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Reserve Bank of India

Introduction, Organization Structure of RBI, Reason for establishment of RBI, Functions of RBI, Role of RBI in Inflation, Control Measures, Policy Rate in Indian Banking

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Reserve Bank of India

  2. 2.  The Reserve Bank of India (RBI) is India’s central banking institution.  It was established on 1 April 1935 during the British Raj in accordance with the provisions of Reserve Bank of India Act, 1934 after the recommendation from Hilton- Young commission.  The Reserve bank of India was nationalised in 1949 under the Reserve Bank (Transfer of Public Ownership) Act, 1948.
  3. 3.  To manage the monetary and credit system of the country.  For balanced and systematic development of banking in the country.  For the development of organized money market in the country.  For proper arrangement of agriculture finance.
  4. 4.  For proper management of public debt.  To establish monetary relations with other countries of the world and international financial institutions.  For centralization cash reserves of commercial banks.  To maintain balance between demand and supply of currency.
  5. 5.  Issuer Of Currency  Design, printing and distribution.  The bank issues and exchanges or destroys currency and coins not fit for circulation.  The goal of ensuring an adequate supply of clean and genuine notes.  Control Of Credit  It is a major weapon of RBI used to control demand and supply of money in the economy.
  6. 6.  Banker To Government  Performs merchant banking function for the central and the state governments.  Also acts as their bankers.  Banker To Bank  Transfer funds and settle inter-bank transactions.  All banks operating in the country have accounts with the Reserve bank.
  7. 7.  Manager Of Foreign Exchange  It acts as a custodian and manages the Foreign Exchange Management Act, (FEMA) 1999.  RBI buys and sells foreign currency to maintain the exchange rate of Indian Rupee v/s foreign currencies like the US Dollar, Euro, Pound and Japanese Yen.
  8. 8.  Collection And Publication Of Data  The RBI has a separate Department of Statistics for collecting, compiling and disseminating statistical information.  Regulatory And Supervisory  The RBI Act and the Banking Act have both conferred extensive powers of regulations & supervisions to the RBI over commercial & cooperatives banks to protect interests of investors.
  9. 9.  Development And Promotion  The RBI has been aiding development & promoting saving & banking habits.  Development of the institutional agriculture and other rural activities has been an area of focus from its inception.
  10. 10.  Inflation arises when the demand increases and there is a shortage of supply.  There are two policies in the hands of the RBI. 1. Monetary Policy 2. Fiscal Policy
  11. 11.  Bank Rate  It is the interest rate that is charged by a bank loans and advances to control money supply in the economy.  Repo Rate  It is the rate at which RBI lends money commercial banks in the event of any shortfall of funds.
  12. 12.  Reverse Repo Rate  It is the rate at which the Reserve Bank of India borrows money commercial banks within the country.  CRR (Cash Reserve Ratio)  Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers which commercial banks have to hold as reserves with the RBI.
  13. 13.  SLR (Statutory Liquidity Ratio)  It is the amount a commercial bank needs to maintain in the form of cash or gold or government approved securities (Bonds) before providing credit to its customers.  It is maintained by the RBI in order to control the expansion of bank credit.
  14. 14. RATES (%) Bank Rate 8.75 Cash Reserve Ratio 4.00 Statutory Liquidity Ratio 21.50 Repo Rate 7.75 Reverse Repo Rate 6.75
  15. 15.  RBI is an autonomous body promoted by the government of India and is headquartered in Mumbai.  RBI plays important role in achieving economic growth of a country.  It helps in attaining full employment balance of payment disequilibrium and in stabilizing exchange rate.  RBI operates a number of government mints that produce currency and coins.