Reserve Bank of IndiaReserve Bank of India

INTRODUCTIONINTRODUCTION

Regulatory framework of the country.Regulatory framework of the country. Degrees of Imperfections cannot be deniedDegrees of Imperfections cannot be denied Financial system deals in other people’s Financial system deals in other people’s

moneymoney Trust ,confidence and faith in it is crucially Trust ,confidence and faith in it is crucially

important for its smooth functioningimportant for its smooth functioning

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Centre of the Indian Financial and Monetary Centre of the Indian Financial and Monetary SystemSystem

Apex Institution – Guiding, Monitoring and Apex Institution – Guiding, Monitoring and Controlling.Controlling.

Started functioning from 1Started functioning from 1stst April 1935 , on the April 1935 , on the terms of Reserve Bank of India Act,1934terms of Reserve Bank of India Act,1934

Was a Private Shareholders Institution till Jan Was a Private Shareholders Institution till Jan 1949 after which it became a state-owned 1949 after which it became a state-owned institution under the RBI Act.institution under the RBI Act.

Functions of RBIFunctions of RBI

To maintain To maintain Monetary StabilityMonetary Stability To maintain To maintain Financial StabilityFinancial Stability To maintain To maintain stable payment stable payment systemsystem To promote To promote the development of financial the development of financial

infrastructure infrastructure of markets and systemsof markets and systems credit allocationcredit allocation To regulate the overall To regulate the overall volume of moneyvolume of money

Roles of RBIRoles of RBI

Note Issuing AuthorityNote Issuing Authority Governments BankerGovernments Banker Bankers’ BankBankers’ Bank Supervising AuthoritySupervising Authority Exchange Exchange

control authoritycontrol authority

Note issuing authorityNote issuing authority

Since its inception, RBI has the sole right or Since its inception, RBI has the sole right or authority or monopoly of issuing currency notes authority or monopoly of issuing currency notes other than one rupee notes and coins, and coins other than one rupee notes and coins, and coins of smaller denominations.of smaller denominations.

Although one rupee notes and coins, and coins of Although one rupee notes and coins, and coins of smaller denominations are issued by Government smaller denominations are issued by Government of India, they are put into circulation by RBIof India, they are put into circulation by RBI

All affairs of the bank relating to note issue are All affairs of the bank relating to note issue are conducted by its Issue Departmentconducted by its Issue Department

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Banker to The GovernmentBanker to The Government Maintaining AccountsMaintaining Accounts Receiving the Revenue of the Receiving the Revenue of the

governmentsgovernments Making Payments of the Making Payments of the

governmentsgovernments Providing Remittance Providing Remittance

FacilitiesFacilities Issuing Treasury BillsIssuing Treasury Bills Providing Ways & Means Providing Ways & Means

FinanceFinance Advisor to the GovernmentAdvisor to the Government Representing the GovernmentRepresenting the Government

Bankers’ BankBankers’ Bank The bank controls the The bank controls the

volume of reserves of volume of reserves of commercial banks and commercial banks and thereby determines the thereby determines the deposits/credit creating deposits/credit creating ability of the banks.ability of the banks.

The banks hold a part of The banks hold a part of their reserves with the RBItheir reserves with the RBI

In times of need, the banks In times of need, the banks borrow funds from RBIborrow funds from RBI

It is, therefore, called It is, therefore, called the the bank of last resort bank of last resort or or the the lender of the last resort.lender of the last resort.

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Clearing House & Remittance FacilitiesClearing House & Remittance Facilities Real Time Gross Settlement: Introduced in Real Time Gross Settlement: Introduced in

2004, it is the beginning of a clearing system at 2004, it is the beginning of a clearing system at the national levelthe national level

On the wholeOn the whole, the RBI is the ultimate source of , the RBI is the ultimate source of money and credit in Indiamoney and credit in India

Supervising Authority

Supervise and control commercial and co-Supervise and control commercial and co-operative banks.operative banks.

To issue the licenses for the establishments of To issue the licenses for the establishments of new banksnew banks

To issue licenses for setting up of bank branchesTo issue licenses for setting up of bank branches To prescribe minimum requirements regarding To prescribe minimum requirements regarding

paid-up capital and reserves, maintenance of paid-up capital and reserves, maintenance of cash and other liquid assets.cash and other liquid assets.

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To inspect the working of banks in India as well To inspect the working of banks in India as well as abroad in respect of their Organizational set- as abroad in respect of their Organizational set- upup

To conduct the investigations , from time to To conduct the investigations , from time to time , regarding irregularities, frauds, time , regarding irregularities, frauds, complaints, etc…complaints, etc…

To control methods of operations of banksTo control methods of operations of banks To control appointment, re-appointment, To control appointment, re-appointment,

termination of appointment of the chairman and termination of appointment of the chairman and CEOs of Private sector banksCEOs of Private sector banks

Exchange Control Authority

It manages the exchange rate between the rupee and It manages the exchange rate between the rupee and other currenciesother currencies

To negotiate with the monetary authorities and financial To negotiate with the monetary authorities and financial institutions like IMF, World Bank and Asian institutions like IMF, World Bank and Asian Development Bank.Development Bank.

The RBI is the custodian of the country’s foreign The RBI is the custodian of the country’s foreign exchange reserves, and it is vested with the responsibility exchange reserves, and it is vested with the responsibility of managing the investment and utilization of the of managing the investment and utilization of the reserves in the most advantageous manner.reserves in the most advantageous manner.

Techniques used by RBI

OMO - Open market operations.OMO - Open market operations. Bank Rate - The rate at which RBI rediscounts the Bank Rate - The rate at which RBI rediscounts the

bills.bills. Cash Reserve Ratio Cash Reserve Ratio – The CRR refers to the cash – The CRR refers to the cash

which banks have to maintain with the RBI as a which banks have to maintain with the RBI as a percentage of their demand liabilities.percentage of their demand liabilities.

Statutory Liquidity Ratio Statutory Liquidity Ratio – The SLR is the ratio of – The SLR is the ratio of cash in hand exclusive of cash balances cash in hand exclusive of cash balances maintained by banks for CRR.maintained by banks for CRR.

Recent policy ratesRecent policy rates

Bank Rate: 6%Bank Rate: 6% Repo Rate: 6%Repo Rate: 6% Reverse Repo Rate:Reverse Repo Rate: CRR: 6%CRR: 6% SLR: 25%SLR: 25% Base Rate: 7.5%-8%Base Rate: 7.5%-8% Saving Bank Rate: 3.5%Saving Bank Rate: 3.5% Deposit Rate: 6%-7.5%Deposit Rate: 6%-7.5%

Current scenario and reformsCurrent scenario and reforms

Policy Rates hiked, CRR left untouched:Policy Rates hiked, CRR left untouched: The Reserve Bank of India raised the Repo The Reserve Bank of India raised the Repo

rate by 25 bps to 6.00%rate by 25 bps to 6.00% Reverse Repo rates by 50bps to 5.00%. An Reverse Repo rates by 50bps to 5.00%. An

uneven rate hike just like last time to narrow uneven rate hike just like last time to narrow the policy corridor.the policy corridor.

CRR was left untouched at 6.00%.CRR was left untouched at 6.00%.

Key highlightsKey highlights

The domestic recovery is consolidating and The domestic recovery is consolidating and economy converging to its trend growth. economy converging to its trend growth. Agriculture is clearly boosted by good Agriculture is clearly boosted by good monsoon. monsoon.

Inflation continues to remain a prime Inflation continues to remain a prime concern. Inflation has peaked but the concern. Inflation has peaked but the headline number is significantly above the headline number is significantly above the trend of 5.0-5.5%. Food inflation is still trend of 5.0-5.5%. Food inflation is still contributing to the pressure.contributing to the pressure.

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Fiscal deficit is well within targets. Higher Fiscal deficit is well within targets. Higher realization of 3G auction and buoyant tax realization of 3G auction and buoyant tax revenues eliminate the risk of fiscal deficit revenues eliminate the risk of fiscal deficit overshooting target.overshooting target.

The repo rate is likely to remain the The repo rate is likely to remain the ‘effective policy rate’ as liquidity conditions ‘effective policy rate’ as liquidity conditions are likely to remain at current levels.are likely to remain at current levels.

Expected outcomesExpected outcomes

Contain inflation and anchor inflationary Contain inflation and anchor inflationary expectations without disrupting growth.expectations without disrupting growth.

Reduce the volatility in overnight call money Reduce the volatility in overnight call money rates, thereby strengthening the monetary rates, thereby strengthening the monetary transmission mechanism.transmission mechanism.

Continue the process of normalisation of the Continue the process of normalisation of the monetary policy instruments.monetary policy instruments.

Trend in Key Policy RatesTrend in Key Policy Rates

GDP and Inflation Growth GDP and Inflation Growth ForecastForecast

Macro Indicators Actual at present Projection for FY11

GDP 7.4% (FY10), 8.8% (1Q FY11)

8.5%

Inflation (end Mar) 8.5% (August) 6.0%

Money Supply (M3) 15.1% 17.0%

Aggregate Deposit 14.4% 18.0%

Non-Food Credit Growth 19.8% 20.0%

Liquidity in the system remains Liquidity in the system remains tighttight

Banks borrowing avg Rs 17,000 cr daily this week

Money Supply growth anemicMoney Supply growth anemicMoney Supply is at 15.1% vs RBI’s target of 17%

Thank youThank you

By: Japan pandya