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Brief History of RBI

It was set up on the recommendations of the


Hilton Young Commission.
It is the Central Bank of India Established in 1934
under the RESERVE BANK OF INDIA ACT 1934.
It was started as privately owned share-holders
bank with a paid up capital of INR 5 crore.
In 1949, the bank was nationalised and is fully
owned by the Govt. of India.
Introduction
Its head quarter is in Mumbai (Maharashtra).
Initially it was located in Kolkata. It moved to
Mumbai in 1937.
Its present governor is Urijit Patel.
The RBI has four zonal offices
at Chennai, Delhi, Kolkata and Mumbai.
It has 19 regional offices and 11 sub-offices.
ORGANIZATIONAL STRUCTURE OF RBI
The Central Board of Directors is the main
committee of the RBI. The Government of
India appoints the directors for a 4-year term.
The Board consists of a Governor, and not
more than 4 Deputy Governors, 4 Directors to
represent the regional boards, 2 from the
Ministry of Finance and 10 other directors
from various fields.
The bank is headed by the Governor and the
post is currently held by economist Urijit Patel.
There are 4 Deputy Governors.
Functions of RBI
Monetary functions
Issuer of Currency.
Banker to the government
Bankers bank
Custodian of foreign reserves
Controller of credit
Bank Rate
Open market operations
Variable reserve requirements (Cash Reserve Requirement &
Statutory Liquidity Requirements)
Non-Monetary Functions
Supervisory functions
Promotional functions
ISSUER OF CURRENCY
It is the sole authority in India to
issue Currency.
The bank issues and exchanges
currency notes and coins and
destroys the same when they are not
fit for circulation.
The objectives are
To issue bank notes and ensuring
adequate supply of the same.
To maintain the currency and credit
system of the country to utilize it in its
best advantage.
To maintain the reserves.
Every Note issued by RBI has its
name imprinted on the top along with
signature of governor below
promissory clause.
Banker to the Government
Acting as advisor to the Govt. on all monetary and banking matters.

Keeping the cash balances of the Government as deposits free of


interest.

Receiving and making payments on behalf of the Govt.

Carrying out the Govts exchange remittances and other banking


operations.

Helping both Central and State Govts to float new loans and mange
public debt.

Making ways and means of advances to the state and local


authorities.
Bankers Bank
Enables smooth and swift clearing and settlements of
inter-bank transactions
Provides efficient means of funds transfer for all banks
Enables banks to maintain their accounts with RBI for
statutory reserve requirements and maintenance of
transaction balances.
Regulates opening of New ATMS & Branches of
Commercial Banks
Controls the banking activities and credit system in
India
It provides financial assistance to scheduled banks by
rediscounting eligible securities
CUSTODIAN OF FOREIGN EXCHANGE
RBI is required to maintain external value of Rupee. For this
purpose it acts as a custodian of FOREX. The bank has licensed
several banks as authorized dealers in foreign exchange
On a given day, the foreign exchange rate reflects the demand for
and supply of foreign exchange arising from trade and capital
transactions. The RBIs Financial Markets Department (FMD)
participates in the foreign exchange market by undertaking sales /
purchases of foreign currency to ease volatility in periods of excess
demand for/supply of foreign currency.
Administer and enforces the provision of Foreign Exchange
Management Act (FEMA), 1999.
CONTROLLER OF CREDIT
BANK RATE
Its the interest rate that is charged by a RBI, countrys central
bank on loans and advances to control money supply in the
economy and the banking sector.

This is typically done on a quarterly basis to control inflation


and stabilize the countrys exchange rates.

A fluctuation in bank rates Triggers a Ripple-Effect as it


impacts every sector of a countrys economy.

A change in bank rates affects customers as it influences


Prime Interest Rates for personal loans.

The present bank rate is 6.25%


Controller of Credit
Open market operations
Open Market Operations (OMO) : An open market
operation is an instrument of monetary
policy which involves buying or selling of
government securities from or to the public
and banks.
Section 17(8) provides this right to RBI.
To provide seasonal finance to commercial banks
by purchase of securities from them.
Cash Reserve Ratio (CRR) is the amount of Cash(liquid cash like
gold)that the banks have to keep with RBI.

This Ratio is basically to secure solvency of the bank and to drain


out the excessive money from the banks.

The present CRR rate is 4 %.


It is the amount, a commercial bank needs to maintain in the
form of cash, or gold or govt. approved securities (Bonds)
before providing credit to its customers.

SLR rate is determined and maintained by the RBI (Reserve


Bank of India) in order to control the expansion of bank credit.

The present SLR rate is 20%.


REPO RATE

Whenever the banks have any shortage of funds they can


borrow it from the central bank. Repo rate is the rate at which
our banks borrow currency from the central bank(RBI).

A reduction in the repo rate will help banks to get Money at a


cheaper rate.

When the repo rate increases borrowing from the central


bank becomes more expensive.

In order to increase the liquidity in the market, the central


bank does it.

The present repo rate is 6%


REVERSE REPO RATE

Its the rate at which the banks park surplus funds with reserve
bank.

While the Repo rate is the rate at which the banks borrow from
the central bank.

It is mostly done , by the central bank, when there is surplus


liquidity in the market.

The present reverse repo rate is 5.75%


Policy Rates, Reserve Ratios, Lending and Deposit Rates as of 2
August 2017
Bank Rate 6.25%
Repo Rate 6.0%
Reverse Repo Rate 5.75%
Cash Reserve Ratio (CRR) 4%
Statutory Liquidity Ratio (SLR) 20%
Base Rate 9.25%9.65%
Savings Deposit Rate 4%
Term Deposit Ratefor > 1 year 6.50%7.00%
Non-Monetary Functions
Supervisory Function
RBI Act 1934 & than Banking Regulations Act 1949
have given wide range of powers to RBI to control
commercial banks.
As per Section 22 of Banking Regulations Act 1949,
every bank has to obtain a license from RBI for
carrying on banking business.
Sanction of new branch or a new place of business.
Promotional Functions
It promotes banking habits
Extend banking facilities to rural and semi urban areas
Establish and promote new specialized financing
agencies
3. Legislation:
The central bank may also adopt necessary legislation for
expanding or contracting credit money in the market.

4. Publicity:
The central bank may resort to massive advertising campaign
in the news papers, magazines and journals depicting the
poor economic conditions of the country suggesting
commercial banks and other financial institutions to control
credit either by expansion or by contraction.
MONETARY POLICY
RBI controls the supply of money
in the economy by its control
over interest rates in order to
maintain price stability and
achieve high economic growth
using Monetary Policy.
Main Aim of Monetary Policy is
to (SBI PF)
1. Stabilise exchange rate

2. Maintain Healthy Balance of


Payment
3. Attain Financial stability

4. Control inflation
CONTD....
5. Strengthen Banking System
MONETARY AUTHORITY (CONTD...)
Quantitative Measures of Credit Control
under Monetary Policy :
Bank Rate : Rate at which RBI discounts
bills of commercial banks.
Cash Reserve Ratio (CRR) : Portion of
Deposit which commercial banks have to
keep with RBI in the form of Cash
Reserves.
Statutory Liquidity Rate (SLR): Portion of
Total Deposit which commercial banks have
to maint in the form of Liquid Assets viz
Gold, Cash or Approved Government
securities.
Repo Rate : Rate at which Commercial
Banks borrow money from RBI.
Reverse Repo Rate : Rate at which RBI
borrows money from Commercial Banks.
LENDER OF LAST RESORT
The banks can borrow
from the RBI by keeping
eligible securities as
collateral or any other
arrangement and at the
time of need or crisis,
they approach RBI for
financial help. Thus RBI
works as Lender of the
Last Resort (LORL) for
banks.
BANKER & DEBT MANAGER OF GOVERNMENT
Keeps deposits of Governments (Centre & state) as deposit free
of interest.
Receives & Makes Payment on behalf of Government.
Carrying out the Governments exchange remittances & other
Banking Operations.
Helping Both State & Central Government to float new loans
and manage public debt.
Acts as an Advisor to Government on all monetary & Banking
functions
ACTS AS CLEARING HOUSE
Clearing Houses facilitate the exchange of instruments and
processing of payment instructions at a central point among
the participating banks.
RBI acts as a Clearing House for settlement of Banking
transactions.
It is a member bank of the Asian Clearing Union.
RBI manages 14 clearing houses of the country situated in
different major cities. The SBI & Associate Banks look after
clearing house function as an agent of RBI.
SUMMARY
The Reserve Bank of India (RBI) is India's Central
bank & apex bank in Indian banking system.
Commenced business on 1st April 1935 in accordance
with the provisions of the Reserve Bank of India Act,
1934.
It Plays an important role in strengthening,
developing and diversifying the countrys economic &
financial structure.
SUMMARY (CONTD...)
ROLE OF RBI IN INDIAN BANKING SYSTEM :
1. MONETARY AUTHORITY.
2. ISSUER OF CURRENCY.
3. ISSUER OF BANKING LICENSE.
4. BANKERS BANK.
5. LENDER OF LAST RESORT.
6. BANKER & DEBT MANAGER OF GOVERNMENT.
7. CONTROLLER OF CREDIT.
8. ACTS AS CLEARING HOUSE.
9. MANAGER OF FOREX