Monetary Policy and Banking Structure in India
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Transcript of Monetary Policy and Banking Structure in India
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Monetary Policy and Banking Structure
In the Indian Context
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Tools of Macro Economic Policy
Fiscal Policy
Deals in government spending and revenue
collec:on
Implemented by state and central governments
Improving growth performance and
ensuring social jus:ce
Monetary Policy
Controls demand and supply of money
Implemented by the central bank
Ensuring economic growth and price stability
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Targets
• Interest Rates • Bank Credit • Money Supply
Objec@ves
• Economic Growth
• Price Stability
Instruments
• Change in Quan@ty of Credit
• Varia@ons in Reserve Requirement
Monetary Policy
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Financial System in India
Organised
Regulator/ Central Bank
Banking and Other Financial Ins@tu@ons
Money and Capital Market
Financial Services
Unorganised
Landlords
Local Bankers
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Banking Structure in India
Reserve Bank of India
Scheduled Commercial banks
Public Sector Banks (26)
Na@onalised Banks
SBI and Associates
IDBI
Private Sector Banks (27)
Old Private Banks
New Private Banks Foreign Banks (43)
Regional Rural Banks (57)
Scheduled Coopera@ve Banks
Urban Coopera@ve Banks (53)
State Coopera@ve Banks (16)
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Specialised Financial and Investment Ins@tu@ons
Financial Ins@tu@ons
• Export-‐Import Bank of India
• Na@onal Bank for Agriculture and Rural Development (NABARD)
• Na@onal Housing Bank (NHB)
• Small Industries Development Bank of India (SIDBI)
Investment Ins@tu@ons
• Industrial Investment Bank of India (IIBI)
• Industrial Credit and Investment Corpora@on of India (ICICI Bank)
• Life Insurance Corpora@on (LIC) of India
Non Banking Financial Ins@tu@ons
(NBFCs)
• Deposit taking NBFCs (NBFCs-‐D)
• Non-‐deposit taking NBFCs (NBFCs-‐ND)
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Reserve Bank of India Established in Kolkata under the RBI act of 1934
Na@onalised in 1949
Headquartered in Mumbai
Objec@ve: “… to regulate the issue of bank notes and the 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.”
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Instruments of Credit Control
Quan:ta:ve Methods
Open Market opera:ons: sale and purchase of securi@es from public, commercial banks
Deployment of Credit to Various Sectors
Cash Reserve Ra:o: ra@o of demand and @me liabili@es to be kept with the central bank
Statutory Liquidity Ra:o: percentage of demand and @me liabili@es to be invested in government approved securi@es
Repo(injec:on) and Reverse Repo(absorp:on) rates: rates at which the central bank lends borrows short term money to/from banks
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Instruments of Credit Control Qualita:ve Methods Credit Controls
Margin Requirements
Issue of guidelines
Credit Ra:oning
Moral Suasion
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Func@ons of the RBI
Main Func@ons
Regula:on of Credit-‐ through quan@ta@ve and qualita@ve techniques
Issue of Notes and Coins-‐ except one rupee notes and coins
Regula:on of Foreign Exchange-‐by ac@ng as a custodian of na@on’s foreign exchange reserves
Banker agent and advisor to the Government-‐ through transac@ons and managing public debt
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Func@ons of the RBI
Main Func@ons
Lender of Last Resort-‐ by funding banks when they fail to get it from other sources
Banker’s Bank-‐ by providing financial assistance to scheduled and state coopera@ve banks
Agent of the Government: by distribu@ng currency and selling treasury bills
Regulatory and Supervisory Func:ons-‐ by supervising commercial and coopera@ve banks
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Func@ons of the RBI
Other Func@ons
Clearing house and arranging credit for agriculture
Collec@ng and publishing economic data
Buying and Selling Government Securi@es and trade bills
Lending to the government, buying and selling of valuable commodi@es
Represen@ng the government at the IMF
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Wrap Up!
• Tools of Macro Economic Policy-‐ Monetary and Fiscal Policy
• Difference between Monetary and Fiscal Policy
• Broad Idea of the banking and financial structure in India
• Objec@ves, targets and instruments of Monetary policy
• Func@ons of the Central Bank of India