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Reserve Bank of India

Sivakumar

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Objective of RBI

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.

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Functions

The regulation of currency in accordance with therequirements of business and the general public forwhich purpose it is granted either the sole right of note

issue or at least a partial monopoly thereof.The performance of general banking and agencyservices for the state

The custody of the cash reserves of the commercial

banksThe custody and management of nations reserves ofinternational currency

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The granting of accommodation in the form ofdiscounts or collateral advances to the commercial

banks, bill brokers and dealers or other financialinstitutions and general acceptance of theresponsibility of the lender of the last resort

The settlement of clearance balances between thebanks

The control of credit in accordance with the needsof business and with a view to carrying out thebroad monetary policy accepted by the state .

It should not to any great extent perform such

banking transactions as accepting deposits fromthe general public and accommodating regularcommercial customers with discounts or advances.

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Functions

1. Supervisory and regulatory

2, Promotional and developmental

3. Refinance operations

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Supervisory and regulatory

Monopoly of note issue

Control of credit through monetary policy

Exchange controlStatutory regulation

Bank of central clearance, settlement and

transfer

http://localhost/var/www/apps/conversion/tmp/scratch_15/annual%20report%20of%20RBI%202009.pdfhttp://localhost/var/www/apps/conversion/tmp/scratch_15/annual%20report%20of%20RBI%202009.pdf

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Promotional and developmental

Banker to government

Banker to bankers

Agricultural Finance

Industrial financeExport finance

Strengthening cooperative structure

Collection of data and publicationPromotional and developmental institutions

Training institutions

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Refinance operations

Lender of last resort

Refinance operations

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Supervisory and regulatory

Monopoly of issuing notes:

SEC 22 of RBI act RBI has the sole authorityfor issuing currency notes other an one rupeecoins and notes and smaller coins

Two distinct depts Issue dept and bankingdept

The notes issued are liability of the issue deptand assets are gold coin, bullions, foreign

securities, rupee coin, GOI securities and suchBills of exchange and promissory notes.

There is no limit to the volume of currency thatcan be issued provided value of bullion andforeign securities held by the issue dept is notless than Rs. 200 crores.

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Supervisory and regulatory

Control of credit through monetary policy

Objective of monetary policy:

To facilitate the flow of adequate volumeof bank credit to industry, agriculture andtrade to meet their genuine needs.

To provide selective encouragement to

sectors which need special assistancesuch as weaker sections of the society.

To keep inflationary pressures undercheck

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InstrumentsGeneral or quantitative

Selective or qualitative

General :

Bank rate and reserve requirements

Open market operations: to regulate money supply in theeconomy

Moral suasion:

Direct action: Denial or RBI to extend facilities to bankswhich do not follow sound banking practices

Selective on qualitative:Selective credit control: To restrict the purposes, themargin, maximum amount and rate of interest

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Exchange control

Introduced on 1939 on the outbreak ofsecond world war under Defence of Indiarules

In 1947 FERA was introducedIn 2000 FEMA was enacted.

Object was to conserve the fex resources

and proper utilisation thereof. Further tofacilitate external trade and payments andfor promoting the orderly development andmaintenance of fex markets in India.

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Statutory regulation

Power of the bank to impose fines

Submission of returns like Basic Statistical

return, FEX returns, Money laundering

returns etc.

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Bank of central clearance,

settlement and transfer

Acts as a clearing house of member banks

Since banks keep cash reserve and

deposits with central bank, settlements

between them can be more easily effected

in the books of central bank.

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Promotional and developmental

role

Banker to government

Public debt Borrowing programmes of govt

Treasury bills short term borrowings

Advisor to govtBanker to banks

Agricultural finance: - NABARD National bankfor Agriculture and rural development to

provide refinance to all agri lending extendedthrough commercial banks , RRBs and coopbanks

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Industrial finance: Institutional framework

IFCI, SFCs, IDBI, UTI, DICGC etc.

Export Finance Exim Bank to provide

financial assistance to importers and

exporters , acts as a principal institution for

coordinating the working of other

institutions engaged in the field of

international trade.

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strengthening of coop structure

The bank has taken a number of steps to

strengthen the coop structure with the

cooperation of state governments like

introduction of CAR, IRAC norms etc.

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Collection of data and publication

The Bank has been empowered to collecton periodical basis various informationfrom the banks and financial institutions asper various provisions of the RBI act. All

these information and data are compiledand made available through the following:

Reserve Bank of India Bulletin

Credit information reviewAnnual report of RBI

Report on currency and finance

Report on trends in Banking

P ti d d l t f

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Promotion and development of

institutionsPlayed a vital role in formation of

Industrial Development Bank of IndiaNABARD

DICGC

State Financial Corporation

EXIM bankDiscount and Finance House of India

Securities Trading corporation of India

National Institute of Bank Management

Institute of Banking Personnel and Selection

Banking Service Recruitment Board

Infrastructure Development Finance company

Bankers Training College, Mumbai

College of Agricultural Banking, Pune

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Refinance OperationsLender of the last resort:

The facility is provided in the form of rediscount ofeligible bills and loans and advances against eligiblesecurities.

RBI takes into account the general profile of the bank

applying for this facilityAlso RBI has a right to suitably relax the conditionsand is also empowered to grant advances to thebanks in time of emergency, despite the limitations/

conditions, if any.This particular liberal approach has enabled the RBI tocarry out its role as the bankers bank and lender ofthe last resort more efficiently.

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Refinance operations: Providing refinancefacilities with a view to improve liquidity aswell as to improve the lending to specified

channels of national priority.Eg. Export refinance is granted against theexport credit finance .

General refinance facility is available tobankers to tide over temporary liquidityshortages.

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questions

Discuss briefly the supervisory role of RBI

Recount the role of RBI as a promotional

and developmental agency

Write a brief note on RBI as lender of last

resort as also its refinance functions

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Bank rate 6%

Repo rate 5.5%

Reverse repo 4%(as on 17.7.10)

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Objective type

1, RBI is known as lender of last ----------

2. Two departments of RBI are -----------

and ----------------

3. Two instruments of credit control are ----

and --------

4. The three major functions of RBI are

--------, --------- and -----------

5. Full money changers can -------------

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Thanks