Digital Finance: formula sheet

Key formulas

RTGS vs NEFT settlement

RTGS = real-time gross settlement (one by one, final); NEFT = deferred net settlement (in batches)

This is the most tested difference. RTGS is for large-value payments; NEFT has no minimum amount.

UPI transaction parties

Payer → PSP app → NPCI UPI switch → Payee's bank → Payee

Name the remitter bank, beneficiary bank, PSP/TPAP, and NPCI as the central switch.

Role split

RBI = regulator, authoriser, overseer; NPCI = operator of retail payment systems

Do not credit NPCI with regulatory power over the banking system.

Instrument type test

Debit card = own money now; Credit card = borrowed money, pay later; Wallet = pre-loaded money

Use this to classify any instrument quickly in an MCQ.

RTGS minimum value (customer transactions)

RTGS customer transactions: minimum ₹2,00,000 as currently prescribed, no upper limit; interbank transactions: this minimum does not apply; NEFT: no minimum

RBI can revise limits and timings. Quote them as currently prescribed and say so in descriptive answers.

Block linkage

Block n contains: transactions + hash of Block (n − 1) + its own hash

Changing any old block changes its hash and breaks every later link. This is the basis of tamper-evidence.

Smart contract logic

IF condition is met THEN action executes automatically

The condition must be checkable on the chain or through a trusted data source (an oracle).

Public vs private blockchain

Public: permissionless, open, decentralised. Private: permissioned, controlled by one entity, faster, more privacy

Consortium chains are governed by a group of known organisations.

Consensus: PoW vs PoS

PoW: right to add a block comes from computing work. PoS: right comes from stake held

PoW is energy-intensive. PoS uses much less energy.

Crypto vs CBDC: issuer

Crypto = private or decentralised, no issuer liability; CBDC = central bank liability

Issuer is the first and most tested difference.

Crypto vs CBDC: legal status

Crypto ≠ legal tender in India; e₹ = legal tender (digital form of the rupee)

Taxation of VDAs does not give them legal tender status.

CBDC value

1 e₹ = ₹1

CBDC is a one-to-one digital form of fiat currency, so it has no price volatility against the rupee.

Tax on VDA transfer

Tax = 30% × (Sale consideration − Cost of acquisition)

Only cost of acquisition is allowed. No deduction for other expenses; losses are not set off against other income. Surcharge and cess apply as per law. Confirm rates in the Income-tax Act, 2025.

Types of CBDC

Retail CBDC (public) and Wholesale CBDC (financial institutions)

Wholesale is mainly for interbank and settlement use.

Digital lending chain

Borrower → LSP (agent) → Regulated Entity (lender) → direct disbursal and repayment via bank accounts

The RE is accountable. The LSP never holds the loan funds.

P2P platform status

P2P platform = RBI-registered NBFC-P2P = intermediary only

No own lending, no guarantee, no assured return, no deposits. Exposure limits apply.

Account aggregator flow

FIU request → customer consent → AA → FIP → encrypted data → AA → FIU

The AA is a conduit and cannot view the data. Consent is purpose-specific and revocable.

Annual percentage rate (APR)

APR = annualised effective cost of the loan, including interest and all charges applicable to the loan, such as processing and other fees

Contingent charges, such as penal interest and late fees, are disclosed separately in the key fact statement. Use APR to compare offers, not the headline rate.

Neo-bank vs traditional bank

Neo-bank = app interface + partner bank licence; Traditional bank = own licence + branches + own balance sheet

Regulatory responsibility lies with the licensed partner. Deposits are held only where the partner is a bank. DICGC cover applies only to deposits with an insured bank, not an NBFC partner, and is up to ₹5 lakh per depositor per bank across all accounts in that bank. The neo-bank is not a licensed deposit-taker.

Risk exposure (qualitative)

Cyber risk = Threat × Vulnerability × Impact

A memory aid, not a legal formula. Controls work by cutting threat, vulnerability or impact.

Expected annual loss

Expected loss = Probability of incident per year × Loss per incident

Use it to compare a control's cost with the loss it prevents. Example: 5% × ₹2,00,00,000 = ₹10,00,000.

Control benefit

Net benefit of control = Reduction in expected loss − Annual cost of control

Adopt the control if the net benefit is positive, subject to regulatory mandates that apply regardless.

Layers of defence

Prevent → Detect → Respond → Recover

Use this structure to organise any mitigation answer.

Data privacy principles

Consent + Purpose limitation + Data minimisation + Security safeguards + Accountability

Core ideas behind data protection law. State them in plain words.

Quick revision

• Fintech means technology-enabled financial services, from startups and established institutions alike.
• Digital finance covers payments, lending, investing, insurance and money management delivered through technology.
• UPI allows instant bank-to-bank transfers through a mobile app using a virtual payment address.
• A blockchain is a shared ledger where records are grouped in linked blocks and are hard to alter after validation.
• Consensus is how network participants agree on which transactions are valid.
• Cryptocurrencies are private digital assets; a CBDC is digital money issued by the central bank.
• Smart contracts are programs that execute automatically when set conditions are met.
• Machine learning finds patterns in data to support credit scoring, fraud detection and forecasting.
• Open banking shares customer data with third parties only with customer consent, through secure interfaces.
• Digital lending raises issues of data privacy, transparency of charges and fair recovery practice.
• Key cyber risks include phishing, malware, ransomware and identity theft; controls include authentication, encryption and monitoring.
• Always link a technology to its benefit, its risk and its regulator in your answer.

Common mistakes

• Treating fintech and digital finance as exactly the same thing. Fix: Say fintech is the technology and innovation, and digital finance is the delivery of financial services through digital means.
• Writing only about start-ups when defining fintech. Fix: Mention that banks, NBFCs and large technology firms also use fintech.
• Saying NPCI is the regulator of payment systems. Fix: Write that RBI regulates under the Payment and Settlement Systems Act, 2007, and NPCI operates retail systems.
• Writing that RTGS is batch-based and NEFT is real-time. Fix: Remember: RTGS = gross, one by one, real time. NEFT = net, in batches.
• Saying blockchain data can never be changed. Fix: Write that records are tamper-evident and extremely hard to alter. A majority attack or a change agreed by the network is still possible in theory.
• Treating blockchain and Bitcoin as the same thing. Fix: Blockchain is the underlying technology. Bitcoin is one cryptocurrency that runs on a public blockchain. Many blockchains have no cryptocurrency.
• Calling CBDC just another cryptocurrency. Fix: Remember that CBDC is central bank money and legal tender. A crypto asset has no issuer liability.
• Saying crypto is banned in India. Fix: Say it is not legal tender and not banned. It is taxed as a VDA and regulated through tax and anti-money-laundering rules.
• Treating RPA as a form of machine learning. Fix: RPA follows fixed rules and does not learn. ML learns patterns from data. They can be combined, but they are different.
• Saying robo-advisors guarantee better returns. Fix: They offer low-cost, disciplined, algorithm-based advice. Returns depend on markets and the portfolio chosen.

Exam tips

• Expect MCQs on definitions, such as which term describes technology-led financial innovation, and on which item is a driver or scope area.
• In case questions, quote facts from the case before giving general points.
• Keep answers structured with bullets; examiners reward clear points over long paragraphs.
• For comparison questions, use at least five parameters with both sides covered.
• Revise this topic with the other Digital Finance topics, as case scenarios often combine payments, lending and security.
• Learn the RBI and NPCI split cold. Many MCQs test only who does what.
• For comparison questions, use the same points for every mode so the examiner can match them easily.
• For case scenarios, pick the mode by value, urgency and recurring need, then justify it in one line.