Monetary  Policy  and  Banking  Structure    

In  the  Indian  Context  

Tools  of  Macro  Economic  Policy  

Fiscal  Policy  

Deals  in  government  spending  and  revenue  

collec:on  

Implemented  by  state  and  central  governments  

Improving  growth  performance  and  

ensuring  social  jus:ce      

Monetary  Policy    

Controls  demand  and  supply  of  money  

Implemented  by  the  central  bank    

Ensuring  economic  growth  and  price  stability    

Targets  

• Interest  Rates  • Bank  Credit  • Money  Supply  

Objec@ves  

• Economic  Growth  

• Price  Stability  

Instruments  

• Change  in  Quan@ty  of  Credit    

• Varia@ons  in  Reserve  Requirement  

 Monetary  Policy  

Financial  System  in  India  

Organised  

Regulator/  Central  Bank  

Banking  and  Other  Financial  Ins@tu@ons  

Money  and  Capital  Market  

Financial  Services  

Unorganised    

Landlords  

Local  Bankers  

Banking  Structure  in  India  

Reserve  Bank  of  India  

Scheduled  Commercial  banks  

Public  Sector  Banks  (26)  

Na@onalised  Banks  

SBI  and  Associates  

IDBI    

Private  Sector  Banks  (27)  

Old  Private  Banks  

New  Private  Banks  Foreign  Banks  (43)  

Regional  Rural  Banks  (57)  

Scheduled  Coopera@ve  Banks  

Urban  Coopera@ve  Banks  (53)  

State  Coopera@ve  Banks  (16)  

Specialised  Financial  and  Investment  Ins@tu@ons  

Financial  Ins@tu@ons  

•  Export-­‐Import  Bank  of  India  

•  Na@onal  Bank  for  Agriculture  and  Rural  Development  (NABARD)  

•  Na@onal  Housing  Bank  (NHB)  

•  Small  Industries  Development  Bank  of  India  (SIDBI)  

Investment  Ins@tu@ons  

•  Industrial  Investment  Bank  of  India  (IIBI)  

•  Industrial  Credit  and  Investment  Corpora@on  of  India  (ICICI  Bank)  

•  Life  Insurance  Corpora@on  (LIC)  of  India    

Non  Banking  Financial  Ins@tu@ons  

(NBFCs)  

•  Deposit  taking  NBFCs  (NBFCs-­‐D)    

•  Non-­‐deposit  taking  NBFCs  (NBFCs-­‐ND)  

Reserve  Bank  of  India  Established  in  Kolkata  under  the  RBI  act  of  1934  

Na@onalised  in  1949  

Headquartered  in  Mumbai  

Objec@ve:  “…  to  regulate  the  issue  of  bank  notes  and  the  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.”  

Instruments  of  Credit  Control  

Quan:ta:ve  Methods  

Open  Market  opera:ons:  sale  and  purchase  of  securi@es  from  public,  commercial  banks  

Deployment  of  Credit  to  Various  Sectors  

Cash  Reserve  Ra:o:  ra@o  of  demand  and  @me  liabili@es  to  be  kept  with  the  central  bank  

Statutory  Liquidity  Ra:o:  percentage  of  demand  and  @me  liabili@es  to  be  invested  in  government  approved  securi@es  

Repo(injec:on)  and  Reverse  Repo(absorp:on)  rates:  rates  at  which  the  central  bank  lends  borrows  short  term  money  to/from  banks  

Instruments  of  Credit  Control  Qualita:ve  Methods   Credit  Controls  

Margin  Requirements  

Issue  of  guidelines  

Credit  Ra:oning  

Moral  Suasion  

Func@ons  of  the  RBI  

Main  Func@ons  

Regula:on  of  Credit-­‐  through  quan@ta@ve  and  qualita@ve  techniques  

Issue  of  Notes  and  Coins-­‐  except  one  rupee  notes  and  coins  

Regula:on  of  Foreign  Exchange-­‐by  ac@ng  as  a  custodian  of  na@on’s  foreign  exchange  reserves  

Banker  agent  and  advisor  to  the  Government-­‐  through  transac@ons  and  managing  public  debt  

Func@ons  of  the  RBI  

Main  Func@ons  

Lender  of  Last  Resort-­‐  by  funding  banks  when  they  fail  to  get  it  from  other  sources  

Banker’s  Bank-­‐  by  providing  financial  assistance  to  scheduled  and  state  coopera@ve  banks  

Agent  of  the  Government:  by  distribu@ng  currency  and  selling  treasury  bills  

Regulatory  and  Supervisory  Func:ons-­‐  by  supervising  commercial  and  coopera@ve  banks  

Func@ons  of  the  RBI  

Other  Func@ons  

Clearing  house  and  arranging  credit  for  agriculture  

Collec@ng  and  publishing  economic  data  

Buying  and  Selling  Government  Securi@es  and  trade  bills  

Lending  to  the  government,  buying  and  selling  of  valuable  commodi@es  

Represen@ng  the  government  at  the  IMF  

Wrap  Up!  

•  Tools  of  Macro  Economic  Policy-­‐  Monetary  and  Fiscal  Policy  

•  Difference  between  Monetary  and  Fiscal  Policy  

•  Broad  Idea  of  the  banking  and  financial  structure  in  India  

•  Objec@ves,  targets  and  instruments  of  Monetary  policy  

•  Func@ons  of  the  Central  Bank  of  India