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
Commission
It was started as share-holders bank with a paid up capital
of 5 crores
Initially it was located in Kolkata
It moved to Mumbai in 1937
Initially it was privately owned
Since 1949, the RBI is fully owned by the Government of
India.
Its First governor was Sir Osborne A.Smith
The 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).

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 Measures
1. Moral suasion
2. Direct Action
3. 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 of
Scheduled 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.

RBI AND FUNCTIONS

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