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RESERVE BANK OF INDIA

RESERVE BANK OF INDIA. CENTRAL BANKING AND ITS FUNCTIONS. Origin of RBI. In 1921, 3 Presidency Banks were amalgamated to form the Imperial Bank of India Existence in 1 st April,1935 under RBI Act 1934.

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RESERVE BANK OF INDIA

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  1. RESERVE BANK OF INDIA CENTRAL BANKING AND ITS FUNCTIONS

  2. Origin of RBI • In 1921, 3 Presidency Banks were amalgamated to form the Imperial Bank of India • Existence in 1st April,1935 under RBI Act 1934. • Setting up of such institution was based on recommendation of Hilton Young Commission in the year 1926.

  3. CONSTITUTION OF RBI • CAPITAL – Rs.5 crore • 5lakh fully paid up shares of Rs.100 each • Rs. 2.2 lakhs subscribed by the Central Government • Nationalisation of RBI in 1st January,1949, entire share capital was acquired by Central Government

  4. MANAGEMENT • CENTRAL BOARD OF DIRECTORS COMPRISING OF 20 MEMBERS: • 1 GOVERNOR & 4 DEPUTY GOVERNORS APPOINTED BY CENTRAL GOVERNMENT • 4 DIRECTORS NOMINATED BY CENTRAL GOVERNMENT ONE FROM EACH LOCAL BOARD • 10 DIRECTORS NOMINATED BY CENTRAL GOVERNMENT • 1 GOVERNMENT OFFICIAL NOMINATED BY CENTRAL GOVERNMENT

  5. LOCAL BOARD • FOR EACH REGIOANAL AREAS OF THE COUNTRY THERE IS LOCAL BOARD: • WESTERN – MUMBAI (Head Quarters) • EASTERN – KOLKOTA • NORTHERN- NEW DELHI • SOUTHERN- CHENNAI • Functions: 1)Advising the Central Board 2) Performing other duties delegated by Central Board

  6. FUNCTIONS OF THE RBI 1) MONOPOLY OF NOTE ISSUE- THRU I) ISSUE DEPARTMENT II) BANKING DEPARTMENT MAINTAINS 18 ISSUE OFFICES; AND NETWORK OF 4301 CURRENCY CHEST AND 4027 SMALL COIN DEPOSITS BASIS – I) PROPORTIONAL RESERVE SYSTEM – 40% to consist of coins, bullions, securities BULLIONS - MINIMUM RESERVE SYSTEM- SINCE 1957- Rs.515cr.of assets- of which- Rs.400cr. In foreign securities and Rs.115cr. in gold coins & bullions

  7. FUNCTIONS CONTD. … 2) BANKER TO GOVERNMENT • ISSUE OF NEW LOANS & TREASURY BILLS • WAYS & MEANS OF ADVANCES 3)ADVISER TO GOVERNMENT 4)CONTROLLER OF CREDIT 5)Custodian of Foreign Exchange Reserve 6) BANKER’S BANK & LENDER OF LAST RESORT 7) BANK OF SETTLEMENT & CLEARANCE 8) INFORMATION AND RESEARCH FUNCTIONS

  8. INSTRUMENTS OF CREDIT CONTROL • GENERAL OR QUANTITATIVE • BANK RATE OR THE DISCOUNT RATE POLICY • OPEN MARKET VARIATIONS • VARIABLE RESERVE RATIO (CRR, SLR, NLR) • SELECTIVE CREDIT CONTROL • MINIMUM MARGIN FOR LENDING AGAINST SPECIFIC SECURITIES • CEILING ON THE AMOUNT OF CREDIT FOR CERTAIN PURPOSE (Credit Authorization Scheme) • DISCRIMINATORY RATES OF INTEREST ON CERTAIN TYPES OF ADVANCES • MORAL SUASION

  9. CRR- CASH RESERVE RATIO-5.5% The Scheduled commercial banks are required to maintain a minimum cash balance with the Reserve Bank at the close of business on any day. • SLR- STATUTORY LIQUIDITY RATIO-24% Commercial banks have to maintain liquid assets in cash, gold and unencumbered Government securities amounting to not less than 20% of the total demand and time liabilities.

  10. NET LIQUIDITY RATIO Total of Bank’s • Cash and Balances with RBI • Cash and Balances with other notified Banks • Balances in current account with other Banks and investments in government and other approved securities Less: • Borrowing from RBI • Borrowing from SBI • Borrowing from Industrial Development Bank CURRENT RATE : 39%

  11. MONETARY POLICY AND RECESSION BANK RATE MARKET RATE CREDIT OFFTAKE MONEY SUPPLY EXCESS DEMAND PRICES RECESSION (6%- BANK RATE; 7.5%- REPO RATE)

  12. FINANCIAL INCLUSION Financial inclusion is delivery of banking services at affordable cost to the vast sections of disadvantaged and low income groups Measures: • Make ‘no-frills Account’ • Adopt one district in each state for 100% financial inclusion • Credit Card facility involving credit upto Rs.25000 without security • Printed materials made available to retail customers in the concerned regional language • ‘Know Your Customers’ (KYC) procedure simplified for low income group people

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