Unit II

PART II: The Economic Markets

The Product Market & How it Affects India's Growth Potential
The Money Market & How it Behaves
The Capital Market & its Variabilitv
The Money Market & the Role of Central Banking
How does Commercial Banking Effect Industry & Business
The Indian Labor Market & Levels of Unemployment & Inflation
since 1990

PART II: The Economic Markets

The Product Market & How it Affects India's Growth Potential
The Money Market & How it Behaves
The Capital Market & its Variabilitv
The Money Market & the Role of Central Banking
How does Commercial Banking Effect Industry & Business
The Indian Labor Market & Levels of Unemployment & Inflation
since 1990

Reserve bank
of India

Introduction to RBI

The Indian banking can be broadly

categorized into nationalized, private
banks and specialized banking
institutions.
The RBI act was passed in 1934, It ws
a shareholders bank with a capital of
Rs. 5 crores divided into shares of Rs.
100 each.
In 1948, RBI was nationalized and
and all its shares were purchased by

Introduction to RBI

It has 20 directors.
1 governor, 4 deputy governors, 4
directors for local boards, 10
directors from industry, and 1
government of India official.

Objectives of RBI

To maintain monetary stability

To maintain financial stability

To maintain stable payment system

To ensure credit allocation

To regulate the overall volume of

money and credit in the economy to
ensure price stability

RBIs Main Functions

Notes issuance

Governments banker

Bankers Bank

Banks supervision

Development of the financial system

Foreign Exchange control

Monetary control

RBIs Main Functions

Notes issuance: RBI has sole

monopoly of the issue of bank notes
in India.For this bank maintains a
separate department known as Issue
department.
Notes are issued on the basis of
maximum currency reserve system.
A minimum reserve in foreign
securities and a minimum reserve of
gold.

RBIs Main Functions

Notes issuance: The issue of notes is

undertaken by 2 departments
Issue department is responsible for issue
of new notes. The currency of our country
consists of coins and one rupee notes
issued by GOI.
Bank notes (2,5,10,20,50,100,500,1000
notes )are issued by the RBI.
One rupee note and coins issued by GOI
are put into circulation through RBI

RBIs Main Functions

Currency Chest: For proper distribution

of currency notes and coins
arrangements are done by currency
chest. To facilitate expansion and
contraction of currency, currency chest
are made.
Currency chest are boxes or containers in
which stocks of reusable or new currency
is put in.
Advantages of currency chest are-

RBIs Main Functions

Currency Chest:

ii. If there is surplus , due to less payments

the surplus funds may be deposited into
the chest.
iii. Currency chest facilitates exchange of
rupee coins for notes and supply of notes
of lower denominations for those of higher
denominations . Issue of new notes for old
and soiled notes.
, the Reserve Bank of India is required to

RBIs Main Functions

Governments banker: The RBI also

acts as banker to central and state
government. As a banker , it is
obliged to keep money on account
for the central and state government
to make outstanding payments .
Bankers bank :RBI is regulator of all
banking functions. All the scheduled
banks are required to keep with the
RBI a percentage of total deposit and

RBIs Main Functions

1.

2.

3.

Development of the financial system:

RBIs developmental role is as followsIndustrial finance: IDBI in 1964, SIDBI in
1989.
Agricultural credit- National bank for
agriculture and rural development
(NABARD) in 1981.
Export Import finance: EXIM bank in
1981

RBIs Main Functions

Foreign Exchange control: RBI is

entrusted with the responsibility of
maintaining the extra stability of the
rupee.$ 311,516 millions as on May
2011 .
Monetary control: Monetary policy.