Presentation on RBI with respect to demonetization 2016

1. BANKING AND INSURANCE
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Reserve Bank of India

2. ReserveBankofIndia
 The Reserve Bank of India (RBI) is India's
central banking institution, which controls the
monetary policy of the Indian rupee.
 It commenced its operations on 1 April 1935
during the British Rule in accordance with the
provisions of the Reserve Bank of India Act,
1934

3. Preamble of RBI
 "...to regulate the issue of Bank Notes and
keeping of reserves with a view to securing
monetary stability in India and generally to
operate the currency and credit system of the
country to its advantage

4. The History
 The Reserve Bank of India was founded on 1
April 1935 to respond to economic troubles after
the First World War.
 The Reserve Bank of India was conceptualized
based on the guidelines presented by the Central
Legislative Assembly.
 RBI was conceptualized as per the guidelines,
working style and outlook presented by Dr B R
Ambedkar in his book. It was titled “The
Problem of the Rupee – Its origin and its
solution”

5.  The bank was set up based on the
recommendations of the 1926 Royal Commission
on Indian Currency and Finance, also known as
the Hilton–Young Commission.
 The Central Office of the RBI was established in
Calcutta (now Kolkata) but was moved to
Bombay (now Mumbai) in 1937.
 RBI has been fully owned by the Government of
India since its nationalization in 1949.

6. VISION & MISSION
RBI VISION:
 RBI is recognized as the industry standard for
small business entrepreneurial training, resulting in
a positive impact on the prosperity of the
participant’s family, the community and the overall
economy.
RBI MISSION:
 To develop successful entrepreneurs through
experience based training and mentoring of RBI
fellows.

7. Objectives of RBI
 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
 For proper arrangement of agriculture finance
 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.

8. Functions of RBI
Major Functions of the Reserve Bank of India
 Monopoly Power of Note Issue.
 Banker’s bank
 Banker to the government
 Controller of credit
 Exchange management & control
 Manager of foreign currency
 Regulator and supervisor of financial system
 Promotional & developmental functions

9. Acts governing specific functions
 Public Debt Act, 1944/Government Securities Act (Proposed):
Governs government debt market
 Securities Contract (Regulation) Act, 1956: Regulates
government securities market
 Indian Coinage Act,1906: Governs currency and coins
 Foreign Exchange Regulation Act, 1973/Foreign Exchange
Management Act,1999: Governs trade and foreign exchange
market
 "Payment and Settlement Systems Act, 2007: Provides for
regulation and supervision of payment systems in India"
 Banking Companies (Acquisition and Transfer of Undertakings)
Act, 1970/1980:Relates to nationalisation of banks

10. Organizational Setup
BRANCHES
OF RBI: RBI
has 4 zonal
offices each at
DELHI,
MUMBAI,
CHENNAI &
KOLKATA.
It has 19
regional offices
& 10 offices
across the
nation.

11. Banking system of India

12. RBI Facts
 RBI was banker for government of Burma(Myanmar) until 1947 & offered central
banking service to Pakistan till 1948
 RBI was created during the BRITISH rule
 RBI was conceptualized as per the guide lines presented by AMBEDKAR in his
book
 RBI’s Nagpur branch holds the biggest chunk of Indian gold deposits.
 RBI has launched the website called www.paisaboltahai.rbi.org.in to raise
awareness among masses about fake notes in the market.
 RBI doesn’t have any class (ii) employees; there are only class(i),(iii),(iv)
employees.
 In 2013-14 RBI has transferred Rs 52679 /- crores of its profits to government of
India
 RBI’s logo was copied from EAST INDIA COMPANY DOUBLE MOHUR.
 MANMOHAN SINGH is the only prime minister also to serve as the governor of
RBI.
 RBI runs the monitory museum around the premises of the MUMBAI head office.

13. Demonetisation
 The government has implemented a major change in the
economic environment by demonetizing the high value currency
notes – of Rs 500 and Rs 1000 denomination.
 These ceased to be legal tender from the midnight of 8th of
November 2016. People have been given up to December 30,
2016 to exchange the notes held by them.
 The proposal by the government involves the elimination of
these existing notes from circulation and a gradual replacement
with a new set of notes.
 In the short term, it is intended that the cash in circulation would
be substantially squeezed since there are limits placed on the
amount that individuals can withdraw.
 No Note November

14. Effect on Economy
The removal of these 500 and 1000 notes
and replacement of the same with new 500 and
2000 Rupee Notes is expected to
- remove black money from the economy
as they will be blocked since the owners will not
be in a position to deposit the same in the banks,
- Temporarily stall the circulation of large
volume of counterfeit currency and curb the
funding for anti-social elements like smuggling,
terrorism, espionage, etc.

15. Effect on Money Supply
With the older 500 and 1000 Rupees notes being
scrapped, until the new 500 and 2000 Rupees notes
get widely circulated in the market, money supply is
expected to reduce in the short run.
To the extent that black money (which is not
counterfeit) does not re-enter the system, reserve
money and hence money supply will decrease
permanently.
However gradually as the new notes get circulated in
the market and the mismatch gets corrected, money
supply will pick up.

16. Effect on Demand
The overall demand is expected to be affected to an
extent. The demand in following areas is to be impacted
particularly:
A. Consumer goods
B. Real Estate and Property
C. Gold and luxury goods
D. Automobiles (only to a certain limit)
All these mentioned sectors are expected to face certain
moderation in demand from the consumer side, owing to
the significant amount of cash transactions involved in
these sectors.

17. Effect on Banks
 In the short term it became a logistical nightmare to manage the cash
replacement in banks and smooth functioning of the banking system
 Demand for cash wasn’t able to meet availability and supply due to cash
shortage resulting in no cash boards in ATM’S and long queues in banks.
 Smaller denomination notes are in huge demand.
 Due to excess demand employees has to work overtime and in some banks the
entire administration team has been changed.
 Due to Demonetization there is a huge surge of liquidity in the banking sector.
If that amount stays idle in the banking system it would be a loss to the bank
 Now, with the massive and comprehensive push on ‘going cashless’ and
‘adopting digital’, the banking industry has to adopt financial technology with
a new scale and scope.
 Software of many co-operative banks are not properly linked with centralized
system of RBI. Moreover due to shortage of new currency, cooperative banks
were not receiving enough amount of new currency from currency chest

18. Immediate Steps
 Deposit old notes of RS. 500 or Rs. 1000 in bank or post office accounts from
10th November till 30th December, 2016 without any limit.
 There will be a limit on withdrawal: Rs. 10,000 per day and Rs. 20, 000 per
week.
 This limit will be increased in the coming days.
 Exchange old notes of Rs. 500 or Rs. 1000 at any bank, head post office or
sub post office while showing ID proof.
 The limit for this is Rs. 4000 up to 24th November.
 No restriction of any kind on non-cash payments by cheques, demand drafts,
debit or credit cards and electronic fund transfer.
 On 9th November and in some places on 10th November also ATMs will not
work. In the first few days, there will be a limit of Rs.2000 per day per card.
This will be raised to Rs.4000 later.
 Govt. Hospitals and Petrol Bunks will accept old notes.
 E- Commerce will not be effected and service charges for transactions will be
halted to ease the cash crunch.

19. Measures taken to ease the cash crunch
 To improve the reach and distribution of cash,
especially in rural areas :
 The banks have been advised to increase the cash holding
limit of the banking correspondents to at least 50,000
rupees.
 Increased limit of withdrawals –
 Now, The weekly limit of Rs.24,000/- for withdrawal from
Bank accounts has been increased to Rs.70,000/-. The limit
per day is increased to 10,000.
 To separate and ease cash exchange & withdrawals,
there will be separate queues for those who are
visiting the banks only to exchange old series of
notes for new notes

20. Measures taken to ease the cash crunch
 Measures to aid senior citizens, pensioners
 There will be separate queues for senior citizens and divyang
persons in banks (some banks have already been doing this, but it
is good to implement this everywhere)
 Promote online transactions & e-payments. Transaction
charges and service charges have been waived off to promote
e-payments.
 Additional 60 days for loan repayment: In order to ease the
repayment process for small borrowers, the RBI announced a
60-day loan extension for running working capital accounts/
crop loans, term loans including housing and agriculture
loans for loans worth up to Rs 1 cr.
 Supply and exchange of cash in post offices along with
banks.

21. Measures taken by RBI
 NOV 8
 abolishes 500, 1,000 rupee notes in fight against 'black money‘
 500, 1000 rupee notes must be tendered into banks, RBI by Dec. 30
 exchange of old bills over-the-counter at banks at 4,000 rupees.
 NOV 10- Circulation of the new 2000 and 500 Rupee notes.
 NOV 11- Extends deadline for payments in old notes including for
petrol for limited time.
 NOV 13
 RBI raises cap on weekly cash withdrawals from banks to 24,000 rupees
from 20,000
 Removes per-day withdrawal limit cap of 10,000 rupees
 Raises limit for over-the-counter exchange of old bills at banks to 4,500
rupees from 4,000
 Waives ATM fees for all transactions by savings bank customers till Dec.
30
 Govt increases withdrawal limits at recalibrated ATMs to 2,500 rupees/day
from 2,000 rupees.

22. Measures taken by RBI
 NOV 14: Extends deadline for payments in old notes
including for petrol for limited time.
 NOV 17:
 Govt allows farmers to withdraw up to 25,000 rupees a week
against the crop loans
 Cuts limit for over-the-counter exchange of old bills at banks
to 2,000 rupees from 4,500.
 NOV 18- RBI sets limit of cash withdrawal at card
swiping machines at 2,000 rupees per day
 NOV 21- RBI allows cash withdrawal of up to
250,000 rupees for wedding-related expenses
 RBI allows farmers to withdraw up to 25,000 rupees a week
from their loan, deposit accounts
 Govt allows farmers to purchase seeds from state-run outlets
with old 500 rupee notes

23. Measures taken by RBI
 NOV 24:
 Govt stops over the counter exchange of old banknotes; can only be deposited
 Govt to ensure adequate cash supply for pensioners, armed forces personnel
 Allows certain payments in old 500 rupees’ notes including at tolls, hospitals for
limited time
 NOV 25:
 RBI says old currency notes can be exchanged at RBI branches
 RBI says tourists can exchange foreign currency worth up to INR 5,000
per week till Dec 15

24. RBI news during Dec 2016- Jan 2017
 6th Dec: Circulation of Rs 100 denomination
notes.
 7th Dec: Statement by RBI governor
supporting decision.
 12th Dec: RBI Seeks Details of Fake Currency
From Banks Post Demonetisation.

25. Monetary Policy Dec 2016
 NEW DELHI: The Reserve Bank of India
(RBI) left the policy rate unchanged at 6.25
per cent.

26. 5 Important updates
 Rate cut: RBI maintained its key policy rate unchanged at
6.25 per cent.
 CRR: RBI kept the cash reserve ratio unchanged at 4
percent, but said the incremental cash reserve
requirements that it had imposed in November will be
removed with effect from December 10.

27. 5 Important updates
 Inflation/GDP outlook:
 CPI index needs to drop by 10-15 units by the quarter.
 Cut in Gross Value Added for FY17 from 7.6 to 7.1%
 MPC needs 5% CPI inflation by March 17- Governor.
 Market stabilisation scheme:
 Liquidity due to discontinuation of incremental CRR
will be absorbed by MSS and LAF issuances.
 Current Repo Rate- 4%
 Interest Rates-
 Unchanged, even after demonetisation.

28. RBI news during Dec 2016- Jan 2017
 21st Dec: The Reserve Bank on Wednesday imposed
penalty on five foreign banks, including Deutsche Bank
and Standard Chartered Bank, for violation of its
instructions on reporting requirements of the FEMA.
 3rd Jan: Paytm on Tuesday said it has received final
approval of the RBI to formally launch its payments bank
and it expects to start operations next month.
 14th Jan: Despite the Reserve Bank of India dismissing
reports that suggested 97% of the demonetised currency
had returned to the bank's coffers by December 30.
 19th Jan: The RBI fixed the reference rate of the rupee at
68.1766 against the US dollar and 72.5194 for the euro on
Thursday.

29. RBI news during Dec 2016- Jan 2017
 Jan 22nd - In order to encourage banks to provide education
loans, RBI has said rescheduling of payment period of such
loans due to unemployment of borrower will not be treated to
reconstructed accounts for computing NPAs.
 Jan 25th- Prohibition on Indian Party from making direct
investment in countries identified by the Financial Action Task
Force (FATF) as “Non Co-operative countries and territories”
 30th Jan:
 Withdrawal of cash withdraw limit from Feb 1.
 The weekly withdrawal limit of Rs 24,000 will continue.
 All limits on current account and overdraft accounts stand withdrawn
with immediate effect. The RBI, however, allowed the banks to
maintain their discretion on own operating limits.

30. Thank you!
Presented by-
14BBA0011 Keerthi Priya
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14BBA0027 Amali Joy
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