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Reserve Bank of India

Sivakumar

Objective of RBI
To regulate the issue of bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.

Functions
The regulation of currency in accordance with the requirements of business and the general public for which purpose it is granted either the sole right of note issue or at least a partial monopoly thereof. The performance of general banking and agency services for the state The custody of the cash reserves of the commercial banks The custody and management of nations reserves of international currency

The granting of accommodation in the form of discounts or collateral advances to the commercial banks, bill brokers and dealers or other financial institutions and general acceptance of the responsibility of the lender of the last resort The settlement of clearance balances between the banks The control of credit in accordance with the needs of business and with a view to carrying out the broad monetary policy accepted by the state . It should not to any great extent perform such banking transactions as accepting deposits from the general public and accommodating regular commercial customers with discounts or advances.

Functions
1. Supervisory and regulatory 2, Promotional and developmental 3. Refinance operations

Supervisory and regulatory


Monopoly of note issue Control of credit through monetary policy Exchange control Statutory regulation Bank of central clearance, settlement and transfer

Promotional and developmental


Banker to government Banker to bankers Agricultural Finance Industrial finance Export finance Strengthening cooperative structure Collection of data and publication Promotional and developmental institutions Training institutions

Refinance operations
Lender of last resort Refinance operations

Supervisory and regulatory


Monopoly of issuing notes: SEC 22 of RBI act RBI has the sole authority for issuing currency notes other an one rupee coins and notes and smaller coins Two distinct depts Issue dept and banking dept The notes issued are liability of the issue dept and assets are gold coin, bullions, foreign securities, rupee coin, GOI securities and such Bills of exchange and promissory notes. There is no limit to the volume of currency that can be issued provided value of bullion and foreign securities held by the issue dept is not less than Rs. 200 crores.

Supervisory and regulatory


Control of credit through monetary policy Objective of monetary policy: To facilitate the flow of adequate volume of bank credit to industry, agriculture and trade to meet their genuine needs. To provide selective encouragement to sectors which need special assistance such as weaker sections of the society. To keep inflationary pressures under check

Instruments
General or quantitative Selective or qualitative General : Bank rate and reserve requirements Open market operations: to regulate money supply in the economy Moral suasion: Direct action: Denial or RBI to extend facilities to banks which do not follow sound banking practices Selective on qualitative: Selective credit control: To restrict the purposes, the margin, maximum amount and rate of interest

Exchange control
Introduced on 1939 on the outbreak of second world war under Defence of India rules In 1947 FERA was introduced In 2000 FEMA was enacted. Object was to conserve the fex resources and proper utilisation thereof. Further to facilitate external trade and payments and for promoting the orderly development and maintenance of fex markets in India.

Statutory regulation
Power of the bank to impose fines Submission of returns like Basic Statistical return, FEX returns, Money laundering returns etc.

Bank of central clearance, settlement and transfer


Acts as a clearing house of member banks Since banks keep cash reserve and deposits with central bank, settlements between them can be more easily effected in the books of central bank.

Promotional and developmental role


Banker to government Public debt Borrowing programmes of govt Treasury bills short term borrowings Advisor to govt Banker to banks Agricultural finance: - NABARD National bank for Agriculture and rural development to provide refinance to all agri lending extended through commercial banks , RRBs and coop banks

Industrial finance: Institutional framework IFCI, SFCs, IDBI, UTI, DICGC etc. Export Finance Exim Bank to provide financial assistance to importers and exporters , acts as a principal institution for coordinating the working of other institutions engaged in the field of international trade.

strengthening of coop structure


The bank has taken a number of steps to strengthen the coop structure with the cooperation of state governments like introduction of CAR, IRAC norms etc.

Collection of data and publication


The Bank has been empowered to collect on periodical basis various information from the banks and financial institutions as per various provisions of the RBI act. All these information and data are compiled and made available through the following: Reserve Bank of India Bulletin Credit information review Annual report of RBI Report on currency and finance Report on trends in Banking

Promotion and development of institutions


Played a vital role in formation of Industrial Development Bank of India NABARD DICGC State Financial Corporation EXIM bank Discount and Finance House of India Securities Trading corporation of India National Institute of Bank Management Institute of Banking Personnel and Selection Banking Service Recruitment Board Infrastructure Development Finance company Bankers Training College, Mumbai College of Agricultural Banking, Pune

Refinance Operations
Lender of the last resort: The facility is provided in the form of rediscount of eligible bills and loans and advances against eligible securities. RBI takes into account the general profile of the bank applying for this facility Also RBI has a right to suitably relax the conditions and is also empowered to grant advances to the banks in time of emergency, despite the limitations/ conditions, if any. This particular liberal approach has enabled the RBI to carry out its role as the bankers bank and lender of the last resort more efficiently.

Refinance operations: Providing refinance facilities with a view to improve liquidity as well as to improve the lending to specified channels of national priority. Eg. Export refinance is granted against the export credit finance . General refinance facility is available to bankers to tide over temporary liquidity shortages.

questions
Discuss briefly the supervisory role of RBI Recount the role of RBI as a promotional and developmental agency Write a brief note on RBI as lender of last resort as also its refinance functions

Bank rate 6% Repo rate 5.5% Reverse repo 4% (as on 17.7.10)

Objective type
1, RBI is known as lender of last ---------2. Two departments of RBI are ----------and ---------------3. Two instruments of credit control are ---and -------4. The three major functions of RBI are --------, --------- and ----------5. Full money changers can -------------

Thanks

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