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Preamble

The Preamble of the Reserve Bank of Indiadescribes the basic objectives of the ReserveBank as "...to regulate the issue of BankNotes and keeping of reserves with a view tosecuring monetary stability in India andgenerally to operate the currency and credit

system of the country to its advantage."

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Organization of The RBI

Board for Payment and Settlement system(BPSS)

Sub - Committees of the Central Board

Local board: There are four local boards, one each for

the four regions of the country situated in Mumbai,New Delhi, Chennai and Kolkata. The membership ofeach local board consists of five members appointedby the central govt. for a period of four years. The

functions of the local board include: to advise central board on local matters

to perform such other functions as may bedelegated by the central board from time to time.

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Departments

The RBI has 26 departments focusing on policy issues in RBIs functional

areas etc. lets briefly know the functions of each department.1.Customer Service Department:

In order to enhance the quality of customer service and strengthenthe grievance redressal mechanism, the RBI constituted a newdepartment namely CSD.

2. Department of Currency Management:

This department performs the core statutory function of note and coinissue and currency management.

3. Urban Banks Department:

This department carries out the function of regulation and supervisionof UCBs.

4. Rajbhasha Department:

Translating annual reports, news letters, bulletins etc.

Imparting training to officers/employees in Hindi language, Use ofHindi on computers, and English-Hindi translation.

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Departments

5. Rural Planning and Credit Department:

RPCD is primarily concerned with formulating policies relating to ruralcredit and monitors timely and adequate flow of credit to the ruralpopulation for agricultural activities etc.

6. Foreign Exchange Department:

It is concerned with facilitating external trade and developing foreignexchange markets of India.

7. Human Resources Development Department:

Recruitment

Performance and Potential Appraisal

Placement etc.

8. Financial Markets Department:This department wad established with the objective of integrating thebanking sector to the financial markets and help the bank to conductmonetary operations viz. OMOs,LAF etc.

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Departments

9. Financial Stability Unit:

Development of a time series of a core set of financial indicators.

Conduct of systemic stress tests to assess resilience.

Preparation of financial stability reports.

10. Inspection Department (Internal):

11. Department of Banking Supervision:

This department is entrusted with the authority of regulating andsupervising the Indian Banking System including FIs.

12. Department of Non-Banking Supervision (DNBS):

Mainly concerned with supervising the NBFCs.

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Departments

13. Department of Banking Operations and Development:The Department is entrusted with the responsibility of regulationof commercial banks under the provisions contained in BankingRegulation Act, 1949 and the Reserve Bank of India Act, 1934 andother related statutes and development of banking policies.

14. Department of Information Technology:

Computerizing the operation in RBI

Monitoring the progress of IT in banks.

15. Legal Department:

16. Monetary Policy Department:

17. Internal Debt Management Department:Managing public debt of the GOI/state govts.

Management of PDs system and development of govt.securities market.

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Departments

18. Department of External Investments and Operations:Invest of foreign exchange reserves of the RBI.19. Department of Economic & Policy Research:

Concerned with studying the issues both domestic andinternational affecting the Indian economy.

20. Department of Statistics and Information Management:Collection, processing and dissemination of data on banking,

corporate and external sectors.21. Department of Payment and Settlement Systems:22. Secretary's Department:

Secretarial work involving meetings of central board and its

committees etc.Secretarial work relating to deputy governors committee

meetings.23. External Relations and Customer Service.

Annual, quarterly, monthly and weekly reports etc.

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Departments

23. Department of Communication:

24. Department of Expenditure and Budgetary

Control:

25. Department of Administration and Personnel

Management:

26. Department of Banking Operation and

Development:27. Department of Govt and Bank accounts.

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Subsidiaries

The Reserve Bank of India has fully-owned four subsidiarieswhich include

National Housing Bank(NHB).

Deposit Insurance and Credit Guarantee Corporation of

India(DICGC). Bharatiya Reserve Bank Note Mudran Private

Limited(BRBNMPL).

National Bank for Agriculture and Rural Development(NABARD).

The Reserve Bank of India has recently divested its stake inState Bank of India to the Government of India. RBI has alsoset up some trainning institutions.

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Legal Framework

There are various acts which govern the functioning of RBI, specificfunctions, banking operations and individual institutions owned byRBI.

1. Umbrella Acts:

The reserve Bank of India Act, 1934, governs the RBI functions

The Banking regulation Act, 1949, governs the financial sector.

2. Acts Governing Specific Functions.

like The Securities Contract(Regulation) Act, 1956, regulates govtsecurities market, FEMA Act, 1999 etc.

3. Acts Governing Banking Operations.like Negotiable Instruments Act, 1881 etc.

4. Acts Governing Individual Institutions.

like State Bank of India Act, 1954, The Industrial Development Bank

of India Act, the National Housing Bank Act etc.

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Functions of RBI

Functions of RBI include Monetary Authority Regulator & Supervisor of FinancialSystem, and Manager of Foreign Exchange Issuer of Currency DevelopmentalRole.

Formulates Monetary Policy.Monetary policy-making is the central function of the Reserve Bank. The broad

objectives of monetary policy in India are (a) maintaining price stability and (b)ensuring adequate flow of credit to productive sectors to assist growth byinfluencing the cost and availability of money and credit. It uses qualitative andquantitative measures to implement the monetary policy.

Quantitative Measures :

Quantitative Measures BANK RATE also called discount rate.It also includes reporate. OPEN MARKET OPERATIONS buying and selling of government securities.VARIABLE RESERVE RATIO it includes CRR and SLR.

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Qualitative measures :

Qualitative measures Margin Requirements Moral

Suasion Rationing of CreditRegulates & Supervises the Financial

System:

Objective: To Maintain Public confidence in thesystem, protect depositors interest & provide costeffective banking services to the public. What RBIdoes.. Prescribes broad parameters of bankingoperations within which the country's banking andfinancial system functions. The Reserve Bank of Indiaperforms this function under the guidance of theBoard for Financial Supervision (BFS).

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Banker to the Government:The RBI as the central bank manages the public debt of the

central and the state govts and also acts as the banker to themunder the provisions of the RBI Act 1934. RBI Act provides thatthe central govt shall entrust the RBI with all its money,remittance, exchange, and banking transactions in India and themanagement of public debt and shall also deposit all its cashbalances with the RBI free of interest.

It also includes: provides a range of banking services acceptance of money

on govt A/Cs, payment/withdrawal of funds etc.,

provides safe custody facilities; manages special funds likethe consolidated sinking fund, the calamity relief fund, issues andmanages bonds etc.

provides ways and means advances to both the central andthe state govts.

introduced the primary dealer system in 1996 for thedevelopment of govt securities market etc.

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Manager of Exchange Control:The function of the RBI is to develop and regulate

the Forex market. The banks role is to facilitateexternal trade and payment and promote orderlydevelopment and maintenance of foreign market inIndia. The RBI regulate forex transactions under theprovisions of FEMA Act, 1999.

The RBI periodically enters into the forextransactions to prevent undue fluctuations in theexchange rate and to ensure orderly marketconditions.

In pursuit of developing the forex market RBIallowed Authorized Dealers(ADs) to borrow abroadand also allowed FIIs to invest up to 49% of the paid-up capital of Indian companies with the approval ofthe shareholders by a special resolution.

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Note Issuing Agency:The RBI has been entrusted with the role of issuing the notes and

managing the currency by the preamble of the RBI Act, 1934. RBI issuesnotes in the denomination of INR 2, 5, 10, 50, 100, 500, and INR 1000.The GOI issues one rupee coins and one rupee notes but they are putinto circulation only through the RBI. Currency management involvesefforts to achieve self-sufficiency in the production of currency notesand coins with a judicious denomination mix etc.

These functions i.e. note issue and currency management aredischarged in 18 regional Issue Offices/sub-offices and a wide network ofcurrency chests maintained by banks and govt treasuries spread acrossthe country.

Bank notes are printed at four notes presses, of which the currencyNotes Press, Nasik, and Bank Note Press, Dewas, are owned by thecentral govt and the presses at Mysore and Salboni are owned by theBharatiya Reserve Bank Note Mudran Limited, a wholly-ownedsubsidiary of the RBI.

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Banker to the Banks:

The Banks medium-term objective is to bring down the CRR tofour per cent of the banks Net Demand and TimeLiabilities(NDTL). The scheduled banks maintain balances in theircurrent account with the RBI mainly for maintaining the CRR andas working funds for clearing adjustments.

The RBI also provides a variety of financial facilities andaccommodations to scheduled banks. It takes care of temporaryliquidity gaps in the banking system through refinancingschemes(i.e. refinancing of bills). It also acts as a lender of lastresort to the banks to foster financial stability.

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Developmental role:The RBI performs various developmental and promotional activities to supportnational objectives.

The RBI has helped to set up a number of development financial institutionssuch as the Industrial Development Bank of India(IDBI), the National Bank forAgriculture and Rural Development (NABARD), the Industrial ReconstructionBank of India(IRBI), the National Housing Bank(NHB) and various otherinstitutes. It also has helped in the development of UTI, Discount and FinanceHouse of India(DFHI) and the Securities Trading Corporation of India(STCI) topromote and develop financial markets.

Another important developmental role that RBI carries out is that it has madepriority sector lending mandatory for both public and private sector banks.

RBI in its pursuit of developmental functions so far as banking sector isconcerned established a committee under the chairmanship of Mr. Narasimham

to suggest the future direction of banking sector. It suggested various reforms intwo phases one in 1991 and another in 1998. The recommendations includederegulation of interest rate structure, deregulation of the entry norms forprivate sector banks and foreign banks, bringing NBFCs under the ambit ofregulatory framework, capital adequacies.

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Role of RBI in inflation

control Inflation arises when the demand increases and there is ashortage of supply There are two policies in the hands ofthe RBI.

Monetary Policy: It includes the interest rates. When thebank increases the interest rates than there is reduction inthe borrowers and people try to save more as the rate ofinterest has increased.

Fiscal Policy: It is related to direct taxes and governmentspending. When direct taxes increased and governmentspending increased than the disposable Income of thepeople reduces and hence the demand reduces.

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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.Rand S.L.R

Qualitative Measures1. Direct Action

2. Moral persuasion

3. Legislation

4. Publicity

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BANK RATE

Its the interest rate that is charged by a countrys 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 countrysexchange rates.

A fluctuation in bank rates Triggers a Ripple-Effect as it

impacts every sector of a countryseconomy.

A change in bank rates affects customers as it influences

Prime Interest Rates for personal loans.

The present bank rate is 9%

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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 acheaper rate.

When the repo rate increases borrowing from the central

bank becomes more expensive.

In order to increse the liquidity in the market, the central

bank does it.

The present repo rate is 8%

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REVERSE REPO RATE

Its the rate at which the banks park surplus funds with reservebank.

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%

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CRR (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%.

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SLR ( Statutory Liquidity Ratio)

SLR rate is determined and maintained by the RBI (Reserve

Bank of India) in order to control the expansion of bank

credit.

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.

The present SLR rate is 23%.

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QUALITATIVE MEASURES

1. Direct Action: The central bank may take direct actionagainst commercial banks that violate the rules, orders or

advice of the central bank. This punishment is very severe of a

commercial bank.

2. 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.

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3. Legislation:

The central bank may also adopt necessary legislation forexpanding or contracting credit money in the market.

4. 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 controlcredit either by expansion or by contraction.

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Thank you