RESERVE BANK OF INDIA

CENTRAL BANKING AND ITS FUNCTIONS

Origin of RBI

In 1921, 3 Presidency Banks were amalgamated to form the Imperial Bank of India

Existence in 1st April,1935 under RBI Act 1934.

Setting up of such institution was based on recommendation of Hilton Young Commission in the year 1926.

CONSTITUTION OF RBI

CAPITAL – Rs.5 crore 5lakh fully paid up shares of Rs.100

each Rs. 2.2 lakhs subscribed by the

Central Government Nationalisation of RBI in 1st

January,1949, entire share capital was acquired by Central Government

MANAGEMENT CENTRAL BOARD OF DIRECTORS

COMPRISING OF 20 MEMBERS: 1 GOVERNOR & 4 DEPUTY GOVERNORS

APPOINTED BY CENTRAL GOVERNMENT 4 DIRECTORS NOMINATED BY CENTRAL

GOVERNMENT ONE FROM EACH LOCAL BOARD

10 DIRECTORS NOMINATED BY CENTRAL GOVERNMENT

1 GOVERNMENT OFFICIAL NOMINATED BY CENTRAL GOVERNMENT

LOCAL BOARD

FOR EACH REGIOANAL AREAS OF THE COUNTRY THERE IS LOCAL BOARD:

WESTERN – MUMBAI (Head Quarters) EASTERN – KOLKOTA NORTHERN- NEW DELHI SOUTHERN- CHENNAI

Functions: 1)Advising the Central Board 2) Performing other duties delegated by

Central Board

FUNCTIONS OF THE RBI

1) MONOPOLY OF NOTE ISSUE- THRU I) ISSUE DEPARTMENTII) BANKING DEPARTMENT

MAINTAINS 18 ISSUE OFFICES; AND NETWORK OF 4301 CURRENCY CHEST AND 4027 SMALL COIN DEPOSITS

BASIS – I) PROPORTIONAL RESERVE SYSTEM – 40% to consist of coins, bullions, securities BULLIONS - MINIMUM RESERVE SYSTEM- SINCE 1957- Rs.515cr.of assets- of which- Rs.400cr. In foreign securities and Rs.115cr. in gold coins & bullions

FUNCTIONS CONTD. …

2) BANKER TO GOVERNMENT ISSUE OF NEW LOANS & TREASURY BILLS WAYS & MEANS OF ADVANCES

3)ADVISER TO GOVERNMENT

4)CONTROLLER OF CREDIT

5)Custodian of Foreign Exchange Reserve

6) BANKER’S BANK & LENDER OF LAST RESORT

7) BANK OF SETTLEMENT & CLEARANCE

8) INFORMATION AND RESEARCH FUNCTIONS

INSTRUMENTS OF CREDIT CONTROL

GENERAL OR QUANTITATIVE BANK RATE OR THE DISCOUNT RATE POLICY OPEN MARKET VARIATIONS VARIABLE RESERVE RATIO (CRR, SLR, NLR)

SELECTIVE CREDIT CONTROL MINIMUM MARGIN FOR LENDING AGAINST SPECIFIC

SECURITIES CEILING ON THE AMOUNT OF CREDIT FOR CERTAIN

PURPOSE (Credit Authorization Scheme) DISCRIMINATORY RATES OF INTEREST ON CERTAIN

TYPES OF ADVANCES MORAL SUASION

CRR- CASH RESERVE RATIO-5.5%

The Scheduled commercial banks are required to maintain a minimum cash balance with the Reserve Bank at the close of business on any day.

SLR- STATUTORY LIQUIDITY RATIO-24%

Commercial banks have to maintain liquid assets in cash, gold and unencumbered Government securities amounting to not less than 20% of the total demand and time liabilities.

NET LIQUIDITY RATIO

Total of Bank’s Cash and Balances with RBI Cash and Balances with other notified Banks Balances in current account with other Banks and investments

in government and other approved securitiesLess: Borrowing from RBI Borrowing from SBI Borrowing from Industrial Development Bank

CURRENT RATE : 39%

MONETARY POLICY AND RECESSION

BANK RATE

MARKET RATE

CREDIT OFFTAKE

MONEY SUPPLY

EXCESS DEMAND

PRICES

RECESSION

(6%- BANK RATE; 7.5%- REPO RATE)

FINANCIAL INCLUSION

Financial inclusion is delivery of banking services at affordable cost to the vast sections of disadvantaged and low income groups

Measures:1. Make ‘no-frills Account’2. Adopt one district in each state for 100% financial

inclusion3. Credit Card facility involving credit upto Rs.25000

without security4. Printed materials made available to retail

customers in the concerned regional language5. ‘Know Your Customers’ (KYC) procedure

simplified for low income group people