RBI AND FUNCTIONS

AGRICULTURAL FINANCE AND PROJECT MANAGEMENT

Ravi S.C.PALB 3101

Flow of presentation

Introduction.History.Organization.Regional offices and Subsidiaries.Functions.Regulation of banking system.Role of RBI in inflation control.Publications of RBI.Second Quarter Review of Monetary Policy Statement 2013-14

INTRODUCTION TO RBI

Established in April 1935 under the RESERVE BANK OF INDIAN ACT 1934.Head Quarters – MUMBAI

The Reserve Bank of India is the central banking institution of India and controls the monetary policy of the rupee as well as currency reserves.Present Governor – P Raghuram rajan.

History Of RBI

It was set up on the recommendations of Hilton Young CommissionIt was started as share-holders bank with a paid up capital of 5 croresInitially it was located in KolkataIt moved to Mumbai in 1937Initially it was privately ownedSince 1949, the RBI is fully owned by the Government of India.Its First governor was Sir Osborne A.SmithThe First Indian Governor was “Sir Chintaman D.Deshmukh

YEAR IMPORTANCE

1926 The Royal Commission on Indian Currency and Finance recommended creation of a central bank for India.

1934 The Bill was passed and received the Governor General’s assent

1935 The Reserve Bank commenced operations as India’s central bank on April 1 as a private shareholders’ bank with a paid up capital of rupees five crore

1942 The Reserve Bank ceased to be the currency issuing authority of Burma (now Myanmar).

1947 The Reserve Bank stopped acting as banker to the Government of Burma

1948 The Reserve Bank stopped rendering central banking services to Pakistan

1949 The Government of India nationalised the Reserve Bank under the Reserve Bank (Transfer of Public Ownership) Act, 1948

REGIONAL OFFICE AND SUBSIDARIES

• Has 27 regional offices.• Has five training establishments• College of Agricultural Banking and Reserve Bank of India

Staff College – Pune.• National Institute for Bank Management- Pune.• Indira Gandhi Institute for Development and Research -

Mumbai.• Institute for Development and Research in Banking

Technology (IDRBT)- Hyderabad.

SUBSIDIARIES• Deposit Insurance and Credit Guarantee Corporation of

India(DICGC).• Bharatiya Reserve Bank Note Mudran Private Limited

(BRBNMPL).

Regional offices of RBI

FUNCTIONS OF RBI

• Financial supervision.• Monetary management.• Issue of currency.• Banker to government.• Banker to bank.• Formulate monetary policy.• Financial regulation and management.• Manager of foreign exchange.• Development role.

• The Reserve Bank of India performs this function under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India.

• Objective

• Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies.

Financial Supervision

Constitution

• The Board is constituted by co-opting four Directors from the Central Board as members for a term of two years and is chaired by the Governor. The Deputy Governors of the Reserve Bank are ex-officio members. One Deputy Governor, usually, the Deputy Governor in charge of banking regulation and supervision, is nominated as the Vice-Chairman of the Board.

BFS meetings

• The Board is required to meet normally once every month. It considers inspection reports and other supervisory issues placed before it by the supervisory departments.

Monetary authority

Main monetary authority of the country.It formulates, implements and monitors the monetary policy as well as it has to ensure an adequate flow of credit to productive sectors.The RBI controls the monetary supply, monitors economic indicators like the gross domestic product and has to decide the design of the rupee banknotes as well as coins.

Issuer of currency Design, printing and

distribution.

The bank issues and exchanges or destroys currency and coins not fit for circulation.

The objectives are giving the

public adequate supply of currency of good quality and to provide loans to commercial banks to maintain or improve the GDP.

Minimum Reserve System Principle of Currency Note Issue.

RBI can issue currency notes as much as the country requires, provided it has to make a security deposit of Rs. 200 crores, out of which Rs. 115 crores must be in gold and Rs. 85 crores must be FOREX Reserves.

This principle of currency notes issue is known as the 'Minimum Reserve System'.

BANKER TO THE GOVERNMENT

Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.

BANKER TO THE BANK

FINANCIAL REGULATION AND MANAGEMENT

As the regulator and the supervisor of the banking system, the Reserve Bank has a critical role to play in ensuring the system’s safety and soundness on an ongoing basis.

The objective of this function is to protect the interest of depositors through an effective prudential regulatory framework for orderly development and conduct of banking operations, and to maintain overall financial stability through various policy measures.

Manager of Foreign Exchange

To facilitate external trade and payment.

It acts as a custodian and Manages the Foreign Exchange Management Act,(FEMA) 1999.

RBI buys and sells foreign currency to maintain the exchange rate of Indian Rupee v/s foreign currencies like the US Dollar, Euro, Pound and Japanese yen.

OBJECTIVE: TO FACILITATE EXTERNAL TRADE AND PAYMENT AND PROMOTE ORDERLY DEVELOPMENT AND MAINTENANCE OF FOREIGN EXCHANGE MARKET IN INDIA.

The central bank has to perform a wide range of promotional functions to support national objectives and industries.

DEVELOPMENTAL ROLE

SACP. KCC. NATURAL CALAMITIES. LEAD BANK SCHEME. EXPORT CREDIT.

Special Agricultural Credit Plan

• View to augmenting the flow of credit to agriculture.

• Under the SACP, banks are required to fix self-set targets showing an increase of about 30 per cent over previous year’s disbursements on yearly basis (April – March).

• The public sector banks- 1994. • Private Sector banks -2005-06.

Kisan Credit Cards• 1998-99.

• To enable the farmers to purchase agricultural inputs and draw cash for their production needs.

• On revision of the KCC Scheme by NABARD in 2004, the scheme now covers term credit as well as working capital for agriculture and allied activities and a reasonable component for consumption needs.

• Under the scheme, the limits are fixed on the basis of operational land holding, cropping pattern.

Natural Calamities

• Relief Measures In order to provide relief to bank borrowers in times of natural calamities, the Reserve Bank has issued standing guidelines to banks.

• Rescheduling / conversion of short-term loans into term loans;

• Fresh loans;• Relaxed security and • Non-compounding of interest in respect of loans

converted / rescheduled; and moratorium of at least one year.

Lead Bank Scheme

• Lead Bank Scheme - 1969. • Here designated banks were made key instruments for

local development and were entrusted with the responsibility of identifying growth centres, assessing deposit potential and credit gaps and evolving a coordinated approach for credit deployment in each district, in concert with other banks and other agencies.

• The Reserve Bank has assigned a Lead District Manager for each district who acts as a catalytic force for promoting financial inclusion and smooth working between government and banks.

Export Credit

• Recognising the important role of exports in maintaining the viability of external sector and in generating employment, the Reserve Bank had sought to ensure adequate availability of concessional bank credit to exporters.

• It took the lead role in setting up the Export Import Bank of India (EXIM Bank) in January 1982.

ROLE OF RBI IN INFLATION CONTROL

• Inflation arises when the demand increases and there is a shortage of supply There are two policies in the hands of the RBI.

• Monetary Policy: It includes the interest rates. When the bank increases the interest rates than there is reduction in the borrowers and people try to save more as the rate of interest has increased.

• Fiscal Policy: It is related to direct taxes and government spending. When direct taxes increased and government spending increased than the disposable Income of the people reduces and hence the demand reduces.

Quantitative Measures

Quantitative Measures “BANK RATE” also called “Discount Rate”.It also includes “Repo Rate”. “Open Market Operations” buying and selling of government securities.“Variable Reserve Ratio” it includes C.R.R and S.L.R

Qualitative Measures1. Moral suasion 2. Direct Action3. Prescription of margin.4. Consumer credit regulation.

BANK RATE

It’s the interest rate that is charged by a country’s central bank on loans and advances to control money supply in the economy and the banking sector. The present bank rate is 8.75%

REPO RATE

Whenever the banks have any shortage of funds they can borrow it from the central bank. Repo rate is the rate at which our banks borrow currency from the central bank.

A reduction in the repo rate will help banks to get Money at a cheaper rate.

The present repo rate is 7.75 %

REVERSE REPO RATE

It’s the rate at which the banks park surplus funds with reserve bank.

While the Repo rate is the rate at which the banks borrow from the central bank.

It is mostly done , when there is surplus liquidity in the market by the central bank.

The present reverse repo rate is 6.75 %

CASH RESERVE RATIO

• Cash Reserve Ratio (CRR) is the amount of Cash(liquid cash like gold)that the banks have to keep with RBI.

• The present CRR rate is 4 %.

STATUTARY LIQUIDITY RATIO

•It is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers.

•SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit.

•The present SLR rate is 23%.

BASE RATE

• The Base Rate is the minimum interest rate of a Bank below which it cannot lend, except in cases allowed by RBI.

• 9.80 – 10.25 %

MARGINAL STANDING FACILITY

• The rate at which the scheduled banks could borrow funds from the RBI overnight, against the approved government securities is termed as MSF.

• Reserve Bank of India in its monetary policy (2011-12) has defined the term Marginal Standing Facility rate as the one, under which scheduled banks could borrow up to 2 % of their respective Net Demand and time Liabilities funds overnight from the Reserve Bank of India (RBI) against approved government securities.

• And the present rate is 8.75%.

REGULATION OF BANKING SYSTEM

The prime duty of the reserve Bank is to regulate the banking system of our country in such a way that the people of the country can trust in the banking Up to perform its duty.

The Reserve Bank has following powers in this regard:

•Licensing:

According to the section 22 of the Banking Regulation Act, every bank has to obtain license from the Reserve Bank. The Reserve Bank issues such license only to those banks which fulfill condition of the bank.

• Management: Section 10 of the Banking Regulation Act embowered the

Reserve Bank to change manager or director of any bank if it considers it necessary or desirable.

Branch Expansion: Section 23 requires every bank to take prior permission from

Reserve Bank to open new places of business in India.

Power of inspection of Bank: Under Section 35, the Reserve Bank may inspect any bank and

its books and accounts either at its own initiative or at the instance of the Central Government.

PUBLICATIONS OF RBI

Annual Annual Report Report on Trend and Progress of Banking in India Report on Currency and Finance Handbook of Statistics on the Indian Economy State Finances: A Study of Budgets A Profile of Banks Statistical Tables Relating to Banks in India Basic Statistical Returns of Scheduled Commercial Banks

in India

Half Yearly Financial Stability Report Quarterly Macroeconomic and Monetary Development Occasional Papers Quarterly Statistics on Deposits and Credit ofScheduled Commercial Banks Monthly RBI Bulletin Monetary and Credit Information Review Weekly Weekly Statistical Supplement Occasional RBI Working Paper Series (Web version)

Second Quarter Review of Monetary Policy Statement 2013-14

Growth• Modest improvement in growth is expected in

the second half (H2) of 2013-14 following a rebound in agriculture and an improvement in exports

• With deceleration in private consumption and fall in investment, overall demand conditions remain weak.


Inflation• WPI inflation is ruling above the Reserve Bank’s

comfort level and may remain range-bound around the current level during H2 of 2013-14. Moreover, the persistence of high CPI inflation remains a concern.

• The good monsoon should have a salutary effect on food inflation, but second-round effects from already high food and fuel inflation could impart upside pressures on prices of other commodities and services.


• Reduced the marginal standing facility (MSF) rate by 25 basis points from 9.0 per cent to 8.75 per cent

• Increased the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.5 per cent to 7.75 per cent


• Credit to agriculture increased by 13.2 per cent in September 2013 as compared with the increase of 19.6 per cent in September 2012.

• Credit to industry increased by 17.6 per cent in September 2013 as compared with the increase of 17.0 per cent September 2012.

• Credit to the services sector increased by 22.1 per cent in September 2013 as compared with the increase of 14.4 per cent in September 2012.

• Credit to Non Banking Financial Companies (NBFCs) increased by 26.6 per cent in September 2013 as compared with the increase of 28.4 per cent in September 2012.

SOURCES:

• RBI OFFICIAL WEBSITE.• RESERVE BANK OF INDIA: FUNCTIONS AND WORKING.• WWW.brbnmpl.com• WIKKIPEDIA.

THANK YOU

Economy & Finance

RBI AND FUNCTIONS