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RESERVE BANK OF INDIA

Megha Babbar (15103023)


Gamini Singla (15103025)
Ishita Jain (15103026)
Aseem Baveja (15103027)
Pritish Sehzpaul (15103028)
INTRODUCTION
◼ It is the Central Bank of India(est. 1st April, 1935)
◼ A Central Bank is a bank that the government set up to handle its
transactions, to coordinate and control the commercial banks and most
important to help and control the nation’s money and credit conditions
◼ The Preamble of the Reserve Bank of India describe the basic function of
RBI as
“to regulate the issue of Bank Notes and keeping of reserve with a view to securing monetary
stability in India and generally to operate the currency and credit system of the country to its
advantage, to have a modern monetary policy framework to meet the challenge of an increasingly
complex economy, to maintain price stability while keeping in mind the objective of growth.”
ABOUT RBI
◼ 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 Rs. 5 crore
◼ It was established on 1st of April,1935 under “RESERVE BANK OF INDIA
ACT”.
◼ Initially it was located in Kolkata, moved to Mumbai in the year 1937.
◼ Initially it was privately owned.
◼ It has 31 offices throughout India.
◼ Its present governor is Mr. Shaktikanta Das.
◼ The Reserve Bank's affairs are governed by a central board of directors.
OBJECTIVE AND REASONS FOR
ESTABLISHMENT OF RBI
▪ 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
FUNCTIONS OF RBI
● Issue of Currency
○ The RBI is the sole authority for the issue of currency in India other than one-rupee notes and coins and
small coins which are issued by the Government of India.
○ For this, the RBI is organized under two separate departments, the Issue Department and the Banking
Department.
● Developmental Role
○ RBI through printing new money and through monetary policy, monitors and influences the movement
of a number of macro economic indicators including interest rates, inflation rate, money supply and
Gross Domestic Product (GDP).
○ Performs a wide range of promotional functions to support national objectives.
○ To establish financial institutions of national importance, e.g. NABARD,IDBI etc.
● Banker to the Government
○ Performs all banking function for the central and the state governments and also acts as their banker.
○ As a banker to the GoI, RBI maintains its accounts, receive in and make payments out of these
accounts. RBI also helps GoI to raise money from public via issuing bonds and government approved
securities.
● Banker to banks
○ As bankers’ bank, the RBI holds a part of the cash reserves of banks, lends them funds for
short periods, and provides them with centralised clearing and cheap and quick remittance
facilities.
○ RBI regulates the opening of branches by banks.
○ It ensures that all the N.B.F.S(Non Banking Financial Institutions) follow the Know Your
Customer guidelines.
○ The Reserve Bank of India also regulates the trade of gold.
○ It issues guidelines and directives for the commercial banks.
● Manager of Foreign Exchange
○ To facilitate external trade and payment and promote orderly development and
maintenance of foreign exchange market in India.
○ 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.
ROLE OF RBI IN INFLATION CONTROL

➢Inflation is reduction of purchasing power per unit of money and is certainly


not good for the economy

➢Inflation that arises due to the increase in demand and consequent shortage
of supply can be controlled by RBI

➢Monetary Policy: It is the process by which RBI manages money supply in the
market.It aims at inflation targeting and price stability
Monetary policy committee
➢ It is responsible for fixing the benchmark interest rates in India
➢ It comprises of six members - three officials of RBI and three external members
➢Governor of RBI is the chairperson of the committee
➢It meets at least 4 times a year
➢ The committee was created in 2016 to bring transparency and accountability in fixing
India’s monetary policy
Quantitative Analysis

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.
◼This is done on a quarterly basis to control inflation and stabilize country’s
exchange rates.
REPO RATE
◼Whenever banks have shortage of funds they can borrow from central bank.
◼Repo rate is the rate at which our banks borrow currency from the central bank.
REVERSE REPO RATE
◼It’s the rate at which the central bank borrow money from the commercial banks
◼It is mostly done , when there is surplus liquidity in the market

CASH RESERVE RATIO (CRR)


◼It is the amount of Cash that the banks have to keep with RBI.
◼This Ratio is basically to secure solvency of the bank and to drain out the excessive
money from the banks.

STATUTORY LIQUIDITY RATIO (SLR)


◼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 in order to control the expansion
of bank credit.
Qualitative Analysis
MARGINAL REQUIREMENT
◼The marginal requirement of a loan is difference between the securities offered
and amount borrowed by the banks.
◼The RBI has power to vary the marginal requirements depending upon the
business conditions prevailing in the country.

MORAL SUASION
◼Moral suasion means persuasion and request.
◼RBI being the apex bank uses this method that is of persuading the commercial
banks to follow its directions or orders on the flow of credit.
CONSUMER CREDIT REGULATION
◼This refers to issuing rules regarding down payments and maximum maturities of
installment credit for purchase of goods.
◼If there is excess demand for certain consumer durables leading to their high prices,
central bank can reduce consumer credit and vice versa.

DIRECT ACTION
◼Under the banking regulation Act, the central bank has the authority to take strict
action against any of the commercial banks that refuses to obey the directions given
by RBI
◼RBI may refuse to rediscount their papers or may give excess credits or charge a
penal rate of interest over and above the Bank rate, for credit demanded beyond a
limit.