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CPT Section C General Economics Chapter 8 Unit 3 The Reserve Bank of India. CA Shweta Poojari
CPT Section C General Economics Chapter 8 Unit 3 The Reserve Bank of India. CA Shweta Poojari
Functions of RBI
Role of RBI
The General superintendence and direction has been entrusted to the Central
Board of Directors, consisting of the Governor, Dty. Governors, one Govt.
Official from the Ministry of Finance and Directors nominated by the Govt. of
India representing the Local Boards and various elements of the economy.
Besides the Central board there are 4 Local Boards with headquarters in
Mumbai, Kolkata, Chennai and New Delhi.
Supervision and control over Commercial Banks,
relating to licensing and establishments, branch
expansion, liquidity of their assets, management
and methods of working, amalgamation,
reconstruction and liquidation.
Issue of Currency
Banker’s Bank
Controller of credit
Others
The RBI is the sole authority for the issue of currency
in India other than one rupee notes and subsidiary
coins, the magnitude of which is relatively small. The
RBI is also called ‘Bank of issue’
•
It has to ensure that normal short term fluctuations do not affect the
exchange rate.
Credit control is generally considered to be the principal
function of central bank. By making frequent changes in
monetary policy, it ensures that the monetary system in the
economy functions according to the nation’s needs and goals.
Objectives:
• a. To regulate monetary growth and maintain price stability
• b. To ensure adequate expansion in credit
• c. To assist economic growth
• d. To encourage the flow of credit into priority and neglected
sectors
• e. To strengthen the banking system
Quantitative or General Measures Qualitative or selective Measures
Bank Rate Policy Margin Requirements
Open market operations Consumer credit regulation
Variable reserve requirements Issue of directive
(i) cash reserve ratio
(ii) Statutory liquidity ratio
Rationing of credit
Moral suasion
Direct action
General measures of
credit control
The bank rate is the official interest rate at which the
central bank rediscounts the approved bills held by a
commercial bank. If the central bank wishes to control
credit and inflation, it will increase the bank rate
•
OMO imply deliberate and direct sales and purchases of
securities and bills in the open market by central bank to control
the volume of the credit. If it wishes to control credit inflation,
then central bank sells securities in the open market.
• refers to that portion of total deposits, which a commercial bank has to keep with RBI
in the form of cash reserves.
• refers to that portion of total deposits, which a commercial bank has to keep with
itself in the form of liquid assets.
During Inflation, to Control Inflation and
Discourage investment, it is advisable to;
Increase the Bank Rate
Sale of Securities in the open market
Increase the CRR and SLR
During Deflation, to Control Deflation and
Encourage investment, it is advisable to;
Decrease the Bank Rate
Buying of Securities in the open market
Decrease the CRR and SLR
Qualitative or
Selective
Measures
1.Margin Requirements:
b.Providing liberalised
rediscounting facilities to
commercial banks
b. Stability in currency
Answer.: D
c. Control of credit
b. Controls Answer.: B
Explanation.:
Creation of credit is
c. Restricts done by commercial
banks.
Answer.: B
b. Cheap Explanation.: People will
borrow more and
spend/Invest more.
c. Restricted
d. Green
a. Bank rate policy
b. Financial Answer;C
c. Monetary
d. fiscal
a. RBI advances necessary credit
against eligible securities.
c. 4.5%
d. 23%
a. 4.5%
b. 7.5% Answer:A
Note : the CRR is as
updated up to Sept.
2012.
c. 15%
d. 23%
a. 4.5%
b. 7.5% Answer:D
Note : the SLR is as
updated up to Sept.
2012.
c. 15%
d. 23%
a. RBI is a Profit making institution
acting in the interest of the Govt.