Presented by…..D.Pradeep KumarExe-MBA,IIPM

Preamble

The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as:

"...to regulate the issue of Bank Notes and 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."

Brief History

It was set up on the recommendations of the HILTON YOUNG COMMISSION.

It was started as Share-Holders Bank with a paid up capital of 5 crs.

It was established on 1st of April 1935 Initially it was located in Kolkata. It moved to Mumbai in the year 1937. Initially it was privately owned. It was the 1st bank to be Nationalised in 1949. It has 22 regional offices, most of them in state capitals.

The Key roles of the RBI are…..

Regulator and supervisor of the financial system

Manager of exchange control

Issuer of currency

Banker to the Government

Bank to banks: maintains banking accounts of all scheduled banks

Monetary Authority:

Formulates, implements and monitors the monetary policy. Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.

Regulator and supervisor of the financial system:

Prescribes broad parameters of banking operations within which the country's banking and financial system functions. Objective: maintain public confidence in the system, protect depositors interest and provide cost-effective banking services to the public.

Manager of Foreign Exchange

Manages the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Issuer of Currency

Issues and exchanges or destroys currency and coins not fit for circulation. Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.

Developmental Role

Performs a wide range of promotional functions to support national objectives.

Related Functions

Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. Banker to banks: maintains banking accounts of all scheduled banks.

Instruments of Credit Control :

Quantitative or General Methods

Qualitative or Selective Methods

Quantitative

Bank Rate Open Market Operation

(OMO) Change in Cash

Reserve Ratio (CRR) Statutory Liquidity Ratio

(SLR) Repo and Reverse

Repo Ratio

Qualitative

Selective Credit Control Rationing of Credit Moral Persuasion Direct Action

Objective and Reasons for Establishment of RBI

The main objectives for establishment of rbi as the central bank of India were as follows :

To manage the Monetary and credit system of the country

To stabilize internal and external value of rupee

For balanced and systematic development of banking in the country.

For the development of organized money market in the country

For proper arrangement of agriculture finance

For proper arrangement of industrial finance

For proper management of public debt

To establish monetary relations with other countries of the world and international financial institutions.

For centralization of cash reserves of commercial banks.To maintain balance between demand and supply of currency

Subsidiaries…!

Fully owned

National Housing bank (NHB) Deposit Insurance and Credit Guarantee Corporation of India (DICGC) Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL).

Major stakes National Bank For Agriculture and Rural Development (NABARD) The reserve Bank of India has recently divested stake in State Bank of India

to the government of India .

Related Functions

RBI also regulates the opening / installation of ATM.

RBI regulates the opening of branches by banks.

It ensures that all the N.B.F.S follow the KNOW YOUR CUSTOMER

GUIDELINES.

Fresh currency notes for ATM are supplied by RBI.

Banker to the Government: Performs all banking function for the central and

state governments and also act as their banker.

The reserve bank of India also regulates the trade of gold. Currently 17 banks

are involved in the trade of gold in India. RBI has invited applications from

more banks for direct import of gold to curb illegal trade in gold and increase

competition in the market.

It issues guidelines and directions for the commercial banks.

Sources…

• www.rbi.org.in

• www.financialexpress.com