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Functions of rbi

  2. ■ The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act,1934. ■ Nationalised on 1st January,1949. ■ Regulator of banking system. ■ Controller of monetary policy. ■ Dr. Urjit R. Patel is the present governor accompanied by 4 deputy directors – – Shri S. S. Mundra, – Shri N. S. Vishwanathan, – Dr. Viral V. Acharya and – Shri B.P. Kanungo.
  3. Functions Of RBI: ■ Monetary authority ■ Regulator and supervisor of financial system ■ Manager of foreign exchange ■ Issuer of currency ■ Banker to government ■ Banker to banks ■ Lender of last resort ■ Regulator of payment system ■ Controller of credit. ■ Developmental functions
  4. Monetary Authority: ■ Formulates, implements and monitors the monetary policy. ■ Policy formation twice a year. ■ It reviews the policy every quarter as well. ■ The main objectives of monitoring monetary policy are: – Inflation control – Control on bank credit – Interest rate control
  5. Regulator and supervisor of the financial system: ■ As regulator one of the main functions is Capital adequacy, income recognition norms and asset provisioning norms. ■ Lays out parameters of banking operations within which the country’s banking and financial system functions for- – maintaining public confidence in the system, – protecting depositors’ interest, – providing cost-effective banking services to the general public.
  6. Manager of Foreign Exchange: ■ Manages the Foreign Exchange Management Act, 1999. ■ To facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India. ■ Has the custody of the country’s reserves of international currency, and this enables the Reserve Bank to deal with crisis connected with adverse balance of payments position.
  7. Issuer of currency: ■ Issues and exchanges or destroys currency and coins not fit for circulation. ■ Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality. ■ This concentration of notes issue function with the Reserve Bank has a number of advantages: (i) uniformity (ii) supervision (iii) easier to control and regulate credit (iv) faith of the public
  8. Banker to the Government: ■ Performs merchant banking function for the central and the state governments. ■ Manages the banking needs of the government. ■ Maintain and operate the government’s deposit accounts. ■ Receipts of funds and makes payments on behalf of the government. ■ It represents the Government of India as the member of the IMF and the World Bank.
  9. Banker to banks: ■ Maintains banking accounts of all scheduled banks. ■ The commercial banks hold deposits in the Reserve Bank and the latter has the custody of the cash reserves of the commercial banks. ■ Central Clearance and Accounts Settlement ■ Acts as a clearing house- settlement of interbank claims. Computerised clearing through SBI offices.
  10. Lender of Last Resort: ■ The commercial banks approach the Reserve Bank in times of emergency to tide over financial difficulties. ■ Banks meet their shortfall of cash by approaching the RBI. ■ Called as last resort because all the other sources have exhausted. ■ Reserve bank might charge a higher rate of interest.
  11. Regulator and supervisor of the payment systems: ■ Authorises setting up of payment systems; ■ Lays down standards for working of the payment system; ■ policies for movement from paper-based payment systems to electronic modes of payments. ■ Setting up of the regulatory framework of newer payment methods. ■ Enhancement of customer convenience in payment systems. ■ Improving security and efficiency in modes of payment.
  12. Controller of Credit: ■ Since credit money forms the most important part of supply of money, and since the supply of money has important implications for economic stability, the importance of control of credit becomes obvious. ■ Credit is controlled by the Reserve Bank in accordance with the economic priorities of the government. ■ RBI controls credit through various quantitative and qualitative tools like bank rate, repo rate and reverse repo rate .
  13. Administrative functions: ■ Granting license to banks. ■ Inspect and make enquiry or determine position in respect of matters under various sections of RBI and Banking Regulation Act. ■ Implementation of Deposit Insurance Scheme. ■ Periodical review of review of the work of commercial banks. ■ Giving directives to commercial banks. ■ Ensuring the health of financial system through on-site and off-site verifications
  14. Developmental role: ■ Performs a wide range of promotional functions to support national objectives. ■ This consists of such institutions as the – Deposit Insurance and Guarantee Corporation (DIGC) (to safeguard the interests of depositors against bank failure), – the Agriculture Refinance and Development Corporation (to meet the needs of agriculturists), – IFCI, SFCs, IDBI, UTI (to meet the long and medium-term needs of industry), etc. ■ This has resulted in curbing the activities of moneylenders in the rural economy.
  15. RBI also controls the following ratios: ■ Repo rate- lending rate of RBI to banks for short term; CR-6.25% ■ Reverse repo rate- rate at which RBI borrows from banks for short term; CR-6% ■ Cash reserve ratio-proportion of total deposits to be kept in form of cash with RBI; CR-4% ■ Statuary liquidity ratio- minimum proportion of demand and time deposits; CR- 20% ■ Marginal Standing Facility- special window for banks to borrow from RBI against approved government securities; CR-6.5%
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