Definition

y Which controls the entire banking system y The name central bank is given to that bank which is

entrusted with the task of controlling the issue of money and regulating all the other banks of country.

Origin Of RBI
y 1934: The Bill was passed and received the Governor General s assent y 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 ve crore (rupees fty million). y 1942: The Reserve Bank ceased to be the currency issuing authority of Burma y 1949: The Government of India nationalised the Reserve Bank under

Structure, Organization and Governance

Central Board: y Includes Governor, Deputy Governor, and Nominated directors. y One governor, 4 deputy governor, 4 directors to represent each regional board. 10 directors nominated by central govt from various field. y Board is required to meet at lest six times in a year and once in quarter .

y RBI is made up of 26 Departments, 26 regional offices

and branches, Training centers, Research institutes and subsidiaries' .

Activities of RBI
y Monetry Authority y Issuer of currency y Banker and debt manager to govt y Regulator of banking system y Manager of foreign exchange y Regulator and supervisor of the payment and

settlement syatem. y Development Role

Monetary Authority
The main objective of monetary policy are  Maintaing price stability  Ensure educate flow of credit to the productive sector  Financial stability. Approach of RBI:  Based on multiple indicator approach, Eg Interest rate, money supply, credit, exchange rate, inflation rate

Cont.
TOOLS: RBI s Monetary policy department formulates the monetary policy the FMD handles day to day liquidity management operations . There are several direct and indirect instruments. Direct Instruments:  Cash Reserve ratio  Statutory liquidity ratios  Refinance Facility

Indirect Instruments:
y Liquidity adjustment facility: consists of daily

infusion of liquidity on repurchase basis, through Repo( Liquidity injection) and reverse repo (liquidity absorption) y Open market operations (OMO): Outright sale and purchase of Govt. in addition of LAF y Market Stabilize scheme(MSS): Liquidity of more enduring nature arising from large capital flows is absorbed through sale of short dated govt. securities and T bills. The mobilized cash is held separately y Bank Rate: Rate on which RBI is ready to buy or rediscount the bills.

Issuer of Currency
y RBI is sole note issuing authority for India along with

govt of India they are responsible for design, production and overall management of nations currency. y Goal is to insure adequate supply of clean and genuine notes. RBI also insures the adequate supply of coins produced by Govt .

y Dept of currency management in Mumbai in

cooperation with issue departments overseas the production and management

y Approach : y Currency chests at more than 4000 bank branches y RBI can issue notes up to value 10,000. y Printing press are there in MP, Nasik, Maysore and WB y RBI s anti counterfeiting measure and clean note policy . y The Indian Coinage Act, 1906 governs the minting of rupee coins, including small coins of the value of less than one rupee. One rupee notes (no longer issued now) and coins are legal tender in India for unlimited amounts. Fifty paisa coins are legal tender for any sum not exceeding ten rupees and smaller coins for any sum not exceeding one rupee. The Reserve Bank acts as an agent of the Central Government for distribution.

Banker and Debt Manager to Govt.

y Undertaking banking transaction for central and state

govt. to facilitate receipts and payments and maintaining their account. y Managing the govt,s domestic debt y Developing market for govt securities. Tools:  On EOD the electronic system automatically consolidates all of govt transaction to determine the net final position.  If there is any negative position RBI offers WMA.

As debt Manager
y Determine the size tenure and nature of loan y Issuing process including auctions. y Informing public and potential investor

Bankers to Bank
Approach y Clearing and settlement of inter bank obligation y Maintains Bank s account for reserve requirements y Acting as lender of last resort. Tools:  Non Interest earning Current Account  Deposit account Department  Remittance facility  Lender of last resort  Loans and advances

Regulator of Banking system

Approach:  RBI Regulates and supervise the Nations financial system. Different departments of RBI overseas the various entities :
 Department of banking operations and development

supervise the Commercial banks and FI s  Urban Bank departments supervise the Urban Banks  NABARD and Rural Planning Dept. Supervises RRB and Cooperative Banks.  Dept of Non banking Supervision regulates the NBFC

Tools: Licencing On site inspection Offsite surveillance Inspections , scrutiny and periodic meetings