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International Journal of Business Administration and Management.

ISSN 2278-3660 Volume 7, Number 1 (2017),


© Research India Publications http://www.ripublication.com

Role of Reserve Bank of India in Indian Economy

Mandeep K our Bansal


Ph.D Scholar (Management)
(2014-2017)
K alinga University, Raipu r, C.G.

En r ol l me n t No. 1 5 0 8 9 4 9 0 ( 5 3PH D6 6 4 0 0 2 )

Abst ract

The Reser ve Bank o f I ndia ( RBI) was est ablished in t he year 1935 in a ccordance
wit h t he Reser ve Bank o f I ndia Act , 1934. The Reser ve Bank o f I ndia is t he
cent ral Bank o f I ndia ent rust ed wit h t he mult idimensio nal ro le. It perfor ms
import ant monet ar y funct ions fro m issue of currency not e to maint enance o f
mo net ar y st abilit y in t he count r y. I nit ially t he Reser ve Bank o f I ndia was a
pr ivat e shar e ho lder‟s co mpany which was nat ionalized in 1949. It s affairs ar e
gover ned by t he Cent ral Board o f Directors appo int ed by t he Gover nment o f
India. S ince it s incept io n t he Reser ve Bank o f I ndia had played an import ant
role in t he eco no mic development and monet ar y st abilit y in t he count r y. T his
paper is an at t empt explor e int o t he role, funct io ns, and cont r ibut io n o f RBI in
Indian Eco no my.

1. Introduction

The Reser ve Bank o f India (RBI) was est ablished in t he year 1935 in accordance
wit h t he Reser ve Bank o f I ndia Act , 1934. The Reser ve Bank o f I ndia is t he
cent ral Bank o f I ndia ent rust ed wit h t he mult idimensio nal ro le. It perfor ms
import ant monet ar y funct ions fro m issue of currency not e to maint enance o f
mo net ar y st abilit y in t he count r y. I nit ially t he Reser ve Bank o f I ndia was a
pr ivat e shar e ho lder‟s co mpany which was nat ionalized in 1949. It s affairs ar e

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International Journal of Business Administration and Management. ISSN 2278-3660 Volume 7, Number 1 (2017),
© Research India Publications http://www.ripublication.com

gover ned by t he Cent ral Board o f Directors appo int ed by t he Gover nment o f
India. S ince it s incept io n t he Reser ve Bank o f I ndia had played an import ant
role in t he econo mic development and mo net ar y st abilit y in t he count r y.

Evolution of RB I

The Ro yal Co mmissio n o n Indian Currency and Finance appo int ed on August 25,
1925 has suggest ed t he es t ablishment o f t he Cent ral Bank in I ndia, lat er t he
Indian Cent ral Bank ing Enquir y Co mmit t ee, 1931 st ressed t he est ablishment o f
t he Cent ral Bank in I ndia. T he Reser ve of Bank was est ablished on Apr il 1,
1935 under t he Reser ve Bank o f I ndia Act , 1934.The m ain object of Reser ve o f
India is, “t o regulat e t he issue o f Bank not es and t he keeping o f reser ves wit h a
view t o secur ing mo net ar y st abilit y in India and gener ally t o operat e t he
currency any credit syst e m o f t he count r y to it s advant age”

The Reserve Bank o f I ndia was est ablished as a pr ivat e shar e ho lder ‟s bank. The
Cent ral o ffice of Reser ve Bank o f I ndia was init ia lly locat ed in Calcut t a whic h
was lat er shift ed t o Bombay. T he Reserve Bank o f I ndia issued fir st of it s
currency not es in Januar y 1938 in de no minat io n o f Rs.5 and Rs.10 and lat er in
t he same year deno minat io n of Rs.100, Rs.1000 and Rs.10000 were issued

Post Indep endence T he Reser ve Bank of I ndia was nat ionalized in t he year
1949 t hrough t he Reser ve Bank (Transfer of Public Owner ship) Act , 1948 and
all shares were t ransferred t o Cent ral Go vernment . T he Reser ve bank o f India is
const it ut ed for t he management of currency and for carr ying t he business o f
banking in accordance wit h provis io ns of t he Act . It is a body corporat e having
perpet ual succe ssio n, co mmo n seal and can be sued or sue in it s name. T he
general super visio n and direct ion o f t he affairs o f t he Reser ve Bank is ent rust ed
wit h Cent ral Board of Direct ors.

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International Journal of Business Administration and Management. ISSN 2278-3660 Volume 7, Number 1 (2017),
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Composition of Cent ral Board

The Cent ral Board co nsist s o f Gover nor, deput y Gove r nor, Ten Direct or
no minat ed by t he Cent ral Gover nment and t wo Gover nment official no minat ed
by t he Cent ral Gover nment . T he deput y Gover nor and Direct or are eligible t o
att end meet ing o f t he Cent ral Board but are not ent it led t o vot e. The Gover nor
and deput y Gover nor ho ld o ffice for t er m of five year s and are ent it led for a re -
appo int ment . The Dir ect ors are appo int ed for a t er m o f four and ho ld o ffice
dur ing t he pleasure o f t he president . The meet ing of t he Cent ral Board is
convened at least six t imes in a year.

Composition of Local Board

A lo cal board is for med in each fo ur zones consist ing o f five me mber s which ar e
appo int ed by t he Cent ral Go ver nment . There is Chairperson o f t he Board who is
elect ed amo ng t he member. The me mber s of t he Board have a ho ld o f fice for a
t erm o f four year s and elig ible for reappoint ment . The Local Board advice o n
mat t ers referred t o it by t he Cent ral Board and per for ms dut ies delegat ed t o it by
t he Cent ral Board.

2 Objectives and Research Methodology

Objectives of study:

1. To explore t he evo lut io n of Reser ve Bank of I ndia (RBI).


2. To analyze t he role and funct io ns o f RBI.
3. To assess t he Mo net ar y Co nt rol Met hods of RBI. .

Research Methodology

It is always import ant t o be cr it ical o f t he infor mat ion present ed in sources,


especially since t he mat er ial might have been gat hered t o address a different

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International Journal of Business Administration and Management. ISSN 2278-3660 Volume 7, Number 1 (2017),
© Research India Publications http://www.ripublication.com

problem area. Moreover, many secondar y sources do not clear ly descr ibe issues
such as t he purpose o f a st udy, how t he dat a has been gat hered, analysed and
int erpret ed making it difficult for t he researcher t o assess t heir usefulness. I n
order to address t his problem I have t r ied t o t riangulat e t he secondar y dat a by
using numerous independent sources.

The infor mat ion about t he proble m is co llect ed fro m t he Research


Journals, Trade Magazines, An nual Report s of Banks and t he I nt ernet . For
evaluat ing „Ro le, Funct ions and Mo net ary Co nt rol Met hods of RBI ‟, we have
focused on as recent mat er ial as possible. In order to get access t o t he lat est
development s in t his ar ea we have used a number o f art icle s published i n
academic jour nals and t rade magaz ines. We have also used secondar y
infor mat io n fro m I nt ernet based discussio n forums.

3. Functions of Reserve bank of India

Funct ions of ma y be summar ized as given below:

Banker to Government

The Reser ve Bank o f I ndia accept s and makes payment on behalf o f Cent ra l
Gover nment . It carr ies out it s exchange, remit t ance, management of public debt
and ot her banking funct io n of t he Cent ral Government . The Cent ral Gover nment
ent rust s it s money, remit t ance, exchange an d banking t ransact ions in I ndia wit h
t he Reser ve Bank o f I ndia. It deals in repo or rever se repo.

Right to Issue Bank note

The Reser ve Bank of I ndia has t he so le right to issue bank not es in I ndia. The
bank not es are legal t ender guarant eed by t he Cent ral Gover nment . T he issue o f
bank not e is conduct ed by a separat e depart ment called issue depart ment . The
Cent ral Go ver nment on t he reco mmendat ion o f Cent ral Board specifies
deno minat io n o f bank not es including dis cont inuance o f bank not es. The Cent ral

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Gover nment approves design, for m and mat er ial o f Bank not es on considerat io n
of reco mmendat io ns of t he Cent ral Board.

Formulates Banking p olicy

The Reser ve is empowered t o for mulat e banking po licy in t he int erest of t he


public or deposit ors banking po licy in rela t io n t o advances and provide direct io n
on t he purpose of t he advances, margins t o be maint ained in a secured advances,
t he maximu m amo unt of advance ma y be made, t he rat e o f int er est , t erms and
condit io ns for advances or guarant ees may be given.

Licensing Auth ority

The Reser ve Bank of I ndia is empowered to grant license to co mmence banking


business in I ndia, inc luding t he power t o cancel a license grant ed t o a bank ing
co mpany.

A pet it ion was filed under Art icle 226 of t he Const it ut io n, challenging t he
const it ut ional va lidit y o f sect io n 22 o f t he Banking Co mpanies Act , 1949.
Sect ion 22 empower s, Reser ve Bank o f India to grant license t o Banks and banks
which were a lr eady in exist ence on t he commence ment of t he Act have t o appl y
for license before t he expir y o f six mont hs fro m co mmence. T he pet it io ner
cont ended t hat t he sect io n 22 o f t he Banking Regulat ing Act , 1949 is in rest raint
of t rade and business hence unconst it ut ional. T he wr it was dis missed and t he
High Court declared sect ion 22 o f t he Banking Regulat ing Act , 1949 as
const it ut ionally valid and cher ished t he role o f Reser ve Bank o f I ndia in t he
econo mic development o f t he count r y. The Madr as High Court met iculousl y
said,

“T he Reser ve Bank o f I ndia was est ablished wit h a view t o fost er ing t he banking
bu siness and not for impeding t he growth o f such business. The powers vest ed
in it under Sect io n 22 are not one invest ed wit h a mere o fficer o f t he Bank. The

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st andards for t he exercise o f t he power have been laid down in Sect io n 22 it self.
The Reser ve Bank is a non-po lit ical body concer ned wit h t he finances of t he
count r y. When a power is given t o such a body under a st at ut e which prescr ibe s
t he regulat ions o f a Banking Co mpany, it can be assumed t hat such power would
be exercised so t hat genuine: banking con cer ns could be allowed t o funct ion as a
bank, while inst it ut io ns masquerading as banks or t hose run on unsound lines or
which would affect t he int erest s o f t he public could be weeded out.”

Banker’s Bank

The banks list ed in second schedule and no n schedule banks shall ma int ain a
cash reser ve rat io wit h t he Reser ve bank of India wit h a view t o secur ing t he
mo net ar y st abilit y in t he count r y. It provides loans and advances in for eign
currency t o scheduled Banks and t o ot her financial inst it ut io n. It purchases,
sells or discount any bill o f exchange or promissor y not e or makes a lo an or
advances to schedule bank.

Depositor Awareness a nd Educa tion

The Reser ve Bank of I ndia has co nst it ut ed a fund called “Deposit or Educat ion
and Awareness Fund.” T he fund is ut ilized for t he promot io n of deposit ors‟
int erest and ot her purposes in t he int erest of t he deposit or.

Regulati on and Management of Foreign Exchange

The Reser ve Bank o f India is e mpowered to regulat e, prohibit , and rest r ict
dealing in foreign exchange. It issues lic ense t o banks and ot her inst it ut ion t o
act as t he aut hor ized agency in t he foreign exchange market

The funct io ns o f t he Reser ve Bank t oday can be cat egor ised as fo llows:

 Monet ar y and Credit po licy


 Foreign exchange management
 Currency management

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International Journal of Business Administration and Management. ISSN 2278-3660 Volume 7, Number 1 (2017),
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 Banker to banks & Lender o f t he last resort


 Banker to t he Cent ral and St at e Gover nment s
 Cent ral clear ing house o f payment and set t le ment syst ems
 Performing developmental and promotional functions.
 4. Monetary Policy of the RBI:

RBI works as t he mo net ar y aut hor it y of I nd ia and t here by operat es t he


mo net ar y po licy. Reser ve Bank o f I ndia announces Mo net ar y Po licy ever y year
in t he Mont h of Apr il. T his is fo llowed by t hree quart er ly Reviews in July,
Oct ober and Januar y. But , RBI at it s d iscret ion can announce t he me asures at
any po int o f t ime. T he Annual Monet ar y P olic y is made up o f t wo part s viz. P art
A: macroecono mic and mo net ar y development s; Part B: Act ions t aken and fr es h
polic y measures. Monet ar y po licy o f t he RBI deals wit h almo st all ot her vit a l
topics such as financial st abilit y, financial market s, int erest rat es, credit
deliver y, regulat or y nor ms, financial inc lusio n and inst it ut ional development s
et c.

Objectives of the monetary policy: Monetary policy refers to an umb rella of


operation s u sed for the cont ro l of mon ey supp ly in the economy with b road
objective to maintain economic and fin ancial stabi lity; and en su re adequ ate
financi al resou rces for the pu rpose of develop ment. These objecti ves of the
monetary policy in India have gone th rough a p rocess of grad ual evolution
and can b e fu rther expanded to maintai ning p rice stabi lity, adequat e flow of
credit to p roductive sectors, p romotion of p roductive invest ment s & trad e,
promotion of export s and economic growth. The following are the prin cipal
objectives of monetary policy:

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International Journal of Business Administration and Management. ISSN 2278-3660 Volume 7, Number 1 (2017),
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i. Fu ll Emp loyment : Full emp lo yment has been ranked amo ng t he foremo st
object ives o f mo net ar y po lic y. It is an import ant goal not only because
unemplo yment leads t o wast age of pot ent ia l out put , but also because o f
t he loss of social st anding and self-respect .
ii. Price Stabi lity: One of t he po lic y obje ct ives o f mo net ar y po licy is t o
st abilise t he pr ice level. Bot h econo mist s and laymen favour t his po lic y
because fluct uat io ns in pr ices br ing uncert aint y and inst abilit y t o t he
econo my.
iii. Economic G rowth : One o f t he mo st import ant object ives o f mo net ar y
polic y in recent year s has been t he rapid econo mic growt h of an eco no my.
Econo mic growt h is defined as “t he process whereby t he real per capit a
inco me o f a count r y incr eases over a lo ng per iod of t ime. ”
iv. Balance of Payment s: Anot her object ive of mo net ar y po lic y since t he
1950s has been t o maint ain equilibr ium in t he balance of payment s.

Inst rument s o f Monet ar y Po lic y: T he inst rument o f mo net ar y po lic y ar e t ools or


devise which are used by t he mo net ary aut hor it y in order to att ain so me
predet er mined object ives. Ther e are t wo t ypes o f inst rument s of t he mo net ar y
polic y as shown below.

(A) Quantitative Inst ru ment s or General Tools ↓

The Quant it at ive I nst rument s are also known as t he Gener al Tools o f mo net ar y
polic y. These t ools are relat ed t o t he Quant it y or Volume o f t he mo ney. The
Quant it at ive Tools of credit cont ro l are also called as General Tools for credit
co nt rol. They ar e designed t o regulat e or cont rol t he t ot al vo lume o f bank credit
in t he eco no my. T hese t ools are indir ect in nat ure and are emplo yed for
influencing t he quant it y o f cr edit in t he count r y. T he general t ool o f credit
cont rol co mpr ises of fo llo w ing inst rument s.

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International Journal of Business Administration and Management. ISSN 2278-3660 Volume 7, Number 1 (2017),
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i. Bank Rate Policy (BRP)

The Bank Rat e Po lic y (BRP) is a ver y import ant t echnique used in t he mo net ar y
polic y for influencing t he vo lume or t he quant it y o f t he cred it in a count r y. The
bank rat e refer s t o rat e at which t he cent ral bank ( i. e RBI) rediscount s bills and
prepares o f co mmercial banks or provides advance t o commercia l banks against
approved secur it ies. It is "t he st andard r at e at which t he bank is prepared t o buy
or rediscount bills o f exchange or ot her commer cial paper eligi ble for pur chase
under t he RBI Act ". The Bank Rat e affect s t he act ual ava ilabilit y and t he cost of
t he credit . Any change in t he bank rat e necessar ily br ings out a result ant change
in t he cost of cred it available t o commercial banks. I f t he RBI incr eases t he
bank rat e t han it r educe t he vo lume o f co mmercia l banks borrowing fro m t he
RBI. It det ers banks fro m furt her credit expansio n as it beco mes a more cost ly
affair. E ven wit h incr eased bank rat e t he act ual int erest rat es for a short t er m
lending go up chec king t he credit expansio n. On t he ot her hand, if t he RBI
reduces t he bank r at e, borrowing for co mmercia l banks will be easy and
cheaper. This will boost t he credit creat ion. Thus any change in t he bank rat e is
nor mally associat ed wit h t he result ing changes in t he lending rat e and in t he
market rat e of int erest . However, t he efficiency o f t he bank rat e as a t ool o f
mo net ar y po licy depends on exist ing banking net work, int erest elast icit y o f
invest ment demand, size and st rengt h o f t he mo ne y market , int ernat io n al flow o f
funds, et c.

ii. Open Market Operation (OMO)

The open mar ket operat ion r efers t o t he purchase and/or sale o f short t er m and
lo ng t er m secur it ies by t he RBI in t he open market . This is ver y effect ive and
popular inst rument of t he mo net ar y po lic y. T he OMO is used t o wipe out
short age of money in t he mo ney market , to influence t he t er m and st ruct ure of
t he int erest rat e and t o st abilize t he market for gover nment secur it ies, et c. It is
import ant to underst and t he working o f t he OMO. I f t he RBI sells s ecur it ies in
an open market , commerc ial banks and pr ivat e individuals buy it . This reduces

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International Journal of Business Administration and Management. ISSN 2278-3660 Volume 7, Number 1 (2017),
© Research India Publications http://www.ripublication.com

t he exist ing mo ney supply as mo ney get s transferred fro m co mmercia l banks t o
t he RBI. Cont rar y t o t his when t he RBI buys t he secur it ies fro m co mmer cial
banks in t he open market , co mmer cial banks sell it and get back t he mo ne y t he y
had invest ed in t hem. Obviously t he st ock of mo ne y in t he eco no my incr eases.
This way when t he RBI ent ers in t he OMO t ransact io ns, t he act ual st ock of
mo ney get s changed. Nor mally dur ing t he inflat io n per iod in order t o reduce t he
purchasing power, t he RBI sells secur it ies and dur ing t he recessio n or
depressio n phase she buys secur it ies and makes more mo ney available in t he
econo my t hrough t he banking syst em. Thus under OMO t her e is co nt inuou s
buying and selling o f secur it ies t aking place leading t o changes in t he
availabilit y o f credit in an eco no my.

However t here are cert ain limit at io ns t hat affect OMO viz; underdeveloped
secur it ies market , excess r eser ves wit h co mmerc ial banks, indebt edness o f
co mmercia l banks, et c.

iii. Variati on in the Reserve Ratios (VRR)

The Co mmer cial Banks have t o keep a cert ain proport ion o f t he ir t ot al asset s in
t he for m o f Cash Reser ves. So me part of t hese cash reser ves are t heir t ot al
asset s in t he for m o f cash. Ap art of t hese cash reser ves are also t o be kept wit h
t he RBI for t he purpose o f maint aining liquid it y and cont rolling credit in an
econo my. T hese reser ve rat ios are named as Cash Reser ve Rat io (CRR) and a
St at utory Liquid it y Rat io (SLR). T he CRR r efers t o s ome percent age o f
co mmercia l bank's net demand and t ime liabilit ies which co mmer cial banks have
to maint ain wit h t he cent ral bank and SLR refers t o some percent o f reser ves t o
be maint ained in t he for m o f go ld or foreign secur it ies. In I ndia t he CRR by law
remains in bet ween 3 -15 percent while t he SLR rema ins in bet ween 25 -4 0
percent of bank reser ves. Any change in t he VRR ( i.e. CRR + S LR) br ings out a
change in co mmer cial banks reser ves posit io ns. T hus by var ying VRR
co mmercia l banks lending capacit y can b e affect ed. Changes in t he VRR helps
in br inging changes in t he cash r eser ves of co mmercia l banks and t hus it ca n

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affect t he banks credit creat ion mult ip lier. RBI incr eases VRR dur ing t he
inflat io n t o reduce t he pur chasing power and credit creat io n. But du r ing t he
recessio n or depressio n it lo wers t he VRR making more cash reser ves available
for credit expansio n.

(B) Qualitative Inst ru ments or Selective Tools ↓

The Qualit at ive I nst rument s ar e also known as t he Select ive Tools o f mo net ar y
polic y. T hese t ools are not direct ed t owards t he qualit y o f cred it or t he use o f
t he credit . They are used for discr iminat ing bet ween different uses of credit . It
can be discr iminat io n favor ing export over import or essent ial o ver no n -
essent ial credit supply. This met hod can have influence over t he lender and
borrower of t he credit . The Select ive Tools of credit cont rol co mpr ises o f
fo llo wing inst rument s.

i. Fixing Margin Requi rement s

The margin refer s t o t he "proport io n o f t he loan amount which is not financed


by t he bank". Or in ot her words, it is t hat part of a loan which a borrower has t o
raise in order t o get finance for his pur pose. A change in a margin imp lies a
change in t he loan size. T his met hod is used t o encourage credit supply for t he
needy sect or and discourage it for ot her non-necessar y sect ors. This can be done
by increasing margin for t he non- necessar y sect ors and by reducing it for ot her
needy sect ors. Example: - I f t he RBI feels t hat more credit supply should be
allocat ed t o agricult ure sect or, t hen it will red uce t he margin and even 85 -90
percent loan can be given.

ii. Consumer Credit Regu lation

Under t his met hod, consumer credit supply is regulat ed t hrough hir e -purchase
and inst allment sale o f co nsu mer goods. Under t his met hod t he down payment ,
inst allment amo unt , loan durat ion, et c is fixed in advance. This can help in
checking t he credit use and t hen inflat io n in a count r y.

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iii. Publi city

This is yet anot her met hod of select ive credit cont rol. Through it Cent ral Bank
(RBI) publishes var ious report s st at ing wh at is good and what is bad in t he
syst em. This published infor mat ion can help co mmercia l banks t o dir ect credit
supply in t he desir ed sect ors. Through it s weekly and mo nt hly bullet ins, t he
infor mat io n is made public and banks can use it for at t aining goals o f mo net ar y
polic y.

iv. Credit Rationing

Cent ral Bank fixes credit amount to be grant ed. Credit is rat io ned by limit ing
t he amount available for each co mmer cial bank. This met hod cont rols even bil l
rediscount ing. For cert ain purpose, upper limit o f credit can be fixed and banks
are t old t o st ick t o t his limit . T his can help in lower ing banks cr edit expoursur e
to unwant ed sect ors.

v. Moral Suasion

It imp lies t o pressur e exert ed by t he RBI on t he ind ian banking syst em wit hout
any st r ict act ion for compliance of t he rules. It is a suggest ion t o banks. It helps
in r est raining credit dur ing inflat ionar y per iods. Co mmerc ial banks ar e infor med
about t he expect at io ns o f t he cent ral bank t hrough a mo net ar y po licy. Under
moral suasio n cent ral banks can issue dir ect iv es, guidelines and suggest ions for
co mmercia l banks regarding reducing cr edit supply for speculat ive purposes.

vi. Control Th rough Di rectives

Under t his met hod t he cent ral bank issue frequent direct ives to commercia l
banks. T hese dir ect ives guide co mmercia l banks in fr aming t heir lending po licy.
Through a direct ive t he cent ral bank can influence credit st ruct ures, supply o f
credit t o cert ain limit for a specific purpose. The RBI issues direct ives t o

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co mmercia l banks for not lending loans t o speculat ive sect or such as secur it ies,
et c beyo nd a cert ain limit .

vii. Direct Action

Under t his met hod t he RBI can impose an act io n against a bank. I f cert ain banks
are not adher ing t o t he RBI 's direct ives, t he RBI may refuse t o rediscount t heir
bills and secur it ies. S econdly, RBI may refuse credit supply t o t hose banks
whose borrowings are in excess t o t heir capit al. Cent ral bank can penalize a
bank by changing so me rat es. At last it can even put a ban o n a part icular bank
if it dose not fo llow it s direct ives and work against t he object ives o f t he
mo net ar y po lic y.

5. Conclusion

The Reser ve Bank o f India was est ablishe d wit h a view t o fost er ing t he banking
business and not for impeding t he growth o f such business. The powers vest ed
in it under Sect io n 22 are not one inve st ed wit h a mere o fficer o f t he Bank. The
st andards for t he exercise o f t he power have been laid down in Sect io n 22 it self.
The Reser ve Bank is a non-po lit ical body concer ned wit h t he finances of t he
count r y. When a power is given t o such a body under a st at ut e which prescr ibe s
t he regulat ions o f a Banking Co mpany, it can be assumed t hat such power would
be exercised so t hat genuine: banking concer ns could be allowed t o funct ion as a
bank, while inst it ut io ns masquerading as banks or t hose run on unsound lin es or
which would affect t he int erest s o f t he public could be weeded out.

The Reser ve Bank‟s development al ro le inc ludes ensur ing credit to product ive
sect ors of t he econo my, cr eat ing inst it ut io ns t o build financia l infrast ruct ure,
and expanding access t o affordable financial ser vices. It also plays an act ive

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© Research India Publications http://www.ripublication.com

role in encouraging effic ient cust omer service t hroughout t he banking indust r y,
as well as ext ensio n o f banking ser vice to all, t hrough t he t hrust on financia l
inc lusio n.

RBI works as t he mo net ar y aut hor it y of I nd ia and t here by operat es t he


mo net ar y po licy. Reser ve Bank o f I ndia announces Mo net ar y Po licy ever y year
in t he Mont h of Apr il. T his is fo llowed by t hree quart er ly Reviews in July,
Oct ober and Januar y. But , RBI at it s d iscret ion can announce t h e measures at
any po int o f t ime. T he Annual Monet ar y P olic y is made up o f t wo part s viz. P art
A: macroecono mic and mo net ar y development s; Part B: Act ions t aken and fr es h
polic y measures. Monet ar y po licy o f t he RBI deals wit h almo st all ot her vit a l
topics such as financial st abilit y, financial market s, int erest rat es, credit
deliver y, regulat or y nor ms, financial inc lusio n and inst it ut ional development s
et c.

These are var ious select ive inst rument s of t he mo net ar y po lic y. However t he
success o f t hese t ools is limit ed by t he availabilit y o f alt er nat ive sources o f
credit in econo my, working o f t he Non - Banking Financial I nst it ut ions (NBFI s),
profit mot ive o f co mmerc ial banks and undemocrat ic nat ure o ff t hese t ools. But
a r ight mix o f bot h t he general and select ive t ools o f mo net ar y po lic y can give
t he desir ed result s.

6. References

1. Arun,T.G,Turner,J. D (2002) “Financial Sect or Refor ms in


Develo ping Count ries: T he I ndian E xper ience”; Wor ld Econo my;
(March 2002, Vo l. 25 Issue 3), (Pg 429 -435)

2. Baner jee Abhijit & Duflo Est her (2004) “what do banks ( not ) do?”;
Massachuset t s Inst it ut e of t echno logy; (Sept ember 11, 2004)
(www. fedral.co. in)

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International Journal of Business Administration and Management. ISSN 2278-3660 Volume 7, Number 1 (2017),
© Research India Publications http://www.ripublication.com

3. Bhat t O.P. (2007) “Banking I n I ndia”; Yojana; ( August , 2007) (Pg.


No. 83-87)

4. Bar man R. B. and Samant a G. P “Banking Ser vices Pr ice I nde x: An


Explorat or y Analys is for I ndia” (www. financialindia.co m)

5. Das, Abhima , Ghosh, S aibal (2006) “F inancial Deregulat io n and


E ffic iency: An E mpir ical Analys is o f I ndian Banks dur ing t he Post
Refor m Per iod” Review o f Financia l Economics; ( Sep2006, Vo l. 15
Issue 3), (Pg193-221)

6. Hyde Dr. Anukool Manish (2007) “A st udy o f Lear ned Opt imis m in
Nat ionalized Banks and Pr ivat e Banks” BVIMR Management Edge
(Vol 3 No. 2, Jan- June 2007) (Pg:26-32)

7. Ramasast r i A.S. and Achamma S amuel (2006) “Banking sect or


development in I ndia, 1980 -2005- what t he annual account speaks?”
(Reser ve Bank o f I ndia Occasio nal Papers) (Vo l 27, No.1 and
2,Summer and Monsoon 2006 ) (Pg No. -177-205)

8. Sayur i S hirai (2001) “Assessment o f India‟s Banking Sect or


Refor ms fro m t he Perspect ive of t he gover nance of t he banking
S yst em” Paper present ed at ESCAP - ADB Jo int workshop on
“Mobiliz ing Do mest ic Finance for Development : Reassessment of
bank finance and Debt Market s in Asia and Pacific” Bangkok 22 -23
November 2001

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