PRESENTED BY :-

1. ANURAG KUMAR – 2013CE10333

2. SHUBHAM VISHWAKARMA – 2013CH10124

3. VIRESH CHAUHAN – 2013CE10413

HUL 213

ROLE OF RBI IN INDIAN

ECONOMY

INTRODUCTION :

The regulators of the Indian financial sector are –

Reserve Bank of India

Ministry of Finance (Income Tax Department)

Foreign Exchange Dealers Association of India

Deposit Insurance and Credit Guarantee Corporation

Fixed Income Money Market

In every country there is one organization which works as the central bank. The

function of the central bank of a country is to control and monitor the banking

and financial system of the country.

In India, the Reserve Bank of India (RBI) is the Central Bank.

HISTORY :-

Established in 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934

This was based on the recommendations of the Royal Commission on Indian Currency and Finance

(Hilton Young Commission) in 1926

It was started as share holders bank with a paid up capital of 5 crores.

Initially it was located in Kolkata.

Permanently moved to Mumbai in 1937. Today the RBI has 22 regional offices, mostly in State capitals.

Continued ……

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”.

Present Governor – P Raghuram Rajan

ORGANIZATION STRUCTURE

Governor Deputy Governors Executive Directors

Chief general Manager Principle Chief General Manager

General Managers Deputy General Managers

Asst. Managers. Managers Asst. General Managers

Support Staffs

MAIN FUNCTIONS OF RBI

Monetary Authority.

Issuer of Currency.

Regulator of Economy.

Controller and Supervisor of Banking System.

Bankers of the Government.

Banker to the Banks.

Managing Government Securities.

Management of Foreign Exchange.

Regulation and Supervision of the Payment and Settlement Systems.

Money Supply and Credit Control System.

Development Role.

Publisher of Monetary Data and Other Data.

Exchange Manager and Controller.

1. Monetary Authority

The main objectives of monitoring monetary policy are:

Inflation control

Control on bank credit

Interest rate control

The tools used for implementation of the objectives of monetary

policy are:

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR),

Open market operations,

Different Rates such as repo rate, reverse repo rate, and bank rate.

2. Issuer of Currency

The Reserve Bank is the nation’s sole note issuing authority.

Along with the Government of India , RBI is the Responsible for the design and production and overall management of the nation’s currency with the goal of ensuring an adequate supply of clean and genuine notes.

The Reserve Bank also makes sure there is an adequate supply of coins ,produced by government and also destroys currency and coins not fit for circulation.

The RBI also takes action to control circulation of fake currency.

It brings uniformly to note issue and keeps the public faith in the paper currency alive.

3. Regulator of Economy

Regulate by issuing guidelines and instruction:-

Controlling money supply in system.

Monitoring Different Key indicators (GDP, inflation, etc.).

Maintaining people’s confidence in banking & financial system.

Providing different tools for customers.

4. Controller and Supervisor of Banking Systems

The RBI is responsible for controlling the overall operations of all banks in

India.

Such banks are:

Public sector banks

Private sector banks

Foreign banks

Co-operative banks, or

Regional rural banks

The control and supervisory roles of the Reserve

Bank of India is done through the following:

Issue Of Licence : RBI grant licenses to commence new banking

operations. The RBI also grants licenses to open new branches for existing

banks. Under the licensing policy, the RBI provides banking services in areas

that do not have this facility.

Prudential Norms: RBI issues guidelines for credit control and management.

RBI is a member of the Banking Committee on Banking Supervision (BCBS).

As such, they are responsible for implementation of international standards of capital adequacy norms and asset classification.

Corporate Governance: The RBI has power to control the appointment of

the chairman and directors of banks in India. The RBI has powers to appoint additional directors in banks as well.

KYC Norms: To curb money laundering and prevent the use of the banking

system for financial crimes, The RBI has “Know Your Customer“ guidelines.

Every bank has to ensure KYC norms are applied before allowing someone to open an account.

Transparency Norms: This means that every bank has to disclose their

charges for providing services and customers have the right to know these charges.

Risk Management: The RBI provides guidelines to banks for taking the

steps that are necessary to mitigate risk. They do this through risk

management in basel norms.Basel Norms: Rules for central bankers around the world.

Audit and Inspection: The procedure of audit and inspection is

controlled by the RBI through off-site and on-site monitoring system. On-site

inspection is done by the RBI on the basis of “CAMELS”. Capital adequacy; Asset quality; Management; Earning; Liquidity; System and control

Foreign Exchange Control: The RBI plays a crucial role in foreign

exchange transactions. It does due diligence on every foreign

transaction, including the inflow and outflow of foreign exchange. It

takes steps to stop the fall in value of the Indian Rupee. The RBI also

takes necessary steps to control the current account deficit. They also

give support to promote export and the RBI provides a variety of options for NRIs.

Development: Being the banker of the Government of India, the RBI

is responsible for implementation of the government’s policies related

to agriculture and rural development. The RBI also ensures the flow of credit to other priority sectors as well. Section 54 of the RBI gives stress

on giving specialized support for rural development. Priority sector

lending is also in key focus area of the RBI.

Apart from the above, the RBI publishes periodical review and data related to banking.

5. Bankers of The Government

RBI acts as banker, both to the central government and state governments.

It manages all the banking transactions of the government involving the

receipt and payment of money.

RBI remits exchange and performs other banking operations.

RBI provides short-term credit to the central government. Such credit helps

the government to meet any shortfalls in its receipts over its disbursements.

RBI also provides short term credit to state governments as advances.

RBI also manages all new issues of government loans, servicing the

government debt outstanding, and nurturing the market for government’s

securities.

RBI advises the government on banking and financial subjects, international finance, financing of five-year plans, mobilizing resources, and banking

legislation

6. Bankers To The Banks

The role of RBI as a banker to other banks is as follows:

Holds some of the cash reserves of banks

Lends funds for short period

Provides centralized clearing and quick remittance facilities.

RBI has the authority to statutorily ensure that the scheduled .

commercial banks deposit a stipulated ratio of their total net liabilities. This ratio is

known as cash reserve ratio [CRR].

However, banks can use these deposits to meet their temporary requirements for

interbank clearing as the maintenance of CRR is calculated based on the average

balance over a period

7. Managing Government Securities

Various financial institutions such as commercial banks are required by law to

invest specified minimum proportions of their total assets/liabilities in

government securities.

RBI administers these investments of institutions.

The other responsibilities of RBI regarding these securities are to ensure -

Smooth functioning of the market

Readily available to potential buyers

Easily available in large numbers

Undisturbed maturity-structure of interest rates because of excess or deficit supply

Not subject to quick and huge fluctuations

Reasonable liquidity of investments

Good reception of the new issues of government loans

8. Management of Foreign Exchange.

RBI regulates transactions related to the external sector and

facilitates the development of the foreign exchange market.

RBI buys and sells foreign currency to maintain the exchange rate of

Indian Rupee v/s foreign currencies like dollar, euro etc.

The RBI is the custodian of the country’s foreign exchange reserves,

i.e., it is vested with the responsibility of managing the investment

and utilization of the reserves in the most advantageous manner.

Managing the foreign currency assets and gold reserves of the

country.

9. Regulator and Supervisor of Payment and

Settlement Systems

The Payment and Settlement Systems Act of 2007 (PSS Act) gives the

Reserve Bank oversight authority, including regulation and supervision, for

the payment and settlement systems in the country.

In this role Reserve Bank focuses on the development and functioning of

safe, secure and efficient payment and settlement mechanisms.

10. Money Supply and Credit Control

System

In a planned economy, the central bank plays an important role in controlling the paper currency system and inflationary tendency.

RBI has to regulate the claims of competing banks on money supply and credit.

RBI also needs to meet the credit requirements of the rest of the banking system.

RBI needs to ensure promotion of maximum output, and maintain price stability and a high rate of economic growth.

To perform these functions effectively, RBI uses several control instruments such as –

Open Market Operations

Changes in statutory reserve requirements for banks

Lending policies towards banks

Control over interest rate structure

Statutory liquidity ration of banks .

11. Developmental Role

This role includes the development of the quality of banking system in India and ensuring that credit is available to the productive sectors of the economy.

RBI performs a wide range of promotional functions to support national

objectives.

It also includes establishing institutions designed to build the country’s financial

infrastructure. E.g.: NABARD, IDBI etc.

Expanding access to affordable financial services and promoting financial education and literacy.

12. Publisher of Monetary Data and

other Data

RBI maintains and provides all essential banking and other

economic data, formulating and critically evaluating the

economic policies in India.

In order to perform this function, RBI collects, collates and

publishes data regularly.

Users can avail this data in the weekly statements, the RBI

monthly bulletin, annual report on currency and finance, and

other periodic publications

13. Exchange Manager and Controller

RBI manages exchange control, and represents India as a member of the

international Monetary Fund [IMF].

Exchange control was first imposed on India in September 1939 when

World War II started and continues till date. Exchange control was

imposed on both receipts and payments of foreign exchange.

According to foreign exchange regulations, all foreign exchange

receipts, whether on account of export earnings, investment earnings, or

capital receipts, whether of private or government accounts, must be sold

to RBI either directly or through authorized dealers.

Most commercial banks are authorized dealers of RBI.

Supervisory Functions of RBI

Granting license to banks & controlling the opening of new

branches

—Bank Inspection

Control over Non-Bank Financial Institutions: The Non-Bank Financial

Institutions are not influenced by the working of a monitory

policy. RBI has a right to issue directives to the NBFIs from time to

time regarding their functioning.

Implementation of the Deposit Insurance Scheme: In order to protect the

deposits of small depositors, RBI work to implement the Deposit

Insurance Scheme in case of a bank failure. (For bank deposits

below 1 Lakh.)

Role of RBI in Economic Development

Development of banking system.

Development of financial institutions.

Development of backward areas.

Economic stability.

Economic growth.

Proper interest rate structure.

Miscellaneous

Promotional Role of RBI

Promotion of commercial banking

Promotion of cooperative banking

Promotion of industrial finance

Promotion of export finance

Promotion of credit to weaker sections

Promotion of credit guarantees

Promotion of differential rate of interest scheme

Promotion of credit to priority sections including rural & agricultural sector.....