RESERVE BANK OF INDIA

INTRODUCTION
The Reserve Bank of India is the Central
Bank of the country, entrusted with the
responsibility of monetary stability, the
management
of
currency
and
the
supervision of financial as well as the
payments system.
The Reserve Bank of India was established
on April 1, 1935, in accordance with the
provisions of the Reserve Bank of India
Act, 1934.

CHRONOLOGICAL ORDER OF
EVENTS
1926 Birth of institution
Hilton Young Commission
recommends setting up of the
reserve bank of india

1935
The Reserve Bank of India is
established on April 1, and starts
functioning.
1947
The Reserve Bank of India goes
national, as India gains independence.
1949
The Reserve Bank of India is
nationalized.

2004-2005
RBI puts in a modern payment and
settlement system, strives to further
strengthen the financial sector.
The Future
Dream about the institution you work for,
dream about changes you could make to
the Indian economy and strive to turn
your dreams into reality.

 ISSUER OF CURRENCY
It issues notes in the following
denominations: Rs.2, Rs.5, Rs.10,
Rs.20, and Rs.50, Rs.100, Rs.500,
Rs.1000.
It acts as the sole currency authority
or the monopoly authority in issuing
currency in the country

 BANKER TO GOVERNMENT
The Reserve Bank acts as a banker
not only to the central government
but also to the state governments.

 BANKER TO BANK
The Reserve Bank maintains the
banking accounts of all commercial
and scheduled banks.
It has powers to regulate credit of
banking companies.
The Reserve bank can appoint any
bank as its agent.

 CONTROLLER OF CREDIT
RBI is expected to correct inflationary or
deflationary situation whenever they
arise and achieve reasonable economic
stability in the country.
For economic stability, RBI has to
control the credit created by
commercial banks with a view to
maximize their profits.

 MONETORY POLICY OF RBI

Monetary policy is the one employed by the
State through its Central Bank, to control
the supply of money as an instrument of
achieving the objectives of the general
economic policy. Such a policy strives at
minimizing the disadvantage of increasing
money supply and to maximizing the
benefits resulting from the existence and
operations of the monetary system.

Formulate monetary policy

Maintain price stability and ensuring adequate
flow of credit in the economy.
It formulates implements and monitors the
monetary policy.
Instruments: qualitative & quantitative.

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 Measures
1.
2.
3.
4.

Rationing
Margin Requirements
Legislation
Publicity

BANK RATE
Its the interest rate that is charged by a
countrys central bank on loans and advances to
control money supply in the economy and the
banking sector.
This is typically done on a quarterly basis to
control inflation and stabilize the countrys
exchange rates.
A fluctuation in bank rates impacts every sector
of a countrys economy.
A change in bank rates affects customers as it
influences Prime Interest Rates for personal
loans.

REPO RATE
Bank sells the security to RBI to raise money.
When banks sell security , banks promise to buy
back the same security from RBI at a
predetermined date with an interest at the rate of
REPO . It is actually a repurchase agreement.
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 from the central bank.
A reduction in the repo rate will help banks to get
Money at a cheaper rate.
When the repo rate increases borrowing from the central
bank becomes more expensive.
In order to increase the liquidity in the market, the
central bank does it.

REVERSE REPO RATE

Its 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 7%

OPEN MARKET OPERATIONS

Open market operations refer broadly to the
purchase and sale by the central bank of a
variety of assets such as foreign exchange,
gold, government securities and even
company share. In practice, however, these
are confined to the purchase and sale of
Government securities.
The primary objective of these
open market operations is to absorb or
provide liquidity in the market

Variable Reserve Ratio

C.R.R (Cash Reserve Ratio ) - Cash Reserve
Ratio(CRR) is a specified minimum fraction
of the total deposits of customers, which
commercial
banks
have
to
hold
asreserveseither in cashor as deposits
with the central bank.CRRis set according to
the guidelines of the central bank of a
country.
S.L.R (Statutory Liquid Ratio) - Statutory
liquidity
ratio(SLR)
is
the
Indian
government term for reserve requirement
that the commercial banks in India require to
maintain in the form of gold, government

Qualitative Measures
1. Rationing : The Reserve Bank of India uses
rationing of credit to channelize flow of credit
into desired areas. Under rationing quota
system is adopted according to the needs of
the economy .
2. Margin Requirements : Changing margin
requirements is another method followed by
the Reserve Bank of India. By requiring Higher
margin, while accepting a commodity as a
security it can decrease the flow of credit into
a
Particular trade.

3. Legislation:
The central bank may also adopt necessary
legislation for expanding or contracting credit
money in the market.

4. Publicity:
The central bank may resort to massive advertising
campaign in the news papers, magazines and
journals depicting the poor economic conditions of
the country suggesting commercial banks and other
financial institutions to control credit either by
expansion or by contraction.

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 ofIndian Rupee v/s foreign
currencies like the US Dollar, Euro, Pound and
Japanese yen.

 Management:
Section 10 of the Banking Regulation Act
empowered 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.