PREAMBLE An Act to constitute a Reserve Bank of India.

Whereas it is expedient to constitute a Reserve Bank for India to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in 2 [India] and generally to operate the currency any credit system of the country to its advantage; And whereas in the present disorganisation of the monetary systems of the world it is not possible to determine what will be suitable as a permanent basis for the Indian monetary system; But whereas it is expedient to make temporary provision on the basis of the existing monetary system, and to leave the question of the monetary standard best suited to India to be considered when the international monetary position has become sufficiently clear and stable to make it possible to frame permanent measure
RBI assumes an important part in the development strategy of the Government of India, and as a leading member of the Alliance for Financial Inclusion (AFI), a global network of financial policymakers from developing and emerging countries working together to increase access to appropriate financial services for the poor. RBI is also a member of the Asian Clearing Union. The general superintendence and direction of the RBI is entrusted with the 21-member-strong Central Board of Directorsthe Governor [3] (currently Duvvuri Subbarao, to be succeeded on 5 September 2013 by Dr. Raghuram Rajan ), four Deputy Governors, two Finance Ministry representatives, ten government-nominated directors to represent important elements from India's economy, and four directors to represent local boards headquartered at Mumbai, Kolkata, Chennai and New Delhi. Each of these local boards consists of five members who represent regional interests, as well as the interests of co-operative and indigenous banks.

History[edit source | editbeta]

19351950[edit source | editbeta]

The old RBI Building in Mumbai

The Reserve Bank of India (RBI) was founded on 1 April 1935 to respond to economic troubles after the First World War. The bank was set up based on the recommendations of the 1926 Royal Commission on [4] Indian Currency and Finance, also known as the Hilton YoungCommission . It began according to the guidelines laid down by Dr. B. R. Ambedkar, whose guidelines, working style and outlook were presented to the Hilton Young Commission. When this Commission came to India, under the name of "Royal Commission on Indian Currency and Finance", every member of this Commission was holding Dr. [5] Ambedkar's book titled The problem of the rupee: its origin and its solution. The Commission also was [6][7] advised by John Maynard Keynes, a member of the Commission. The original choice for the seal of RBI was The East India Company Double Mohur, with the sketch of the Lion and Palm Tree. However it was decided to replace the lion with the tiger, the national animal of India. The Preamble of the RBI describes its basic functions to regulate the issue of bank notes, keep reserves to secure monetary stability in India, and generally to operate the currency and credit system in the best interests of the country. The Central Office of the RBI was initially established in Calcutta (now Kolkata), but was permanently moved to Bombay (now Mumbai) in 1937. The RBI also acted as Burma's central bank, except during the years of the Japanese occupation of Burma (194245), until April 1947, even though Burma seceded from the Indian Union in 1937. After the Partition of India in 1947, the Bank served as the central bank for Pakistan until June 1948 when the State Bank of Pakistan commenced operations. Though originally set up as a shareholders bank, the RBI has been fully owned by the Government of India since its [8] nationalization in 1949.

Main functions[edit source | editbeta]

Reserve Bank of India regional office, Delhi entrance with the Yakshini sculpture depicting "Prosperity through agriculture".[34]

The RBI Regional Office in Delhi.

The regional office of RBI (in sandstone)in front of GPO(in white) at Dalhousie Square,Kolkata.

Bank of Issue[edit source | editbeta]

Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the Banking Department.

Monetary authority[edit source | editbeta]

The Reserve Bank of India is the main monetary authority of the country and beside that, in its capacity as the central bank, acts as the bank of the national and state governments. It formulates, implements and monitors the monetary policy as well as it has to ensure an adequate flow of credit to productive sectors.

Regulator and supervisor of the financial system[edit source | editbeta]

The institution is also the regulator and supervisor of the financial system and prescribes broad parameters of banking operations within which the country's banking and financial system functions. Its

objectives are to maintain public confidence in the system, protect depositors' interest and provide costeffective banking services to the public. The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective redress of complaints by bank customers. The RBI controls the monetary supply, monitors economic indicators like the gross domestic productand has to decide the [35] design of the rupee banknotes as well as coins.

Management of foreign exchange[edit source | editbeta]

The RBI is in charge of facilitating the achievement of the goals of the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Issuer of currency[edit source | editbeta]

The bank issues and exchanges or destroys currency notes and coins that are not fit for circulation. The objectives are to give the public an adequate supply of currency of good quality and to provide loans to commercial banks to maintain or improve the GDP. The basic objectives of RBI are to issue bank notes, to maintain the currency and credit system of the country, and to maintain the reserves. RBI maintains the economic structure of the country so that it can achieve the objectives of price stability as well as economic development, because both objectives are diverse in themselves This article may be confusing or unclear to readers.Please help us clarify the article; suggestions may be found on the talk page. (July 2013) .

Banker of banks[edit source | editbeta]

Nagpur branch holds most of India's gold deposits

RBI also works as a central bank where commercial banks are account holders and can deposit money. [36] RBI maintains banking accounts of all scheduled banks. Commercial banks create credit. It is the duty of the RBI to control the credit through the CRR, bank rate and open market operations. As the bankers' bank, the RBI facilitates the clearing of cheques between the commercial banks and helps inter-bank transfer of funds. It can grant financial accommodation to schedule banks. It acts as the lender of last resort by providing emergency advances to the banks. It supervises the functioning of the commercial banks and take action against it if need arises.

Detection of fake currency[edit source | editbeta]

In order to curb the fake currency menace, RBI has launched a website to raise awareness among masses about fake notes in the market.www.paisaboltahai.rbi.org.in provides information about [37] identifying fake currency.

Developmental role[edit source | editbeta]

The central bank has to perform a wide range of promotional functions to support national objectives and [10] industries. The RBI faces a lot of inter-sectoral and local inflation-related problems. Some of this [38] problems are results of the dominant part of the public sector.

Related functions[edit source | editbeta]

The RBI is also a banker to the government and performs merchant banking function for the central and the state governments. It also acts as their banker. The National Housing Bank (NHB) was established in [39] 1988 to promote private real estate acquisition. The institution maintains banking accounts of all scheduled banks, too. RBI on 7 August 2012 said that Indian banking system is resilient enough to face [40] the stress caused by the drought like situation because of poor monsoon this year.

Policy rates and reserve ratios[edit source | editbeta]

Policy rates, Reserve ratios, lending, and deposit rates as of 14 May 2013

Bank Rate

10.25% (16-7-2013)

Repo Rate

7.25%

Reverse Repo Rate

6.25%

Cash Reserve Ratio (CRR)

4%

Statutory Liquidity Ratio (SLR)

23.0%

Base Rate

9.75%10.50%

Reserve Bank Rate

4%

Deposit Rate

8.50%9.0%

Bank Rate[edit source | editbeta]

RBI lends to the commercial banks through its discount window to help the banks meet depositors demands and reserve requirements for long term. The Interest rate the RBI charges the banks for this purpose is called bank rate. If the RBI wants to increase the liquidity and money supply in the market, it will decrease the bank rate and if RBI wants to reduce the liquidity and money supply in the system, it will increase the bank rate. As of 16 July 2013, the bank rate was 10.25%.

Reserve requirement cash reserve ratio (CRR)[edit source | editbeta]

Every commercial bank has to keep certain minimum cash reserves with RBI. Consequent upon amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the monetary stability in the country, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate, [Before the enactment of this amendment, in terms of Section 42(1) of the RBI Act, the Reserve Bank could prescribe CRR for scheduled banks between 5% and 20% of total of their demand and time liabilities]. RBI uses this tool to increase or decrease the reserve requirement depending on whether it wants to effect a decrease or an increase in the money supply. An increase in Cash Reserve Ratio (CRR) will make it mandatory on the part of the banks to hold a large proportion of their deposits in the form of deposits with the RBI. This will reduce the size of their deposits and they will lend less. This will in turn decrease the money supply. Due to a Reduction in CRR by 0.25% (25 basis points cut in Cash Reserve Ratio(CRR)) on 17 September 2012, Rs 17,000 crore was released into the system/market. The RBI lowered the CRR by 25 basis points to 4.25% on 30 October 2012, a move it said would inject about 175 billion rupees into the banking system in order to pre-empt potentially tightening liquidity. The latest CRR is 4% (wef 09-02-2013).

Statutory Liquidity ratio (SLR)[edit source | editbeta]

Apart from the CRR, banks are required to maintain liquid assets in the form of gold, cash and approved securities. Higher liquidity ratio forces commercial banks to maintain a larger proportion of their resources in liquid form and thus reduces their capacity to grant loans and advances, thus it is an anti-inflationary impact. A higher liquidity ratio diverts the bank funds from loans and advances to investment in government and approved securities. In well-developed economies, central banks use open market operations buying and selling of eligible securities by central bank in the money marketto influence the volume of cash reserves with commercial banks and thus influence the volume of loans and advances they can make to the commercial and industrial sectors. In the open money market, government securities are traded at market related rates of interest. The RBI is resorting more to open market operations in the more recent years. Generally RBI uses three kinds of selective credit controls: 1. Minimum margins for lending against specific securities.

2. Ceiling on the amounts of credit for certain purposes. 3. Discriminatory rate of interest charged on certain types of advances. Direct credit controls in India are of three types:

1. Part of the interest rate structure i.e. on small savings and provident funds, are administratively set. 2. Banks are mandatory required to keep 23% of their deposits in the form of government securities. 3. Banks are required to lend to the priority sectors to the extent of 40% of their advances. Further reading[edit source | editbeta]

S. L. N. Simha. History of the Reserve Bank of India, Volume 1: 1935 1951. RBI. 1970. ISBN 81-7596-247-X. (2005 reprint PDF) G. Balachandran. The Reserve Bank of India, 19511967. Oxford University Press. 1998. ISBN 0-19-564468-9. (PDF) A. Vasudevan et al. The Reserve Bank of India, Volume 3: 19671981. RBI. 2005. ISBN 81-7596-299-2. (PDF) Cecil Kisch: Review "The Monetary Policy of the Reserve Bank of India" by K. N. Raj. In: The Economic Journal. Vol. 59, No. 235 (Sep., 1949), pp. 436438. Findlay G. Shirras: The Reserve Bank of India. In The Economic Journal. Vol. 44, No. 174 (Jun., 1934), pp. 258274. Narenda Jadhav, Partha Ray, Dhritidyuti Bose, Indranil Sen Gupta: The Reserve Bank of Indias Balance Sheet: Analytics and Dynamics of Evolution , November 2004.

Scheduled Banks in India are those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934.[1] RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act. As on 30 June 1999, there were 300 scheduled banks in India having a total network of 64,918 branches. Scheduled commercial banks in India include State Bank of India and its associates (5), nationalised banks (20), foreign banks (45), private sector banks (32), co-operative banks and regional rural banks. "Scheduled banks in India" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank" Schedule banks are those which are included in the Second Schedule of Banking Regulation act 1965;others are non schedule banks. To be included in the Second Schedule, a bank (a) must have paid upcapital and reserves of

not less than Rs. 5 lakhs (b) it must also satisfy the RBI that its affairs are notconducted in a manner detrimental to the interests of its depositors. Schedule banks are required tomaintain a certain amount of reserves with the RBI; they in return, enjoy the facility of financialaccomodation and remittance facilities at concessional rates from RBI.The difference between schedule and non schedule is immaterial as the number of non schedule bank isalmost nil.Public sectorThe term public sector banks is used commonly in India. This refers to banks that have their shares listedin the stock exchanges NSE and BSE and also the government of India holds majority stake in thesebanks.They can also be termed as government owned banksScheduled banksFrom Wikipedia, the free encyclopediaJump to: navigation, searchScheduled Banks in India are those banks which have been included in the Second Schedule of ReserveBank of India (RBI) Act, 1934.[1] RBI in turn includes only those banks in this schedule which satisfy thecriteria laid down vide section 42 (6) (a) of the Act.As on 30th June, 1999, there were 300 scheduled banks in India having a total network of 64,918branches.The scheduled commercial banks in India comprise of State Bank of India and its associates (7),nationalised banks (19), foreign banks (45), private sector banks (32), co-operative banks and regionalrural banks."Scheduled banks in India" means the State Bank of India constituted under the State Bank of India Act,1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959(38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies(Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the BankingCompanies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being abank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does notinclude a co-operative bank"

Reserve Bank of India

The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. Though initially RBI was privately owned, it was nationalized in 1949. Its central office is in Mumbai where the Governor of RBI sits. RBI has 22 regional offices and most of them are located in state capitals. The Reserve Bank of India also has three fully owned subsidiaries: National Housing Bank (NHB), Deposit Insurance and Credit Guarantee Corporation of India (DICGC), Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL). The functions of Reserve Bank are governed by central board of directors. The board is appointed by the Government of India. The directors are nominated / appointed for a period of four years. As per the Reserve Bank of India Act there are Official Directors and Non-Official Directors. The Official Directors are appointed by the government and include Governor and Deputy Governors of RBI. There cannot be more than four Deputy Governors. Non-Official Directors are nominated by the government. These include ten Directors from various fields and one government official. Apart from these, there are four other Non-Official Directors, one each from four local boards in Mumbai, Kolkata, Chennai and New Delhi. Main Functions of RBI

Reserve Bank of India is the main monetary authority of the country. It formulates, implements and monitors the monetary policy and thereby plays a key role in maintaining price stability and ensuring adequate flow of credit to productive sectors.

RBI is the regulator and supervisor of the financial system in the country. It prescribes broad parameters of banking operations within which the country's banking and financial system functions. It manages the foreign exchange of the country. Performs merchant banking function for the central and the state governments; also acts as their banker. Maintains banking accounts of all scheduled banks. Issues and exchanges or destroys currency and coins not fit for circulation.