RBI

2 ND L E C

RBI
1 april,1935 as share holders bank

Nationalised on jan 1,1949

Guiding ,monitoring, regulating, controlling and

promoting Indian financial system Bking regulation act 1949 gave powers to RBI to supervise and control the affairs of companies in the interest of the public Ctl top mgmt of bks

 Approval is necessary for any reappointment, -

termination, appointment of any officer The governor and deputy governor of reserve bk is appointed by central govt Managed by central board of directors i.e 4 local board directors Committee of central board of directors

Role and functions of RBI

Issuer of currency notes

Sole authority to issue currency notes

Bk issue notes against security of gold coins and gold

bullion, foreign securities, coins, BOE, promisory notes eligible for purchase by bk Min reserve of 200 crores has to be maintained Out of which 115 crores should be in the form of gold coins and bullions and rest in securities

 They issue notes in denomination of Rs2, 5, 10, 20,

50, 100, 500 and 1000 Issue dept has office in 10 leading cities

Bker to the govt

Act as bker to state and central govt

All govt business will be transacted by thru RBI.

Also includes mgmt of public debt of ctrl govt They have entrust the bk all its money,

remmittances, exchange and banking transactions in India and deposit all its cash balances with the reserve bank

 Same thg is applied to state govt RBI accepts money on account of the govt, makes

payment on their behalf and carries out other baking transaction such as exchange and remittances. Rbi provides advances to ctrl and state which has to be repaid within 3 months It receives deposits on account of govt free interest They also provide overdraft facility it is one type of advances

 bankers bank
i.e. commercial, cooperative and RRB

All bks having paid up capital and reserve of Rs 5

lakhs or more included in the second schedule of RBI They are called schedule banks These banks are required to submit weekly statements of their transactions to reserve bank

 They have to maintain some amt of cash reserve

with them against their demand and time liabilities

Provides finance assistance to schedule bks,

coperative bks in the forms of discounting of bills, loan and advances against approved properties Ctrls the volumes of reserve of commercial bks

Exchange control authority

Stabilise external value of rupees

By implementing domestic policies and regulation of

the foreign exchange mkt Rbi buys and sells currencies of all the members of IMF CONTROL IS DONE THRU AUTHORISED EXCHANGE DEALERS

Credit control
Statutory liquidity ratio

CRR
Repo Reverse repo

Supervisory authority
Control banks

Power to issue licenses for new banks and

branches, prescribe minimum requirements regarding paid up capital and reserves, maintainence of cash and other reserves, inspect working of banks in India and abroad Powers to investigate- frauds/complaints Control appointment,terminations of pvt sector bks

Agricultural finance
Agricultural cr department of RBI is an example of

central banks of developed countries Promotion of appropriate specialised agencies of agricultural finance NABARD takes care of major portion of agri finance 12,july 1982

Monetary policy of RBI

MEANING Regulatory policy Goals- eco growth, stable prices and higher employment Responsibility to manage monetary magnitudes, cr flows, interest rates Responsibility with RBI Inflation Combination of monetary and fiscal policy

 Monetary policy acts thru cost, availability of cr and

money OBJECTIVES ECO DVLPT in an envt of price stability and develop institutional set up to aid this process This can be done by influencing the cost, direction of cr, encouraging sectoral and overall dvlp

 Control expansion of credit Increase in invst and productivity Promotion of xports Food procurement operations promote Efficiency in operation of financial system

In short, diversification, promoting more

competitive envt, greater discipline It should have national, eco,and social obj

Money ss and bank credit

Money ss changes because of some reasons

Rbi as indicatior in borrowings

Reduce bk borrowings Especially during inflation When money ss is more?

Techniques of monetary control

Open mkt sales and purchase of govt securities

Bank rate: financial assistance i.e. bills of exchange

discounting, promisory notes, loans and advances Direct regulation of interest rates- fixes all deposit rates , lending rates CRR SLR

 Cr rationing- cr distribution to various sectors Selective cr controls- inflation or deflation control

on cr in the formation of fixation of margin, min lending rates on cr, ceiling on flows of cr
Cr authorisation scheme- financial discipline, use

of cr for the rgt purpose Fixation of cr norms- guidelines and instructions

 Cr planning-innovative, unconventional and unique

technique of cr management, budgets made, fiscal and monetary plans Morality- writes letters and discussions with the bank about the trends in the economy

Importance of monetary policy

Economic growth

Correcting ills like inflation and deflation

Changes with the growth of economy Stability

Financial planing
Control on cr expansion Encouragement in invst and savings

Improve conditions of unorganised money and

capital mkt in the country

limitations
Basically ltd to banking activity

Deals only with monetray factors money

Failed to control inflation internal price instability

Cannot control in spending of people

Recent policy changes

Prime lending rate and base lending rate

Removals of ceilings
Housing finance liberalism Competition

Participation certificates
Interest on deposits Investment in shares and debentures

Narasimhan committee- 38.5 to slr 25%

Crr 15 to 5%