The Reserve Bank

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The Reserve Bank: Tradition and Change

The origin of the Reserve Bank can be traced to 1926, when the Royal Commission

on Indian Currency and Finance²also known as the Hilton-Young Commission²

recommended the creation of a central bank to separate the control of currency and

credit from the government and to augment banking facilities throughout the country.

The Reserve Bank of India was established on April 1, 1935 in accordance with the

provisions of the Reserve Bank Of India Act 1934. Since then, the Reserve Bank¶s

role and functions have undergone numerous changes²as the nature of the Indian

economy has changed. The Central Office of the Reserve Bank was initially

established in Calcutta but was permanently moved to Mumbai in 1937. The Central

Office is where the Governor sits and where policies are formulated. Though

originally privately owned, since nationalisation in 1949, the Reserve Bank is fully

owned by the Government of India. Today¶s RBI bears some resemblance to the

original institution, although our mission has expanded along with our deepened,

broadened and increasingly globalised economy.



Preamble

The Preamble of the R eserve Bank of India descr ibes the basic functions of the

R eserve Bank as:

"...to regulate the issue of Bank Notes and keeping of reserves with a view to secur ing

monetary stability in India and generally to operate the currency and credit system of

the country to its advantage."



Structure, Organizati n and Governance: How We

Function

The R eserve Bank is wholly owned by the Government of India. The Central Board

of Directors oversees the R eserve Bank¶s business.

About the Central Board

The Central Board has pr imary author ity for the oversight of the R eserve Bank. It

delegates specif ic functions to its committees and sub-committees.

Central Board: Includes the Governor, Deputy Governors and the nominated

Directors and a government nominee-Director

Committee of Central Board: Oversees the current business of the central

bank and typically meets every week, on Wednesdays. The agenda focusses

on current business, including approval of the week ly statement of accounts

related to the Issue and Bank ing Depar tments.

Board for Financial Supervi ion: R egulates and supervises commercial

banks, Non-Bank ing Finance Companies (NBFCs), development f inance

institutions, urban co-operative banks and pr imary dealers.

Board for Payment and Settlement Systems: R egulates and supervises the

payment and settlement systems.

Sub-committees of the Central Board: Includes those on Inspection and

Audit; taff ; and Building. Focus of each subcommittee is on specif ic areas of

operations.

Local Boards: In Chennai, Kolkata, Mumbai and New Delhi, representing the

country¶s four regions. Local board members, appointed by the Central

Government for four-year terms, represent regional and economic interests

and the interests of co-operative and indigenous banks.



Central Board of Directors by the NumbersOfficial Directors

y 1 Governor

y 4 Deputy Governors, at a maximum

N on-Official Directors

y 4 directors²nominated by the Central Government to represent each local

board

y 10 directors nominated by the Central Government with exper tise in var ious

segments of the economy

y 1 representative of the Central Government

y 6 meetings²at a minimum²each year

y 1 meeting²at a minimum²each quar ter



SECR ETARY'S DEPAR TMENT

Names and addresses of the Directors of the Central Board of the Reserve Bank of India

1. Dr. D Subbarao

Governor R eserve Bank of India

Central Off ice

Mumbai 400 001.

2. Smt. Shyamala Gopinath

Deputy Governor R eserve Bank of India

Central Off ice

Mumbai 400 001. 3. Dr.K.C.Chakrabar ty

Deputy Governor

R eserve Bank of India

Central Off ice

Mumbai 400 001.

4. Dr. Subir Gokarn

Deputy Governor

R eserve Bank of India

Central Off ice

Mumbai 400 001. 5. Shr i Anand Sinha

Deputy Governor

R eserve Bank of IndiaCentral Off ice

Mumbai 400 001

6. Shr i Y.H. Malegam

Char tered Accountant C/o S. B. Billimor ia & Company

Meher Chambers (2nd f loor)R . Kamani R oad, Ballard Estate

Mumbai 400 001 * 7. Prof. Suresh D. Tendulkar

Economist,

AD-86-C,Shalimar Bagh,

New Delhi ± 110 088 *

8. Prof. U. R . R aoChairman, Physical R esearch Laboratory

Depar tment of Space,Government of India

Antar iksh Bhavan, New BEL R oadBangalore ± 560 094 *

9. Shr i Lakshmi ChandIAS (R etd.),C-12, Sector 14

NOIDA, Gautham Budh Nagar Uttar Pradesh *

10. Shr i H. P. R anina

Advocate, Supreme Cour t of India,

506, R aheja Centre,

214 Backbay R eclamation,

Free Press Journal R oad,

Mumbai - 400 023 @



11. Shr i Azim Premji

Chairman,WIPR O Limited

Doddakannelli,Sarjapur R oad,

Bangalore ± 560033 @

12. Shr i Kumar Mangalam Bir la

Chairman,Aditya Bir la Group of Companies

Aditya Bir la Centre,S. K. Ahire Marg, Wor li

Mumbai ± 400 030 @ 13. Smt. Shashi R ajagopalan

Plot No. 10, Saket Phase 2

Kapra, ECIL Post Hyderabad ± 500 062 @

14. Shr i Suresh Neotia

B-32, Greater Kailash Par t - I

New Delhi ± 110 048 @

15. Dr. A. Vaidyanathan

B-1, Sonali Apar tment, Old No. 11

Beach R oad, Kalakshetra Colony

Chennai ± 600 090 @

16. Prof. Man Mohan Sharma

2/3 Jaswant Baug (R unwal Park),

Behind Akbarallys, Chembur Naka

Mumbai ± 400 071 @ 17. Shr i Sanjay Labroo

Managing Director & CEO Asahi India Glass Ltd.

Global Business Park

Tower - B, 5th Floor'

Mehrauli - Gurgaon R oad

Gurgaon - 122002 (Haryana) @

18. Shr i Ashok ChawlaFinance Secretary

Government of India

Ministry of Finance

New Delhi 110001 #

* Directors nominated under Sect 8 (1) (b) of the RBI Act, 1934.@ Directors nominated under Sect 8 (1) (c) of the RBI Act, 1934.

# Director nominated under Sect 8 (1) (d) of the RBI Act, 1934



Names and Addresses of the Members of The Local Boards of The Reserve Bank of India

WESTERN AR EA EASTERN AR EA

1. Shr i Y.H. Malegam

Char tered Accountant

c/o S.B.Billimor ia & Company

Meher Chambers (2nd f loor)

R . Kamani R oad, Ballard Estate

Mumbai 400 001

1. Shr i Suresh D. Tendulkar Economist,

AD-86-C,Shalimar Bagh,

New Delhi ± 110 088

2. Shr i K. Venkatesan113, F-Block

Anna Nagar East Chennai 600 040

2. Shr i A. K. Saik ia, R etd. IASH-8, Sector - 27

Noida - 201 301

3. Shr i Dattaraj V. Salgaocar Managing Director

V. M. Salgaocar & Bro. Ltd.Hira Bihar, Airpor t R oad, Chicalim

Vasco Da Gama, Goa - 403 711

3. Shr i Sovan Kanungo, R etd. IAS

17/404, East End Apar tmentsMayur Vihar I ( Extension )

New Delhi -110096

4. Shr i Jayantilal B. Patel

Chairman

Sahakar i Khand Udyog Mandal Ltd.

At & Post, Gandevi Sugar Factory

Taluka Gandevi, Distr ict Navsar i, Via

Billimora

Gujarat

PIN-396 360

Mumbai : Dated November 3, 2010



NOR THERN AR EA SOUTHERN AR EA

1. Prof. U. R . R ao

Chairman,

Physical R esearch Laboratory,

Depar tment of Space,

Antar iksh Bhawan, New BEL R oad

Bangalore ± 560094

1. Shr i Lakshmi Chand

R etd. IAS, C-12,

Sector ± 14, Noida,

U. P. 201301

2. Dr. R am Nath

Ex-Professor & Vice Chancellor

CSA University of Agr i. & Tech.

Plot No. 710, 'A' Block, Avas Vikas

Colony, Hanspur,Naubasta, Kanpur - 208 001

2. Shr i C. P. Nair

R etd. Chief Secretaray to Government of

Kerala

Narayaneeyam, Jawahar Nagar

Thiruvananthapuram - 695 041

3. Dr. Pr itam Singh

Director, Management Development Institute

Mehrauli R oad, Sukhrali Gurgaon - 122 001

3. Dr. M. Govinda R ao

Director National Institute of Public Finance and

Policy18/2, Satsang Vihar Marg

Special Institutional Area (Near JNU)New Delhi 110 067

4. Shr i Kamal K ishore Gupta

Char tered Accountant

Kamal & Co.1372, Kashmere Gate

Delhi 110006

4. Smt. Devak i Jain,

Tharangavana, D-5, 12th Cross,

RMV Extension,Bangalore 560080

5. Shr i Mihir Kumar MoitraH-205, Wembley Estate

R osewood City

Sector-49-50

Gurgaon-122001

Mumbai : Dated November 3, 2010





Main Activities of the R BI: What We Do

The R eserve Bank is the umbrella network for numerous activities, all related to the

nation¶s f inancial sector, encompassing an extending beyond the functions of a typical

central bank. This section provides an overview of our pr imary activities:

Monetary Author ity

Issuer of Currency

Banker and Debt Manager to Government

Banker to Banks

R egulator of the Bank ing System

Manager of Foreign Exchange

R egulator and Supervisor of the Payment and Settlement Systems

Developmental R ole

Monetary Author ity

Monetary policy refers to the use of instruments under the control of the central bank

to regulate the availability, cost and use of money and credit.

The goal : achieving specif ic economic objectives, such as low and stable inf lation and

promoting growth.

The main objectives of monetary policy in India are:

y Maintaining pr ice stability

y Ensur ing adequate f low of credit to the productive sectors of the economy to

suppor t economic growth

y Financial stability



The relative emphasis among the objectives var ies from time to time, depending on

evolving macroeconomic developments.

Our Tools

The R eserve Bank¶s Monetary Policy Depar tment (MPD) formulates monetary

policy. The Financial Markets Depar tment (FMD) handles day-to-day liquidity

management operations. There are several direct and indirect instruments that are

used in the formulation and implementation of monetary policy.

Our Approach

Our operating framework is based on a multiple indicator approach. This means that

we monitor and analyse the movement of a number of indicators including interest

rates, inf lation rate, money supply, credit, exchange rate, trade, capital f lows and

f iscal position, along with trends in output as we develop our policy perspectives.

The basic functions of the R eserve Bank of India are to regulate the issue of Bank

notes and the keeping of reserves with a view to secur ing monetary stability in India

and generally to operate the currency and credit system of the country to its

advantage.- From the Preamble of

the Reserve Bank of India Act, 1934

Direct Instruments

y Cash Reserve Ratio (CRR): The share of net demand and time liabilities that

banks must maintain as cash balance with the R eserve Bank.y Statutory Liquidity Ratio (SLR): The share of net demand and time

liabilities that banks must maintain in safe and liquid assets, such as,

government secur ities, cash and gold.

y Ref inance facilities: Sector-specif ic ref inance facilities (e.g., against lending

to expor t sector) provided to banks.



Indirect Instruments

y Liquidity Adjustment Facility (LAF): Consists of daily infusion or

absorption of liquidity on a repurchase basis, through repo (liquidity injection)

and reverse repo (liquidity absorption) auction operations, using government

secur ities as collateral.

y Open Market Operations (OMO): Outr ight sales/purchases of government

secur ities, in addition to LAF, as a tool to determine the level of liquidity over

the medium term.

y Market Stabilisation Scheme (MSS): This instrument for monetary

management was introduced in 2004. Liquidity of a more endur ing nature

ar ising from large capital f lows is absorbed through sale of shor t-dated

government secur ities and treasury bills. The mobilized cash is held in a

separate government account with the R eserve Bank.

y Repo/reverse repo rate: These rates under the Liquidity Adjustment Facility

(LAF) determine the corr idor for shor t-term money market interest rates. In

turn, this is expected to tr igger movement in other segments of the f inancial

market and the real economy.

y Bank rate: It is the rate at which the R eserve Bank is ready to buy or

rediscount bills of exchange or other commercial papers. It also signals the

medium-term stance of monetary policy.

Issuer of Currency

The R eserve Bank is the nation¶s sole note issuing author ity. Along with the

Government of India, we are responsible for the design and production and overall

management of the nation¶s currency, with the goal of ensur ing an adequate supply of

clean and genuine notes. The R eserve Bank also makes sure there is an adequate

supply of coins, produced by the government. In consultation with the government,

we routinely address secur ity issues and target ways to enhance secur ity features to

reduce the r isk of counterfeiting or forgery.



Approach

y The Depar tment of Currency Management in Mumbai, in cooperation with the

Issue Depar tments in the R eserve Bank¶s regional off ices, oversees the

production and manages the distr ibution of currency.

y Currency chests at more than 4,000 bank branches² typically commercial

banks²contain adequate quantity of notes and coins so that currency is

accessible to the public in all par ts of the country.

y The R eserve Bank has the author ity to issue notes up to value of R upees Ten

Thousand.

Our Tools

Four pr inting presses actively pr int notes: Dewas in Madhya Pradesh, Nasik in

Maharashtra, Mysore in Karnataka, and Salboni in West Bengal. The presses in

Madhya Pradesh and Maharashtra are owned by the Secur ity Pr inting and Minting

Corporation of India (SPMCIL), a wholly owned company of the Government of

India. The presses in Karnataka and West Bengal are set up by BRBNMPL, a wholly

owned subsidiary of the R eserve Bank. Coins are minted by the Government of India.

RBI is the agent of the Government for distr ibution, issue and handling of coins. Four

mints are in operation: Mumbai, Noida in Uttar Pradesh, Kolkata, and Hyderabad.

R BI¶s Anti-counterfeiting Measures

y Continual upgrades of bank note secur ity features

y Public awareness campaigns to educate citizens to help prevent circulation of

forged or counterfeit notes

y Installation of note sor ting machines



Banker and Debt Manager to Government

Managing the government¶s bank ing transactions is a key RBI role. Like individuals,

businesses and banks, governments need a banker to carry out their f inancial

transactions in an eff icient and effective manner, including the raising of resourcesfrom the public. As a banker to the central government, the R eserve Bank maintains

its accounts, receives money into and makes payments out of these accounts and

facilitates the transfer of government funds. We also act as the banker to those state

governments that have entered into an agreement with us.

The role as banker and debt manager to government includes several distinct

functions:

y Under tak ing bank ing transactions for the central and state governments to

facilitate receipts and payments and maintaining their accounts.

y Managing the governments¶ domestic debt with the objective of raising the

required amount of public debt in a cost-effective and timely manner.

y Developing the market for government secur ities to enable the government to

raise debt at a reasonable cost, provide benchmarks for raising resources by

other entities and facilitate transmission of monetary policy actions.

Our Tools

At the end of each day, our electronic system automatically consolidates all of the

government¶s transactions to determine the net f inal position. If the balance in the

government¶s account shows a negative position, we extend a shor t-term, interest-

bear ing advance, called a Ways and Means Advance²WMA² the limit or amount

for which is set at the beginning of each f inancial year in Apr il.

The R BI¶s Government Finance Operating Structure

The R eserve Bank¶s Depar tment of Government and Bank Accounts oversees

governments¶ bank ing related activities. This depar tment encompasses:

y Public accounts departments: manage the day-to-day aspects of our

Government¶s bank ing operations. The R eserve Bank also appoints

commercial banks as its agents and uses their branches for greater access to

the government¶s customers.



y Public debt off ices: provide depository services for government secur ities for

institutions and service government loans.

y Central Accounts Section at Nagpur: consolidates the government¶s

bank ing transactions.

The Internal Debt Management Depar tment based in Mumbai raises the government¶s

domestic debt and regulates and develops the government secur ities market.

Banker to Banks

Like individual consumers, businesses and organisations of all k inds, banks need their

own mechanism to transfer funds and settle inter-bank transactions²such as

borrowing from and lending to other banks²and customer transactions. As the

banker to banks, the R eserve Bank fulf ills this role. In effect, all banks operating in

the country have accounts with the R eserve Bank, just as individuals and businesses

have accounts with their banks.

As t he banker to banks, we focus on:

y Enabling smooth, swif t and seamless clear ing and settlement of inter-bank

obligations.

y Providing an eff icient means of funds transfer for banks.

y Enabling banks to maintain their accounts with us for purpose of statutory

reserve requirements and maintain transaction balances.

y Acting as lender of the last resor t.

Our Tools

The R eserve Bank provides similar products and services for the nation¶s banks to

what banks offer their own customers. Here¶s a look at how we help:



y Non-interest earning current accounts: Banks hold accounts with the

R eserve Bank based on cer tain terms and conditions, such as maintenance of

minimum balances. They can hold accounts at each of our regional off ices.

Banks draw on these accounts to settle their obligations ar ising from inter-

bank settlement systems. Banks can electronically transfer payments to other

banks from this account, using the R eal Time Gross Settlement System

(R TGS).

y Deposit Account Department: This depar tment¶s computer ised central

monitor ing system helps banks manage their funds position in real time to

maintain the optimum balance between surplus and def icit centres.

y Remittance facilities: Banks and government depar tments can use these

facilities to transfer funds.y Lender of the last resort: The R eserve Bank provides liquidity to banks

unable to raise shor t term liquid resources from the inter-bank market. Like

other central banks, the R eserve Bank considers this a cr itical function because

it protects the interests of depositors, which in turn, has a stabilising impact on

the f inancial system and on the economy as a whole.

y Loans and advances: The R eserve Bank provides shor t-term loans and

advances to banks / f inancial institutions, when necessary, to facilitate lending

for specif ied purposes.

R egulator of the Bank ing System

Banks are fundamental to the nation¶s f inancial system. The central bank has a cr itical

role to play in ensur ing the safety and soundness of the bank ing system²and in

maintaining f inancial stability and public conf idence in this system. As the regulator

and supervisor of the bank ing system, the R eserve Bank protects the interests of

depositors, ensures a framework for order ly development and conduct of bank ing

operations conducive to customer interests and maintains overall f inancial stability

through preventive and corrective measures.



The R eserve Bank regulates and supervises the nation¶s f inancial system. Different

depar tments of the R eserve Bank oversee the var ious entities that compr ise India¶s

f inancial infrastructure. We oversee:

y C ommercial banks and all-India development financial institutions: R egulated

by the Depar tment of Bank ing Operations and Development, supervised by

the Depar tment of Bank ing Supervision

y U rban co-operative banks: R egulated and supervised by the Urban Banks

Depar tment

y Regional Rural Banks ( RRB), District C entral C ooperative Banks and State

C o-operative Bank : R egulated by the R ural Planning and Credit Depar tment

and supervised by NABAR D

y N on-Banking Financial C ompanies ( N BF C ) : R egulated and supervised by the

Depar tment of Non-Bank ing Supervision

Our Tools

The R eserve Bank makes use of several supervisory tools:

y On-site inspections

y Off-site surveillance, mak ing use of required repor ting by the regulated

entities

y Thematic inspections, scrutiny and per iodic meetings

The Board for Financial Supervision oversees the R eserve Bank¶s regulatory and

supervisory responsibilities.

The R BI¶s Regulatory Role

As the nation¶s f inancial regulator, the R eserve Bank handles a range of activities,

including:

y Licensing

y Prescr ibing capital requirements

y Monitor ing governance

y Setting prudential regulations to ensure solvency and liquidity of the banks

y Prescr ibing lending to cer tain pr ior ity sectors of the economy



y R egulating interest rates in specif ic areas

y Setting appropr iate regulatory norms related to income recognition, asset

classif ication, provisioning, investment valuation, exposure limits and the like

y Initiating new regulation

Manager of Foreign Exchange

With the transition to a market-based system for determining the external value of the

Indian rupee, the foreign exchange market in India gained impor tance in the ear ly

reform per iod. In recent years, with increasing integration of the Indian economy with

the global economy ar ising from greater trade and capital f lows, the foreign exchange

market has evolved as a key segment of the Indian f inancial market.

The R eserve Bank plays a key role in the regulation and development of the foreign

exchange market and assumes three broad roles relating to foreign exchange:

y R egulating transactions related to the external sector and facilitating the

development of the foreign exchange market

y Ensur ing smooth conduct and order ly conditions in the domestic foreign

exchange market

y Managing the foreign currency assets and gold reserves of the country

Our Tools

The R eserve Bank is responsible for administration of the Foreign Exchange

Management Act,1999 and regulates the market by issuing licences to banks and

other select institutions to act as Author ised Dealers in foreign exchange. The Foreign

Exchange Depar tment (FED) is responsible for the regulation and development of themarket.

On a given day, the foreign exchange rate ref lects the demand for and supply of

foreign exchange ar ising from trade and capital transactions. The RBI¶s Financial

Markets Depar tment (FMD) par ticipates in the foreign exchange market by



under tak ing sales / purchases of foreign currency to ease volatility in per iods of

excess demand for /supply of foreign currency.

The Depar tment of External Investments and Operations (DEIO) invests the country¶sforeign exchange reserves built up by purchase of foreign currency from the market.

In investing its foreign assets, the R eserve Bank is guided by three pr inciples: safety,

liquidity and return.

R egulator and Supervisor of Payment and Settlement Systems

Payment and settlement systems play an impor tant role in improving overall

economic eff iciency. They consist of all the diverse arrangements that we use to

systematically transfer money²currency, paper instruments such as cheques, and

var ious electronic channels.

Our Approach

The Payment and Settlement Systems Act of 2007 (PSS Act) gives the R eserve Bank

oversight author ity, including regulation and supervision, for the payment and

settlement systems in the country. In this role, we focus on the development and

functioning of safe, secure and eff icient payment and settlement mechanisms.

Our Tools

The R eserve Bank has a two-tiered structure. The f irst tier provides the basic

framework for our payment systems. The second tier focusses on supervision of this

framework. As par t of the basic framework, the R eserve Bank¶s network of secure

systems handles var ious types of payment and settlement activities. Most operate on

the secur ity platform of the Indian Financial NETwork (INFINET), using digital

signatures for fur ther secur ity of transactions. Here is an overview of the var ious

systems used:



y Retail payment systems: Facilitating cheque clear ing, electronic funds

transfer, through National Electronic Funds Transfer (NEFT), settlement of

card payments and bulk payments, such as electronic clear ing services.

Operated through local clear ing houses throughout the country.

y Large value systems: Facilitating settlement of inter-bank transactions from

f inancial markets. These include:

- R eal Time Gross Settlement System (R TGS): for funds transfers

- Secur ities Settlement System: for the government secur ities market

- Foreign Exchange Clear ing: for transactions involving foreign

currency

y Department of Payment and Settlement Systems: The R eserve Bank¶s

payment and settlement systems regulatory arm.

y Department of Information Technology: Tech suppor t for the payment

systems and for the R eserve Bank¶s internal IT systems.



Developmental R ole

This role is, perhaps, the most unheralded aspect of our activities, yet it remains

among the most cr itical. This includes ensur ing that credit is available to the

productive sectors of the economy, establishing institutions designed to build the

country¶s f inancial infrastructure, expanding access to affordable f inancial services

and promoting f inancial education and literacy.

Over the years, the R eserve Bank has added new institutions as the economy has

evolved. Some of the institutions established by the RBI include:

y Deposit Insurance and Credit Guarantee Corporation (1962), to provide

protection to bank depositors and guarantee cover to credit facilities extendedto cer tain categor ies of small borrowers

y Unit Trust of India (1964), the f irst mutual fund of the country

y Industr ial Development Bank of India (1964), a development f inance

institution for industry

y National Bank of Agr iculture and R ural Development (1982), for promoting

rural and agr icultural credit

y Discount and Finance House of India (1988), a money market intermediary

and a pr imary dealer in government secur ities

y National Housing Bank (1989), an apex f inancial institution for promoting and

regulating housing f inance

y Secur ities and Trading Corporation of India (1994), a pr imary dealer

Our Tools

The R eserve Bank continues its developmental role, while specif ically focussing on

f inancial inclusion. Key tools in this on-going effor t include:

y Directed credit for lending to priority sector and weaker sections: The

goal here is to facilitate/ enhance credit f low to employment intensive sectors

such as agr iculture, micro and small enterpr ises (MSE), as well as for

affordable housing and education loans.



y Lead Bank Scheme: A commercial bank is designated as a lead bank in each

distr ict in the country and this bank is responsible for ensur ing bank ing

development in the distr ict through coordinated effor ts between banks and

government off icials. The R eserve Bank has assigned a Lead Distr ict Manager

for each distr ict who acts as a catalytic force for promoting f inancial inclusion

and smooth work ing between government and banks.

y Sector specif ic ref inance: The R eserve Bank makes available ref inance to

banks against their credit to the expor t sector. In exceptional circumstances, it

can provide ref inance against lending to other sectors..

y Strengthening and supporting small local banks: This includes regional

rural banks and cooperative banks

y Financial inclusion: Expanding access to f inance and promoting f inancial

literacy are a par t of our outreach effor ts.

Developmental / Promotional Functions of R BI

Along with the routine traditional functions, central banks especially in the

developing country like India have to perform numerous functions. These functions

are country specif ic functions and can change according to the requirements of that

country. The RBI has been performing as a promoter of the f inancial system since its

inception. Some of the major development functions of the RBI are maintained below.

1. Development of the Financial System : The f inancial system compr ises the

f inancial institutions, f inancial markets and f inancial instruments. The sound and

eff icient f inancial system is a precondition of the rapid economic development of

the nation. The RBI has encouraged establishment of main bank ing and non-

bank ing institutions to cater to the credit requirements of diverse sectors of the

economy.

2. Development of Agriculture : In an agrar ian economy like ours, the RBI has to

provide special attention for the credit need of agr iculture and allied activities. It

has successfully rendered service in this direction by increasing the f low of credit to



this sector. It has ear lier the Agr iculture R ef inance and Development Corporation

(AR DC) to look af ter the credit, National Bank for Agr iculture and R ural

Development (NABAR D) and R egional R ural Banks (RRBs).

3. Provision of Industrial Finance : R apid industr ial growth is the key to faster

economic development. In this regard, the adequate and timely availability of credit

to small, medium and large industry is very signif icant. In this regard the RBI has

always been instrumental in setting up special f inancial institutions such as ICICI

Ltd. IDBI, SIDBI and EXIM BANK etc.

4. Provisions of Training : The RBI has always tr ied to provide essential training to

the staff of the bank ing industry. The RBI has set up the bankers' training colleges

at several places. National Institute of Bank Management i.e NIBM, Bankers Staff

College i.e BSC and College of Agr iculture Bank ing i.e CAB are few to mention.

5. Collection of Data : Being the apex monetary author ity of the country, the RBI

collects process and disseminates statistical data on several topics. It includes

interest rate, inf lation, savings and investments etc. This data proves to be quite

useful for researchers and policy makers.

6. Publication of the Reports : The R eserve Bank has its separate publication

division. This division collects and publishes data on several sectors of the

economy. The repor ts and bulletins are regular ly published by the RBI. It includes

RBI week ly repor ts, RBI Annual R epor t, R epor t on Trend and Progress of

Commercial Banks India., etc. This information is made available to the public also

at cheaper rates.

7. Promotion of Bank ing Habits : As an apex organization, the RBI always tr ies to

promote the bank ing habits in the country. It institutionalizes savings and takes

measures for an expansion of the bank ing network. It has set up many institutions

such as the Deposit Insurance Corporation-1962, UTI-1964, IDBI-1964,

NABAR D-1982, NHB-1988, etc. These organizations develop and promote

bank ing habits among the people. Dur ing economic reforms it has taken many

initiatives for encouraging and promoting bank ing in India.

8. Promotion of Export through Ref inance : The RBI always tr ies to encourage the

facilities for providing f inance for foreign trade especially expor ts from India. The

Expor t-Impor t Bank of India (EXIM Bank India) and the Expor t Credit Guarantee

Corporation of India (ECGC) are suppor ted by ref inancing their lending for expor t

purpose.



Supervisory Functions of R BI

The reserve bank also performs many supervisory functions. It has author ity to

regulate and administer the entire bank ing and f inancial system. Some of its

supervisory functions are given below.

1. Granting license to banks : The RBI grants license to banks for carrying its

business. License is also given for opening extension counters, new branches, even

to close down existing branches.

2. Bank Inspection : The RBI grants license to banks work ing as per the directives

and in a prudent manner without undue r isk. In addition to this it can ask for per iodical information from banks on var ious components of assets and liabilities.

3. Control over NBFIs : The Non-Bank Financial Institutions are not inf luenced by

the work ing of a monitory policy. However RBI has a r ight to issue directives to the

NBFIs from time to time regarding their functioning. Through per iodic inspection,

it can control the NBFIs.

4. Implementation of the Deposit Insurance Scheme : The RBI has set up the

Deposit Insurance Guarantee Corporation in order to protect the deposits of small

depositors. All bank deposits below R s. One lakh are insured with this corporation.

The RBI work to implement the Deposit Insurance Scheme in case of a bank

failure.

Reserve Bank of India's Credit Policy

The R eserve Bank of India has a credit policy which aims at pursuing higher growth

with pr ice stability. Higher economic growth means to produce more quantity of

goods and services in different sectors of an economy; Pr ice stability however does

not mean no change in the general pr ice level but to control the inf lation. The credit

policy aims at increasing f inance for the agr iculture and industr ial activities. When

credit policy is implemented, the role of other commercial banks is very impor tant.

Commercial banks f low of credit to different sectors of the economy depends on the

actual cost of credit and arability of funds in the economy.





Management and Structure

The Governor is the R eserve Bank¶s chief executive. The Governor supervises and

directs the affairs and business of the R eserve Bank. The management team also

includes Deputy Governors and Executive Directors.

Departments

1. M arkets

y Monetary Policy Depar tment

y

Financial Markets Depar tment y Internal Debt Management Depar tment

y Depar tment of External Investments and Operations

2 . Regulation and Supervision

y Depar tment of Non-Bank ing Supervision

y Urban Banks Depar tment

y Depar tment of Bank ing Supervision

y Foreign Exchange Depar tment

y R ural Planning and Credit Depar tment

3. Research

y Depar tment of Economic Analysis and Policy

y Depar tment of Statistics and Information Management

4. Servicesy Depar tment of Government Bank Accounts

y Depar tment of Currency Management

y Depar tment of Payment and Settlement System

y Customer Service Depar tment



5 . Support

y Premises Depar tment

y Secretary¶s Depar tment

y R ajbhasha Depar tment

y Inspection Depar tment

y Legal Depar tment

y Depar tment of Administration and Personnel Management

y Human R esources Development Depar tment

y Depar tment of Communication

y

Depar tment of Information Technologyy Depar tment of Expenditure and Budgetary Control

y Depar tment of Bank ing Operations and Development



R BI Repo rate or key short term lending rate

When reference is made to t he Indian interest rate this of ten refers to the repo rate,

also called the key shor t term lending rate. If banks are shor t of funds they can borrow

rupees from the R eserve Bank of India (RBI) at the repo rate, the interest rate with a 1

day matur ity. If the central bank of India wants to put more money into circulation,

then the RBI will lower the repo rate. The reverse repo rate is the interest rate that

banks receive if they deposit money with the central bank. This reverse repo rate is

always lower than the repo rate. Increases or decreases in the repo and reverse repo

rate have an effect on the interest rate on bank ing products such as loans, mor tgages

and savings

R BI latest interest rate changes

Change date Percentage

January 25 2011 6.500 %

November 02 2010 6.250 %

September 16 2010 6.000 %July 27 2010 5.750 %

July 02 2010 5.500 %

Apr il 20 2010 5.250 %

march 19 2010 5.000 %

Apr il 21 2009 4.750 %

march 05 2009 5.000 %

January 05 2009 5.500 %



Most recent CPI India (inf lation figure) 9.303 %

When we talk about the rate of inf lation in India, this often refers to the rate of

inflation based on the consumer price index, or CPI for short. The Indian CPI shows

the change in prices of a standard package of goods and services which Indian

households purchase for consumption. In order to measure inflation, an assessment is

made of how much the CPI has risen in percentage terms over a give period compared

to the CPI in a preceding period. If prices have fallen this is called deflation (negative

inflation).



CPI IN recent years

Period Inf lation

January 2011 9.303 %

January 2010 16.216 %

January 2009 10.448 %

January 2008 5.512 %

January 2007 6.723 %

January 2006 4.372 %

January 2005 4.365 %

January 2004 4.348 %January 2003 3.426 %

January 2002 4.944 %

Money Multiplier in India



Research, Data and Knowledge-Sharing: How We Communicate

The R eserve Bank has a r ich tradition of generating sound economic research, data

collection and knowledge-shar ing.

Our economic research focusses on study and analysis of domestic and international

issues affecting the Indian economy. This is mainly done by the Depar tment of

Economic Analysis and Policy and the Depar tment of Statistics and Information

Management.

This impor tant work is designed to:

y Educate the public

y Provide reliable, data-dr iven information for policy and decision-mak ing

y Supply accurate and timely data for academic research as well as the general

public

Communicating with the Public

Our emphasis on communication involves a range of activities, all aimed at shar ing

knowledge about the f inancial arena.

The R eserve Bank¶s web site (www.rbi.org.in) provides a full range of information

about our activities, our publications, our history and our organisation. The web site is

updated regular ly, with the most recent publications, speeches, press releases and

circulars. Of note, relevant press releases and circulars are posted in 13 local

languages.

Customer Service: How Can We Help You?

Our customer outreach policy is aimed at informing the public, so that they know

what to expect, what choices they have and what r ights and obligations they have in

relation to bank ing services. Our customer service initiatives are designed to protect

customers¶ r ights, enhance the quality of customer service and strengthen the

gr ievance redressal mechanism in the bank ing sector as a whole²and at the R eserve

Bank itself. Our effor ts include:



y Customer Service Department (CSD): Questions? Problems? Concerns?

Communicate with this depar tment ([email protected]) which was set up in

2006, based at the central off ice in Mumbai, to respond to system-level

customer issues.y Bank ing Codes and Standards Board of India: The R eserve Bank

established this board to encourage transparency in lending and fair pr icing.

This will give customers more conf idence in the system and encourage more

usage of formal bank ing. (www.bcsbi.org.in)

y Bank ing Ombudsman: The R eserve Bank¶s quasi-judicial author ity for

resolving disputes between commercial banks, pr imary cooperative banks and

regional rural banks and their customers. There is one Bank ing Ombudsman in

vir tually every state. (www.bank ingombudsman.rbi.org.in)

Benefits of working with RBI

Working with rbi gives you a whole new perspective on various banking,

economic and cultural dimensions. But that isn't where it ends: you also get to work with experienced, qualified people who've driven the country's

economy for decades.

Wider Canvas

You get an oppor tunity to work on a wider canvas of operations, you are involved

in formulation of policies having nationwid e implications. You get a multi-

disciplinary job content and an oppor tunity to contr ibute to nation building

Team up with the Best You get to be a member of a team that shapes the f inancial policies. You work with the government and top level f inancial minds. You work with international

organisations to contr ibute to think ing on global best practices

Spearhead the Reforms You initiate and monitor reforms and changes in India's f inancial environment and

manage an economy in transition. Your job offers the challenge of dr iving a nation

on the move.

Go Global You get an oppor tunity to interact with some of the br ightest minds across sectors

of economy and across the globe. You even negotiate treaties with multi lateral



bodies or guide other emerging economies. In domestic seminars and conferences

you represent your institution and internationally you represent your country.

Touch the lives of millionsYour everyday job can make a difference to a farmer, a small entrepreneur, an

expor ter, an industry, a f inancial entity, or even a common man.

Do Research that Matters You do research that induces policy changes. You have information and data at

your f inger tips.

Changing Profile with Changing Times

The Reserve Bank of India is the central bank of the country . Most central banks, as we know them today, were established aro und the early twentieth century. TheReserve Bank of India was set up on the basis of the recommendations of the Hilton Y oung Commission. The Reserve Bank of India Act, 1934 (II of 1934) provides thestatutory basis of the functioning of the Bank, which commenced operations on April 1, 1935.

1926 Birth of the Institution

Hilton Young Commission recommends setting up of the Reserve Bank of India

1935 The Reserve Bank of India starts functioning

1947RBI goes National India gains independence

1949 The Reserve Bank of India is nationalised

1950 Focus on Development

India embarks on planned economic development . RBI becomes an active agent and participant in this process

1951 - 1967

RBI engages in establishing an institutional infrastructure for agricultural and long -term individual credit

1970

Mass banking RBI directs banks to take banking to masses by expanding their branch network and giving credit to the smallest borrower

1973 Rigorous framework of exchange controls legislated to prevent capital fligh t

1991 Initiating Major Fiscal & Financial Reforms India faces unprecedented Balance of Payment crisis; devalues rupee and stabilises external sector, simultaneously launches re forms in fiscal, trade, foreign investment and financial sectors

1993-94

Adopts the international prudential norms and initiates a major effort to move away from micro to macro management of insti tutions

1997

Enters into an agreement with the government for fiscal discipline

2000

Legal framework to usher in convertibility on current account . Replacement of Foreign Exchange Regulat ion Act with Foreign Exchange Management Act

2001 - 2003 RBI continues its efforts at development of financial markets, strengthening of the financial sector with cutting edge technology

2004 - 2005 RBI puts in a modern payment and settlement system, s trives to further strengthen the financial sector.

The Future Dream about the institution you work for, dream about changes you could make to the I ndian economy and strive to turn your dr eams into reality



The R BI is made up of:

y 26 Departments: These focus on policy issues in the R eserve Bank¶s

functional areas and internal operations.

y 26 Regional Off ices and Branches: These are the R eserve Bank¶s operational

arms and customer interfaces, headed by R egional Directors. Smaller branches

/ sub-off ices are headed by a General Manager / Deputy General Manager.

y Training centres: The R eserve Bank Staff College at Chennai addresses the

training needs of RBI off icers; the College of Agr icultural Bank ing at Pune

trains staff of co-operative and commercial banks, including regional rural

banks. The Zonal Training Centres, located at regional off ices, train non-

executive staff.

y Research institutes: RBI-funded institutions to advance training and research

on bank ing issues, economic growth and bank ing technology, such as,

National Institute of Bank Management (NIBM) at Pune, Indira Gandhi

Institute of Development R esearch (IGIDR ) at Mumbai, and Institute for

Development and R esearch in Bank ing Technology (IDRBT) at Hyderabad.

y Subsidiaries: Fully-owned subsidiar ies include National Housing Bank

(NHB), Deposit Insurance and Credit Guarantee Corporation (DICGC),

Bharatiya R eserve Bank Note Mudran Pr ivate Limited (BRBNMPL). The

R eserve Bank also has a major ity stake in the National Bank for Agr iculture

and R ural Development (NABAR D).

Th

e R BIL

ogo

The selection of the Bank¶s common seal to be used as the emblem of the Bank on

currency notes, cheques and publications, was an issue that had to be taken up at an

ear ly stage of the Bank¶s formation.



The Goverment¶s general ideas on the seal were as follows:

1. The seal should emphasise the Governmental status of the Bank, but not too

closely;

2. It should have something Indian in the design;

3. It should be simple, ar tistic and heraldically correct; and

4. The design should be such that it could be used without substantial alteration for

letter heading, etc.

For this purpose, var ious seals, medals and coins were examined. The East India

Company Double Mohur, with the sketch of the Lion and Palm Tree, was found most

suitable; however, it was decided to replace the lion by the tiger, the latter being

regarded as the more character istic animal of India!

To meet the immediate requirements in connection with the stamping of the Bank¶s

share cer tif icates, the work was entrusted to a Madras f irm. The Board, at its meeting

on February 23, 1935, approved the design of the seal but desired improvement of the

animal¶s appearance. Unfor tunately it was not possible to make any major changes at

that stage. But the Deputy Governor, Sir James Taylor, did not rest content with this.

He took keen interest in getting fresh sketches prepared by the Government of India

Mint and the Secur ity Pr inting Press, Nasik. As a basis for good design, he arranged

for a photograph to be taken of the statue of the tiger on the entrance gate at

Belvedere, Calcutta. Something or the other went wrong with the sketches so that Sir

James, wr iting in September I938, was led to remark:

......¶s tree is all r ight but his tiger looks too like some species of dog, and I am afraid

that a design of a dog and a tree would arouse der ision among the irreverent. .....¶s

tiger is distinctly good but the tree has spoiled it. The stem is too long and the

branches too spidery, but I should have thought that by putting a f irm line under the

feet of his tiger and mak ing his tree stronger and lower we could get quite a good

result from his design.

Later, with fur ther effor ts, it was possible to have better proofs prepared by the

Secur ity Pr inting Press, Nasik. However, it was eventually decided not to make any

change in the existing seal of the Bank, and the new sketches came to be used as an



emblem for the Bank¶s currency notes, letter-heads, cheques and publications issued

by the Bank.

Source: µHistory of t he Reserve Bank of India¶

CONCLUSION

The RBI has been one of the most successful central banks around the world in preventing the effects of the

subprime crisis to the Indian economy, particularly its banks. This adds a lot of credibility to every decision that is

taken by them. Further, as a large proportion of the Indian population is impacted by inflation, it was necessary for the

RBI to think about the majority and try to curb inflation by tightening its monetary stance.

-Anish Kedia

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The Reserve Bank

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