MBA-2 Functions Of RBI
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The Reserve Bank of India (RBI), established on April 1, 1935, is India's central banking institution responsible for regulating the monetary policy of the Indian rupee. Its key functions include issuing currency, controlling inflation, acting as a banker to the government and banks, and managing foreign reserves. Following nationalization in 1949, the RBI became wholly government-owned and has a significant role in promoting financial stability and developing the banking system in India.
MBA-2 Functions Of RBI
- 1. FUNCTIONSOF RESERVE BANKOF INDIA Vivek Ghatbandhe 188 Harsh Lodhavia 206 Lekha Baria 183 Kirtika Pathak 218 Snehal Hegde 193 Sidhi Sapre 225 Amit Kawle 201 NishitaTamhane 233 Anirudha Kolge 204 AnkitaTandel 234 KIRTIKA
- 2. Introduction The Reserve Bank of India (RBI) is India's central banking institution, which controls the monetary policy of the Indian rupee It commenced its operations on 1st April 1935 in accordance with the Reserve Bank of IndiaAct, 1934 Started as a Shareholders Bank with original share capital divided into shares of 100 each fully paid, which were initially owned entirely by private shareholders The general superintendence and direction of the RBI is entrusted with the 21-memberCentral Board of Directors KIRTIKA
- 3. Brief History of RBI It was set up on the recommendations of the Hilton Young Commission Started as a Shareholders Bank with a paid up capital of Rs. 5 Cr Established on 1st of April 1935 in Kolkata and later moved to Mumbai in 1937 Since nationalization in 1949, it is fully owned by the Government of India Its first Governor was Sir Osborne A. Smith (1st April 1935 to 30th June 1937) and its first Indian Governor was Sir Chintaman D. Deshmukh (11th August 1943 to 30th June 1949) KIRTIKA
- 4. Preamble “….To regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.” SIDHI
- 5. Functions of RBI Issue of Currency Development Role Banker to Government Banker to Bank InflationControl Formulate Monetary Policy Manager of Foreign Reserves Clearing House Functions Regulations of Banking systems SIDHI
- 6. Issue of Currency To ensure adequate quantity of supplies of currency notes and coins of good quality Issues new currency and destroys currency and coins not fit for circulation It has to keep in forms of gold and foreign securities as per statutory rules against notes & coins issued SIDHI
- 7. Development Role To develop the quality of banking system in India Performs a wide range of promotional functions to support national objectives To establish financial institutions of national importance, for e.g.: NABARD,IDBI etc. SIDHI
- 8. Banker to Government Performs all banking function for the central and the state governments and also acts as their banker excepting that of Jammu and Kashmir It makes loans and advances to the States and local authorities It acts as adviser to the Government on all monetary and banking matters SNEHAL
- 9. Banker to Banks Maintains banking accounts of all scheduled banks RBI also regulates the opening /installation of ATM. Fresh currency notes for ATMs are supplied by RBI RBI regulates the opening of branches by banks It ensures that all the N.B.F.S follow the Know Your Customer guidelines The Reserve Bank of India also regulates the trade of gold. Currently 17 Indian banks are involved in the trade of gold in India RBI has invited applications from more banks for direct import of gold to curb illegal trade in gold and increase competition in the market Collection and publication of data It issues guidelines and directives for the commercial banks SNEHAL
- 10. 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 NISHITA
- 11. 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 measures NISHITA
- 12. Instruments to formulate Monetary Policy Quantitative Measures Bank Rate Repo Rate Open Market Operations Variable Reserve Ratio viz. C.R.R and S.L.R Qualitative Measures Direct Action Moral persuasion Legislation Publicity ANKITA
- 13. 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 typically done on a quarterly basis to control inflation and stabilize the country’s exchange rates A fluctuation in bank rates Triggers a Ripple-Effect as it impacts every sector of a country’s economy A change in bank rates affects customers as it influences Prime Interest Rates for personal loans The present bank rate is 9% ANKITA
- 14. 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 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 The present repo rate is 8% ANIRUDHA
- 15. 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 7% ANIRUDHA
- 16. Cash Reserve Ratio Cash Reserve Ratio (CRR) is the amount of Cash (liquid cash like gold)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 The present CRR rate is 4.75% HARSH
- 17. Statutory 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% HARSH
- 18. Qualitative Measures Direct Action The central bank may take direct action against commercial banks that violate the rules, orders or advice of the central bank. This punishment is very severe of a commercial bank. Moral persuasion It is another method by which central bank may get credit supply expanded or contracted. By moral pressure it may prohibit or dissuade commercial banks to deal in speculative business. LEKHA
- 19. Qualitative Measures (Contd.) Legislation The central bank may also adopt necessary legislation for expanding or contracting credit money in the market. 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. LEKHA
- 20. 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 ManagementAct,(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 VIVEK
- 21. Clearing House Functions The RBI operates clearing houses to settle banking transactions The RBI manages 14 major clearing houses of the country situated in different major cities The State Bank of India and its associates look after clearing houses function in other parts of the country as an agent of RBI VIVEK
- 22. Regulations 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 Management Branch Expansion Power of inspection of Bank AMIT
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