Reserve Bank of
India
ARNAV VOHRA 15103057
IVY RAINA
15103058
SHUBHANSHU SHARMA 15103059
NEHA GUPTA
15103060
IRA KAUNDAL
15103062

Overview
1. Introduction
2. Structure of Banking in India
3. RBI Roles
4. Monetary Policy Tools

Introduction
● Central Bank of India Established under “RESERVE BANK OF INDIA ACT” on
1st April 1935
● Original share capital was 5 crores, divided into shares of 100 which were
owned privately
● After Nationalization in 1949, RBI was fully Government owned
● Head quarter in Mumbai, current governor is Shaktikanta Das
● Preamble - “...to regulate the issue of Bank Notes andkeepingof reserves with a viewto securing
monetarystabilityin India andgenerally to operate the currencyand creditsystemof the country to its
advantage”

RBI Offices in India
● Has 27 regional offices, most
of them in state capitals and
04 Sub-offices

Structure of Banking in India

Functions of RBI

● Prescribes broad parameters of banking operations within which the country's banking and
financial system functions
● Objective is to maintain public confidence in the system, protect depositors' interest and
provide cost-effective banking services to the public
● The Board for Financial Supervision (BFS), constituted in November 1994, is the principal
guiding force behind the Reserve Bank’s regulatory and supervisory initiatives
DBOD Commercial Banks
DBS CBs, Local Banks, All India Financial institutes
DNBS Non Banking Financial Companies
UBD Urban Cooperative Banks
RPCD/NABARD Regional Rural Banks
1. Regulation and Supervision of Financial System

2. Issuer of Currency
● Issues and exchanges or destroys currency and coins not fit for circulation
● Designing, printing and distribution of currency
● Objective is to give the public adequate quantity of supplies of currency
notes and coins and in good quality which thus aims to improve the GDP
Minimum Reserve System
➢ Principle of currency note issue
➢ RBI can issue currency as much as the country requires, provided it has to make
a security deposit of Rs. 200 crores, out of which, Rs. 115 crores must be in the
form of gold and Rs. 85 crores must be FOREX reserves

3. Manager of Foreign Exchange
● Acts as a custodian and manages the Foreign Exchange Management Act(FEMA), 1999
● Objective is to facilitate external trade and payment and promote orderly development
and maintenance of foreign exchange market in India
● RBI buys and sells foreign currency to maintain the exchange rate of Indian Rupee v/s
foreign currencies like US Dollar, Euro, Pound etc.
● Regulate/prohibit/restrict following, by issuing Regulations:
○ Transfer or issue of foreign security to resident and Indian security to non-resident
○ Borrowing and lending in foreign exchange or to a foreign person
○ Export/import of currency or currency notes
○ Transfer of immovable property outside India
○ Giving guarantee or surety where foreign exchange transaction is involved

4. Banker to Government
● Used by governments to carry their financial transactions effectively
and efficiently like individuals use a bank.
● As a banker to the GoI, RBI maintains its accounts, receive payments
into & make payments out of these accounts.
● RBI also helps Government to raise money from public via issuing
bonds and government approved securities.

5. Banker’s Bank
● RBI works as a central bank where commercial banks are account
holders and can deposit money
● Facilitates the clearing of cheques between the commercial banks and
helps the inter-bank transfer of funds
● Commercial banks create credit. RBI controls credit through bank rate,
open market operations etc.
● Acts as lender of last resort by providing emergency advances to banks
● Advises banks on various matters like Corporate Social Responsibility

6. Developmental Role
● Perform a wide range of promotional functions to support national
objectives and industries
● RBI faces a lot of inter-sectoral and local inflation-related problems,
some of which are results of the dominant part of public sector in India
● Key tools include Priority Sector Lending such as agriculture, micro and
small enterprises (MSE), housing and education
● RBI work towards strengthening and supporting small local banks and
encourage banks to open branches in rural areas to include large section
of society in banking net

Monetary Policy
● Qualitative and Quantitative Instruments
Quantitative Tools
Policy Rate
Bank Rate
Repo Rate
Reverse Repo Rate
Reserve Ratio
Cash Reserve Ratio (CRR)
Statutory Liquidity Ratio
(SLR)

Qualitative Instruments
● Also known as selective instruments
● Discriminatory in nature
Example
“If government wants to check rising prices of wheat in India, RBI may instruct the
member banks not to give loans against the security of wheat. Traders will not get credit
for the purchase of wheat, and, therefore they will not be able to buy large quantities of
wheat. This measure would bring down wheat prices only as the credit squeeze is
directed towards wheat alone. It is thus called ‘Selective Control’. Banking Regulation Act,
1949 has conferred upon the Reserve Bank, many rights of selective credit control.”

Types of Qualitative Instruments
Customer Credit
Regulation
3
● Credit made available through instalments
● Excess demand -> higher prices -> increase
down payment or reduce instalments
Rationing of Credit2
● Limit maximum loans and advances
● Fix ceiling for specific categories
● Priority Sector Lending
Moral Suasion1
● Persuasion and Request
● Inflation - refrain from loans
● Periodic letters and discussions
Direct Action4
● If Moral Suasion does not work
● Charge penal rate of interest, refuse
rediscount of bills, refuse granting any further
loans
Margin Requirements5
● Difference between market value of security
and its maximum loan value affecting
demand
● E.g. Security : 10K, Loan: 8K, Margin: 2K

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