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Reserve Bank of India

  1. Reserve Bank of India ARNAV VOHRA 15103057 IVY RAINA 15103058 SHUBHANSHU SHARMA 15103059 NEHA GUPTA 15103060 IRA KAUNDAL 15103062
  2. Overview 1. Introduction 2. Structure of Banking in India 3. RBI Roles 4. Monetary Policy Tools
  3. 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 - “ 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”
  4. RBI Offices in India ● Has 27 regional offices, most of them in state capitals and 04 Sub-offices
  5. Structure of Banking in India
  6. Functions of RBI
  7. ● 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
  8. 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
  9. 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
  10. 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.
  11. 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
  12. 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
  13. 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)
  14. 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.”
  15. 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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