Monetary Policy and Banking Structure In the Indian Context
Monetary Policy and Banking Structure
In the Indian Context
Tools of Macro Economic Policy
Fiscal Policy
Deals in government spending and revenue
collec:on
Implemented by state and central governments
Improving growth performance and
ensuring social jus:ce
Monetary Policy
Controls demand and supply of money
Implemented by the central bank
Ensuring economic growth and price stability
Targets
• Interest Rates • Bank Credit • Money Supply
Objec@ves
• Economic Growth
• Price Stability
Instruments
• Change in Quan@ty of Credit
• Varia@ons in Reserve Requirement
Monetary Policy
Financial System in India
Organised
Regulator/ Central Bank
Banking and Other Financial Ins@tu@ons
Money and Capital Market
Financial Services
Unorganised
Landlords
Local Bankers
Banking Structure in India
Reserve Bank of India
Scheduled Commercial banks
Public Sector Banks (26)
Na@onalised Banks
SBI and Associates
IDBI
Private Sector Banks (27)
Old Private Banks
New Private Banks Foreign Banks (43)
Regional Rural Banks (57)
Scheduled Coopera@ve Banks
Urban Coopera@ve Banks (53)
State Coopera@ve Banks (16)
Specialised Financial and Investment Ins@tu@ons
Financial Ins@tu@ons
• Export-‐Import Bank of India
• Na@onal Bank for Agriculture and Rural Development (NABARD)
• Na@onal Housing Bank (NHB)
• Small Industries Development Bank of India (SIDBI)
Investment Ins@tu@ons
• Industrial Investment Bank of India (IIBI)
• Industrial Credit and Investment Corpora@on of India (ICICI Bank)
• Life Insurance Corpora@on (LIC) of India
Non Banking Financial Ins@tu@ons
(NBFCs)
• Deposit taking NBFCs (NBFCs-‐D)
• Non-‐deposit taking NBFCs (NBFCs-‐ND)
Reserve Bank of India Established in Kolkata under the RBI act of 1934
Na@onalised in 1949
Headquartered in Mumbai
Objec@ve: “… to regulate the issue of bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.”
Instruments of Credit Control
Quan:ta:ve Methods
Open Market opera:ons: sale and purchase of securi@es from public, commercial banks
Deployment of Credit to Various Sectors
Cash Reserve Ra:o: ra@o of demand and @me liabili@es to be kept with the central bank
Statutory Liquidity Ra:o: percentage of demand and @me liabili@es to be invested in government approved securi@es
Repo(injec:on) and Reverse Repo(absorp:on) rates: rates at which the central bank lends borrows short term money to/from banks
Instruments of Credit Control Qualita:ve Methods Credit Controls
Margin Requirements
Issue of guidelines
Credit Ra:oning
Moral Suasion
Func@ons of the RBI
Main Func@ons
Regula:on of Credit-‐ through quan@ta@ve and qualita@ve techniques
Issue of Notes and Coins-‐ except one rupee notes and coins
Regula:on of Foreign Exchange-‐by ac@ng as a custodian of na@on’s foreign exchange reserves
Banker agent and advisor to the Government-‐ through transac@ons and managing public debt
Func@ons of the RBI
Main Func@ons
Lender of Last Resort-‐ by funding banks when they fail to get it from other sources
Banker’s Bank-‐ by providing financial assistance to scheduled and state coopera@ve banks
Agent of the Government: by distribu@ng currency and selling treasury bills
Regulatory and Supervisory Func:ons-‐ by supervising commercial and coopera@ve banks
Func@ons of the RBI
Other Func@ons
Clearing house and arranging credit for agriculture
Collec@ng and publishing economic data
Buying and Selling Government Securi@es and trade bills
Lending to the government, buying and selling of valuable commodi@es
Represen@ng the government at the IMF
Wrap Up!
• Tools of Macro Economic Policy-‐ Monetary and Fiscal Policy
• Difference between Monetary and Fiscal Policy
• Broad Idea of the banking and financial structure in India
• Objec@ves, targets and instruments of Monetary policy
• Func@ons of the Central Bank of India