Reserve Bank Of India

Reserve Bank Of India

PresentationOn

Introduction

The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.

It is the central bank of India.

It was originally constituted with a capital of Rs.5 crores. The entire share capital was contributed privately with the exception of the nominal value of Rs 2.2 lakh subscribed by the central bank.

After independence, the reserve bank of India was nationalized.

RBI Central Office Building,

Mumbai

D. SubbaraoCurrent Governor

of R.B.I

Management Structure of Reserve Bank Of India

To manage the monetary and credit system of the country. 

To stabilizes internal and external value of rupee.  For balanced and systematic development of banking in the country. 

For the development of organized money market in the country. 

Objectives Of R.B.I

For proper management of public debts

To establish monetary relations with other countries of the world and international financial institutions.

For centralization of cash reserves of commercial banks.

To maintain balance between the demand and supply of currency.

For proper arrangement of agriculture finance.

For proper arrangement of industrial finance.

1. TRADITIONAL FUNCTIONS

I --- ISSUER OF CURRENCY NOTES

The RBI has the sole right or authority or monopoly of issuing currency notes except one rupee note and coins of smaller denomination.

These currency notes are legal tender issued by the RBI.

Currently it is in denominations of Rs. 2, 5, 10, 20, 50, 100, 500, and 1,000. The RBI has powers not only to issue and withdraw but even to exchange these currency notes for other denominations.

It issues these notes against the security of gold bullion, foreign securities, rupee coins, exchange bills and promissory notes and government of India bonds.

II---Banker and Debt Manager To Government

The RBI being the apex monitory body has to work as an agent of the central and state governments.

It performs various banking function such as to accept deposits, taxes and make payments on behalf of the government.

It works as a representative of the government even at the international level. It maintains government accounts, provides financial advice to the government.

It manages government public debts and maintains foreign exchange reserves on behalf of the government. It provides overdraft facility to the government when it faces financial crunch.

III---BANKER TO BANKS

 The RBI being an apex monitory institution has obligatory powers to guide, help and direct other commercial banks in the country.

Every commercial bank has to maintain a part of their reserves with the RBI. The RBI controls the credit created by commercial banks by varying the proportion of reserves.

It facilitates the clearing & rediscounting of promissory notes, bills of exchange and cheques and also helps in inter bank transfer of funds.

Similarly in need or in urgency these banks approach the RBI for funds. Thus it is called as the lender of the last resort.

IV---CREDIT CONTROL

The RBI controls the credit creation by commercial banks. For this, the RBI uses both quantitative and qualitative methods.

By controlling credit, the RBI achieves the following:Maintains the desired level of circulation of money in

the economy.Maintains the stability in the price level prevailing in the

economy.Controls the effects of trade cyclesControls the fluctuations in the foreign exchange rateChannelizes credit to the productive sectors of the

economy

2.PROMOTIONAL FUNCTIONS

Along with the routine traditional functions, central banks especially in the developing country like India have to perform numerous functions. These functions are country specific functions and can change according to the requirements of that country.

Development of the Financial System : The financial system comprises the financial institutions, financial markets and financial instruments. The sound and efficient financial system is a precondition of the rapid economic development of the nation. The RBI has encouraged establishment of main banking and non-banking institutions to cater to the credit requirements of diverse sectors of the economy.

Development of Agriculture : In an agrarian economy like ours, the RBI has to provide special attention for the credit need of agriculture and allied activities. It has successfully rendered service in this direction by increasing the flow of credit to this sector.

Provision of Industrial Finance : In this regard the RBI has always been instrumental in setting up special financial institutions such as ICICI Ltd. IDBI, SIDBI and EXIM BANK etc for the adequate and timely availability of credit to small, medium and large industry is very significant.

Collection of Data : Being the apex monetary authority of the country, the RBI collects process and disseminates statistical data on several topics..This data proves to be quite useful for researchers and policy makers.

Publication of the Reports : This RBI collects and publishes data on several sectors of the economy. The reports and bulletins are regularly published by the RBI. It includes RBI weekly reports, RBI Annual Report This information is made available to the public also at cheaper rates.

Promotion of Banking Habits : As an apex organization, the RBI always tries to promote the banking habits in the country. It institutionalizes savings and takes measures for an expansion of the banking network.

3. SUPERVISORY FUNCTIONS

The reserve bank also performs many supervisory functions. It has authority to regulate and administer the entire banking and financial system. Some of its supervisory functions are given below.

Granting license to banks : The RBI grants license to banks for carrying its business. License is also given for opening extension counters, new branches, even to close down existing branches.

Bank Inspection : The RBI grants license to banks working as per the directives and in a prudent manner without undue risk. In addition to this it can ask for periodical information from banks on various components of assets and liabilities.

Control over NBFIs : The Non-Bank Financial Institutions are not influenced by the working of a monitory policy. However RBI has a right to issue directives to the NBFIs from time to time regarding their functioning. Through periodic inspection, it can control the NBFIs.

Monetary Policy By

Reserve Bank Of India

Monetary policy of India

Monetary policy is the process by which the central bank controls the supply of money in the economy by exercising its control over interest rates in order to maintain price stability and achieve high economic growth. It is so designed as to maintain the price stability in the economy. Other objectives of the monetary policy of India, as stated by RBI, are:

Rapid Economic GrowthPrice StabilityExchange Rate StabilityBalance of Payments (BOP)EquilibriumFull EmploymentNeutrality of MoneyEqual Income Distribution

Instruments of Monetary Policy

Bank Rate Policy – It refers to rate at which the central bank (i.e. RBI) rediscounts bills and prepares of commercial banks or provides advance to commercial banks against approved securities.

Open Market Operations- It refers to the purchase and/or sale of short term and long term securities by the RBI in the open market. The OMO is used to wipe out shortage of money in the money market

Variations in Reserve Ratios- SLR & CRR -RBI increases VRR during the inflation to reduce the purchasing power and credit creation. But during the recession or depression it lowers the VRR making more cash reserves available for credit expansion.

I. Quantitative Tools

Prescription of margin requirements- It refers to the "proportion of the loan amount which is not financed by the bank". Or in other words, it is that part of a loan which a borrower has to raise in order to get finance for his purpose.

Consumer credit regulation - RBI fixes the quota of credit for commercial banks. It means at maximum, how much volume of money a commercial bank can grant as loan for a particular activity. Thus by increasing this quota RBI can increase the credit supply in an economy and by decreasing quota RBI can restrict credit supply.

Moral suasion- It means persuasion and request. To arrest inflationary situation RBI persuades and request the commercial banks to refrain from giving loans for non-essential purposes. On the other hand, to counteract deflation central bank persuades the commercial banks to extend credit for different purposes.

2. Qualitative Tools

Direct action -This method is adopted when a commercial bank does not co-operate the central bank in achieving its desirable objectives. Direct action may take any of the following forms:

•Central banks may charge a penal rate of interest over and above the bank rate upon the defaulting banks;

•Central bank may refuse to rediscount the bills of those banks which are not following its directives;

•Central bank may refuse to grant further accommodation to those banks whose borrowings are in excess of their capital and reserves.

Presentation done by:

Reshma Chatterjee 11Co309

Sameera Tarannum 11Co314

Upasana Agarwal 11Co328

Zara Syed Naveed 11Co330

Zeba Iqbal 11CO332

Chandana V 11Co345