCurrency with the public was about 12.5% of M3 on 30 September 2026. Bank deposits made up almost all the rest.
Misconception'Banks lend out depositors' money.'
What is trueA loan is paid by crediting the borrower's account, which creates a new deposit. The first depositor's balance does not fall.
Misconception'RBI fixes the amount of money.'
What is trueRBI sets the policy rate and uses tools such as CRR. Broad money also depends on bank lending and how people hold money.
Misconception'Faster money growth means inflation.'
What is trueMoney growth can add to demand, but output and velocity change too. The link is loose and slow, so it is not a forecasting rule.
Source: RBI Weekly Statistical Supplement, 9 Oct 2026 (30 Sep 2026 data); Bank of England Quarterly Bulletin 2014 Q1.
Trainer notes
On the third point: RBI influences broad money mainly through the price of money, the repo rate, and through tools such as CRR and bond purchases or sales. See the deck 'RBI's toolkit'.
Check yourself
Question 1: Name the four components of M3 in RBI's data, and say which was the largest on 30 September 2026.
Answer: Currency with the public, demand deposits, time deposits and 'other' deposits with RBI. Time deposits were the largest: ₹255.42 lakh crore, about 76% of M3.Question 2: A bank lends ₹5,00,000 by crediting a borrower's account. What happens to M3 that day, and what happens when the loan is repaid out of a deposit?
Answer: M3 rises by ₹5,00,000, because a new deposit has been created. On repayment that deposit is cancelled against the loan, and M3 falls by ₹5,00,000.Question 3: In an invented economy, nominal GDP is ₹200 and the average money stock is ₹50. What is velocity? If money doubles and velocity stays the same, what is nominal GDP?
Answer: Velocity = 200 ÷ 50 = 4. With money at ₹100 and velocity still 4, nominal GDP would be ₹400. In practice velocity does not stay fixed, as India's figures show.
Sources and disclaimer
Sources for the figures in this explainer
- Money stock, reserve money and growth rates as on 30 Sep 2026; CRR 3.00%: RBI Weekly Statistical Supplement, 9 Oct 2026 (Money Stock, Reserve Money, and Ratios and Rates tables).
- Definitions of reserve money, M1 to M4, NM2, NM3 and L1 to L3; money supply dates from 15 Dec 2025: RBI Handbook of Statistics on the Indian Economy 2025-26, Notes on Tables, 31 Jul 2026.
- Velocity series, average M3 and M1 for 2025-26, M3 growth in 2025-26: RBI Handbook of Statistics 2025-26, Tables 38, 231 and 234, 31 Jul 2026.
- Nominal GDP for 2025-26, ₹345.37 lakh crore: MoSPI, Press Release on National Accounts Statistics 2026, 31 Aug 2026.
- How bank lending creates deposits: Bank of England, Quarterly Bulletin 2014 Q1, 'Money creation in the modern economy', 14 Mar 2014.
- Demand and time parts of savings accounts: RBI Handbook of Monetary Statistics of India, Annex on money stock measures, 3 Mar 2006.
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