Chaitra FINAL PROJECT

HISTORY AND SCOPE OF CENTRAL BANKING 2019
CONTENTS
CHAPTER PARTICULARS PAGE NO.
1. INTRODUCTION 7-13
2. HISTORY AND FORMATION OF CENTRAL BANK 14-25
3. ACTIVITIES LAUNCHED BY CENTRAL BANK 15-32
4. FORMATION OF RBI 33-42
5. ACTIVITIES CONDUCTED BY RBI 43-50
6. STRUCTURE AND IMPORTANCE OF RBI 51-58
7. FUNCTION AND ROLE OF RBI 59-64
8. VARIOUS TECHNOLOGIES ADOPTED IN 65-71

BANKING SYSTEM
9. SCOPE OF RBI 72-74
10. BIBLIORAPHY 75
11. CONCLUSION 76
1
HISTORY OF BANKING
Banking is nearly as old as civilization. The history of banking could be said to have started with the appearance
of money. The first record of minted metal coins was in Mesopotamia in about 2500B.C. the first European
banknotes, which was handwritten appeared in1661, in Sweden. cheque and printed paper money appeared in
the 1700‘s and 1800‘s, with many banks created to deal with increasing trade.
The history of banking in each country runs in lines with the development of trade and industry, and with the
level of political confidence and stability. The ancient Romans developed an advanced banking system to serve
their vast trade network, which extended throughout Europe, Asia and Africa.
Modern banking began in Venice. The word bank comes from the Italian word ―ban co”, meaning bench,
because moneylenders worked on benches in market places. The bank of Venice was established in 1171 to help
the government raise finance for a war.
At the same time, in England merchant started to ask goldsmiths to hold gold and silver in their safes in return
for a fee. Receipts given to the Merchant were sometimes used to buy or sell, with the metal itself staying under
lock and key. The goldsmith realized that they could lend out some of the gold and silver that they had and
charge interest, as not all of the merchants would ask for the gold and silver back at the same time. Eventually,
instead of charging the merchants, the goldsmiths paid them to deposit their gold and silver.
The bank of England was formed in 1694 to borrow money from the public for the government to finance the
war of Augsburg against France. By 1709, goldsmith were using bank of England notes of their own receipts.
New technology transformed the banking industry in the 1900‘s round the world, banks merged into larger and
fewer groups and expanded into other country.
Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the
State Bank of India, a government-owned that is the largest commercial bank in the country. Central banking is
the responsibility of the Reserve Bank of India, which in 1935 formally took over these responsibilities from
then Imperial Bank of India, relegating it to commercial banking functions. After India's independence in 1947,
the Reserve Bank was nationalized and given broader powers. In 1969, the government nationalized the 14
largest commercial banks; the government nationalized the six next largest in 1980.
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BANKING STRUCTURE IN INDIA
In today‘s dynamic world banks are inevitable for the development of a country. Banks play a pivotal role in
enhancing each and every sector. They have helped bring a draw of development on the world‘s horizon and
developing country like India is no exception.
Banks fulfills the role of a financial intermediary. This means that it acts as a vehicle for moving finance from
those who have surplus money to (however temporarily) those who have deficit. In everyday branch terms the
banks channel funds from depositors whose accounts are in credit to borrowers who are in debit.
Without the intermediary of the banks both their depositors and their borrowers would have to contact each
other directly. This can and does happen of course. This is what has lead to the very foundation of financial
institution like banks.
Before few decades there existed some influential people who used to land money. But a substantially high rate
of interest was charged which made borrowing of money out of the reach of the majority of the people so there
arose a need for a financial intermediate.
The Bank have developed their roles to such an extent that a direct contact between the depositors and
borrowers in now known as disintermediation.
Banking industry has always revolved around the traditional function of taking deposits, money transfer and
making advances. Those three are closely related to each other, the objective being to lend money, which is the
profitable activity of the three. Taking deposits generates funds for lending and money transfer services are
necessary for the attention of deposits. The Bank have introduced progressively more sophisticated versions of
these services and have diversified introduction in numerable areas of activity not directly relating to this
traditional trinity
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INDIAN BANKING SYSTEM

Reserve Bank of India
Schedule Banks
Non-Schedule Banks
Central co-op
State co-op Commercial Banks Commercial Banks
Banks and Primary
Banks
Cr. Societies
Indian Foreign
Public Sector
Private Sector Banks HDFC,
Banks
ICICI etc.
State Bank of India Other Nationalized Banks Regional Rural

and its Subsidiaries Banks
4
INDIAN BANKING INDUSTRY ANALYSIS
The banking scenario in India has been changing at fast pace from being just the borrowers and lenders
traditionally, the focus has shifted to more differentiated and customized product/service provider from
regulation to liberalization in the year 1991, from planned economy to market.
Economy, from licensing to integration with Global Economics, the changes have been swift. All most all the
sector operating in the economy was affected and banking sector is no exception to this. Thus the whole of the
banking system in the country has undergone a radical change. Let us see how banking has evolved in the past
57 years of independence.
After independence in 1947 and proclamation in 1950 the country set about drawing its road map for the future
public ownership of banks was seen inevitable and SBI was created in 1955 to spearhead the expansion of
banking into rural India and speed up the process of magnetization.
Political compulsion‘s brought about nationalization of bank in 1969 and lobbying by bank employees and their
unions added to the list of nationalized banks a few years later.
Slowly the unions grew in strength, while bank management stagnated. The casualty was to the customer
service declined, complaints increased and bank management was unable to item the rot.
In the meantime, technology was becoming a global phenomenon lacking a vision of the future and the banks
erred badly in opposing the technology up gradation of banks. They mistakenly believed the technology would
lead to retrenchment and eventually the marginalization of unions.
The problem faced by the banking industry soon surfaced in their balance sheets. But the prevailing accounting
practices unable banks to dodge the issue.
The rules of the game under which banks operated changed in 1993. Norms or income Recognition, Assets
classification and loan loss provisioning were put in place and capital adequacy ratio become mandatory. The
cumulative impact of all these changes has been on the concept of state ownership in banks. It is increasingly
becoming clear that the state ownership in bank is no longer sustainable.
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The amendment of banking regulation act in 1993 saw the entry of new private sector banks and foreign banks.
MAJOR PLAYER IN INDIA
1. CENTRAL BANK OF INDIA

2. STATE BANK OF INDIA LTD
3. PUNJAB NATOINAL BANK LTD
4. BANK OF BARODA LTD
5. FEDERAL BANK LTD
6. AXIS BANK LTD
7. HDFC BANK LTD
8. IDBI BANK LTD
9. UNION BANK OF INDIA
10. BANK OF INDIA
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CHAPTER-1
1.INTRODUCATION
A central bank is a financial institution given privileged control over the production and distribution of money
and credit for a nation or a group of nations. In modern economies, the central bank is usually responsible for
the formulation of monetary policy and the regulation of member banks.
Central banks are inherently non-market-based or even anticompetitive institutions. Although some are
nationalized, many central banks are not government agencies, and so are often touted as being politically
independent. However, even if a central bank is not legally owned by the government, its privileges are
established and protected by law.
The critical feature of a central bank—distinguishing it from other banks—is its legal monopoly status, which
gives it the privilege to issue bank notes and cash. Private commercial banks are only permitted to issue demand
liabilities, such as checking deposits.
Central Bank of India, a government-owned bank, is one of the oldest and largest commercial banks in India.
It is based in Mumbai which is the financial capital of india and capital city of state of Maharashtra. The bank
has 4700 branches, 5000 ATM's and 4 extension counters across 28 Indian states and three Union Territories. At
present, Central Bank of India has overseas office at Nairobi, Hong Kong and a joint venture with Bank of
India, Bank of Baroda, and the Zambian government. The Zambian government holds 40 per cent stake and
each of the banks has 20 per cent. Recently it has also opened a representative office at Nairobi in Kenya.
Central Bank of India has approached the Reserve Bank of India (RBI) for permission to open representative
offices in five more locations - Singapore, Dubai, Doha and London As on 31 March 2015, the bank's reserves
and surplus stood at ₹ 68688 million. Its total business at the end of the last fiscal amounted to ₹ 2,22,124
(approx) million.
7
Snapshot
Company Background
Industry Finance - Banks - Private Sector.
Business Group CENTRAL BANK OF INDIA
Incorporation Date 21/12/1911
Public Issue Date 31/12/1995
Face Value 10.0000
Slogan Build a Better life around us
Company/Business Registration No INE040A01018
Key Officials CEO Rajeev Rishi
1.2 CORPORATE MISSION
♦ To transform the customer banking experience into a fruitful and enjoyable one.
♦ To leverage technology for efficient and effective delivery of all banking services.
♦ To have bouquet of product and services tailor-made to meet customers aspirations.
♦ The pan-India spread of branches across all the state of the country will be utilized to further the socio
economic objective of the Government of India with emphasis on Financial Inclusion.
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1.3VISION STATEMENT OF CENTRAL BANK OF INDIA
The Central bank of India is committed to emerge as a strong, vibrant and pro-active Bank/Financial Super
Market and to positively contribute to the emerging needs of the economy through consistent harmonization of
human, financial and technological resources and effective risk control systems.
The objective of the Central bank of India is to provide its target market customers a full range of financial
products and banking services, giving the customer a one-step window for all his/her requirements. The Central
bank of India plus and the investment advisory services programs have been designed keeping in mind needs of
customers who seeks distinct financial solutions, information and advice on various investment avenues.
1.4 BUSINESS STRATEGY
I. Increasing market share in India‘s expanding banking

II. Delivering high quality customer service
III. Maintaining current high standards for asset quality through disciplined credit risk management
IV. Develop innovative products and services that attract targeted customers and address inefficiencies in
the Indian financial sector.
BOARD OF DIRECTORS/TOP MANAGEMENT
PERSON DESIGNATION
Mr. Rajeev Rishi Chairman & Managing Director
Mr. Raj Kumar Goyal Executive Director
Mr.B.K.Divakar Executive Director
Mr. R.C.Lodha Executive Director
Dr. Saurabh Garg GOI Nominee Director
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Mr. Shekhar Bhatnagar RBI Nominee Director
Mr. M.P.Shorawala Director
Mrs. Krishan Sethi Director
Mr. S.B.Rode Officer Employee Director
Mr. Gurbax Kumar Joshi Workmen Employee Director
Mrs. N.S.Rathnaprabha Director
Mr Ketul Ramubhai Patel Shareholder DIrector
Mr Supratim Bandyopadyay shareholder director
1.5 ACHIEVEMENTS/AWARDS
2012
-Central Bank of India has won the prestigious ‗GOLDEN PEACOCK HR EXCELLENCE AWARD‘
-Central Bank of India provided water storage tanks to the villages of Satara district
-Central Bank of India launched Go Green Campaign for customers.
- Central Bank of India in Association with Angel Broking Launch CENT-e-TRADE The Three-in-One Online
Share Trading Facility.
10
-Central Bank of India - Cent Sanskriti extends helping hand to disabled persons.
2013
-Board recommended a Final Dividend of Rs. 25%.
2014
-CBI received Rajbhasha shield from NARAKAS
-CBI & Tata Motors Ltd signs MOU for commercial Vehicle finance
-CBI Received National Award for Excellence in MSME Lending
1.6 BUSINESS SEGMENT
CENTRAL BANK OF INDIA offers a wide range of commercial and transactional banking services and
treasury products to wholesale and retail customers. The bank has three key business segments:
1.6.1Wholesale Banking Services:
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The Bank's target market ranges from large, blue-chip manufacturing companies in the Indian corporate to small
& mid-sized corporate and agri-based businesses. For these customers, the Bank provides a wide range of
commercial and transactional banking services, including working capital finance, trade services, transactional
services, cash management, etc. The bank is also a leading provider of structured solutions, which combine cash
management services with vendor and distributor finance for facilitating superior supply chain management for
its corporate customers. Based on its superior product delivery / service levels and strong customer orientation,
the Bank has made significant inroads into the banking consortia of a number of leading Indian corporate
including multinationals, companies from the domestic business houses and prime public sector companies. It is
recognized as a leading provider of cash management and transactional banking solutions to corporate
customers, mutual funds, stock exchange members and banks.
1.6.2 Retail Banking Services :
The objective of the Retail Bank is to provide its target market customers a full range of financial
products and banking services, giving the customer a one-stop window for all his/her banking requirements. The
products are backed by world-class service and delivered to the customers through the growing branch network,
as well as through alternative delivery channels like ATMs, Phone Banking, Net Banking and Mobile Banking.
The CENTRAL BANK OF INDIA Preferred program for high net worth individuals, the CENTRAL
BANK OF INDIA Plus and the Investment Advisory Services programs have been designed keeping in mind
needs of customers who seek distinct financial solutions, information and advice on various investment avenues.
The Bank also has a wide array of retail loan products including Auto Loans, Loans against marketable
securities, Personal Loans and Loans for Two-wheelers. It is also a leading provider of Depository Participant
(DP) services for retail customers, providing customers the facility to hold their investments in electronic form.
CENTRAL BANK OF INDIA Bank was the first bank in India to launch an International Debit Card in
association with VISA (VISA Electron) and issues the Master card Maestro debit card as well. The Bank
launched its credit card business in late 2001. By September 30, 2005, the bank had a total card base (debit and
credit cards) of 5.2 million cards. The Bank is also one of the leading players in the "merchant acquiring"
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business with over 50,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant
establishments.
1.6.3 Treasury:
Within this business, the bank has three main product areas - Foreign Exchange and Derivatives, Local
Currency Money Market & Debt Securities, and Equities. With the liberalization of the financial markets in
India, corporate need more sophisticated risk management information, advice and product structures. These
and fine pricing on various treasury products are provided through the bank's Treasury team. To comply with
statutory reserve requirements, the bank is required to hold 25% of its deposits in government securities. The
Treasury business is responsible for managing the returns and market risk on this investment portfolio.
Although their responsibilities range widely, depending on their country, central banks' duties (and the
justification for their existence) usually fall into three areas.
First, central banks control and manipulate the national money supply: issuing currency and setting interest rates
on loans and bonds. Typically, central banks raise interest rates to slow growth and avoid inflation; they lower
them to spur growth, industrial activity, and consumer spending. In this way, they manage monetary policy to
guide the country's economy and achieve economic goals, such as full employment.
Second, they regulate member banks through capital requirements, reserve requirements (which dictate how
much banks can lend to customers, and how much cash they must keep on hand), and deposit guarantees, among
other tools. They also provide loans and services for a nation‘s banks and its government and manage foreign
exchange reserves.
22.
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CHAPTER -2
HISTORY AND FORMATION OF CENTRAL BANKING
2.1 Beginnings
The story of central banking goes back at least to the seventeenth century, to the founding of the first institution
recognized as a central bank, the Swedish Riksbank. Established in 1668 as a joint stock bank, it was chartered
to lend the government funds and to act as a clearing house for commerce. A few decades later (1694), the most
famous central bank of the era, the Bank of England, was founded also as a joint stock company to purchase
government debt. Other central banks were set up later in Europe for similar purposes, though some were
established to deal with monetary disarray. For example, the Banque de France was established by Napoleon in
1800 to stabilize the currency after the hyperinflation of paper money during the French Revolution, as well as
to aid in government finance. Early central banks issued private notes which served as currency, and they often
had a monopoly over such note issue.
While these early central banks helped fund the government‘s debt, they were also private entities that engaged
in banking activities. Because they held the deposits of other banks, they came to serve as banks for bankers,
facilitating transactions between banks or providing other banking services. They became the repository for
most banks in the banking system because of their large reserves and extensive networks of correspondent
banks. These factors allowed them to become the lender of last resort in the face of a financial crisis. In other
words, they became willing to provide emergency cash to their correspondents in times of financial distress.
2.2 Transition
The Federal Reserve System belongs to a later wave of central banks, which emerged at the turn of the twentieth
century. These banks were created primarily to consolidate the various instruments that people were using for
currency and to provide financial stability. Many also were created to manage the gold standard, to which most
countries adhered.
The gold standard, which prevailed until 1914, meant that each country defined its currency in terms of a fixed
weight of gold. Central banks held large gold reserves to ensure that their notes could be converted into gold, as
was required by their charters. When their reserves declined because of a balance of payments deficit or adverse
14
domestic circumstances, they would raise their discount rates (the interest rates at which they would lend money
to the other banks). Doing so would raise interest rates more generally, which in turn attracted foreign
investment, thereby bringing more gold into the country.
Central banks adhered to the gold standard‘s rule of maintaining gold convertibility above all other
considerations. Gold convertibility served as the economy‘s nominal anchor. That is, the amount of money
banks could supply was constrained by the value of the gold they held in reserve, and this in turn determined the
prevailing price level. And because the price level was tied to a known commodity whose long-run value was
determined by market forces, expectations about the future price level were tied to it as well. In a sense, early
central banks were strongly committed to price stability. They did not worry too much about one of the modern
goals of central banking—the stability of the real economy—because they were constrained by their obligation
to adhere to the gold standard.
Central banks of this era also learned to act as lenders of last resort in times of financial stress—when events
like bad harvests, defaults by railroads, or wars precipitated a scramble for liquidity (in which depositors ran to
their banks and tried to convert their deposits into cash). The lesson began early in the nineteenth century as a
consequence of the Bank of England‘s routine response to such panics. At the time, the Bank (and other
European central banks) would often protect their own gold reserves first, turning away their correspondents in
need. Doing so precipitated major panics in 1825, 1837, 1847, and 1857, and led to severe criticism of the Bank.
In response, the Bank adopted the ―responsibility doctrine,‖ proposed by the economic writer Walter Bagehot,
which required the Bank to subsume its private interest to the public interest of the banking system as a whole.
The Bank began to follow Bagehot‘s rule, which was to lend freely on the basis of any sound collateral
offered—but at a penalty rate (that is, above market rates) to prevent moral hazard. The bank learned its lesson
well. No financial crises occurred in England for nearly 150 years after 1866. It wasn‘t until August 2007 that
the country experienced its next crisis.
The U.S. experience was most interesting. It had two central banks in the early nineteenth century, the Bank of
the United States (1791–1811) and a second Bank of the United States (1816–1836). Both were set up on the
model of the Bank of England, but unlike the British, Americans bore a deep-seated distrust of any
concentration of financial power in general, and of central banks in particular, so that in each case, the charters
were not renewed.
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There followed an 80-year period characterized by considerable financial instability. Between 1836 and the
onset of the Civil War—a period known as the Free Banking Era—states allowed virtual free entry into banking
with minimal regulation. Throughout the period, banks failed frequently, and several banking panics occurred.
The payments system was notoriously inefficient, with thousands of dissimilar-looking state bank notes and
counterfeits in circulation. In response, the government created the national banking system during the Civil
War. While the system improved the efficiency of the payments system by providing a uniform currency based
on national bank notes, it still provided no lender of last resort, and the era was rife with severe banking panics.
The crisis of 1907 was the straw that broke the camel‘s back. It led to the creation of the Federal Reserve in
1913, which was given the mandate of providing a uniform and elastic currency (that is, one which would
accommodate the seasonal, cyclical, and secular movements in the economy) and to serve as a lender of last
resort.
2.3 The Genesis of Modern Central Banking Goals

Before 1914, central banks didn‘t attach great weight to the goal of maintaining the domestic economy‘s
stability. This changed after World War I, when they began to be concerned about employment, real activity,
and the price level. The shift reflected a change in the political economy of many countries—suffrage was
expanding, labor movements were rising, and restrictions on migration were being set. In the 1920s, the Fed
began focusing on both external stability (which meant keeping an eye on gold reserves, because the U.S. was
still on the gold standard) and internal stability (which meant keeping an eye on prices, output, and
employment). But as long as the gold standard prevailed, external goals dominated.
Unfortunately, the Fed‘s monetary policy led to serious problems in the 1920s and 1930s. When it came to
managing the nation‘s quantity of money, the Fed followed a principle called the real bills doctrine. The
doctrine argued that the quantity of money needed in the economy would naturally be supplied so long as
Reserve Banks lent funds only when banks presented eligible self-liquidating commercial paper for collateral.
One corollary of the real bills doctrine was that the Fed should not permit bank lending to finance stock market
speculation, which explains why it followed a tight policy in 1928 to offset the Wall Street boom. The policy led
to the beginning of recession in August 1929 and the crash in October. Then, in the face of a series of banking
panics between 1930 and 1933, the Fed failed to act as a lender of last resort. As a result, the money supply
collapsed, and massive deflation and depression followed. The Fed erred because the real bills doctrine led it to
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interpret the prevailing low short-term nominal interest rates as a sign of monetary ease, and they believed no
banks needed funds because very few member banks came to the discount window.
After the Great Depression, the Federal Reserve System was reorganized. The Banking Acts of 1933 and 1935
shifted power definitively from the Reserve Banks to the Board of Governors. In addition, the Fed was made
subservient to the Treasury.
The Fed regained its independence from the Treasury in 1951, whereupon it began following a deliberate
countercyclical policy under the directorship of William McChesney Martin. During the 1950s this policy was
quite successful in ameliorating several recessions and in maintaining low inflation. At the time, the United
States and the other advanced countries were part of the Bretton Woods System, under which the U.S. pegged
the dollar to gold at $35 per ounce and the other countries pegged to the dollar. The link to gold may have
carried over some of the credibility of a nominal anchor and helped to keep inflation low.
The picture changed dramatically in the 1960s when the Fed began following a more activist stabilization
policy. In this decade it shifted its priorities from low inflation toward high employment. Possible reasons
include the adoption of Keynesian ideas and the belief in the Phillips curve trade-off between inflation and
unemployment. The consequence of the shift in policy was the buildup of inflationary pressures from the late
1960s until the end of the 1970s. The causes of the Great Inflation are still being debated, but the era is
renowned as one of the low points in Fed history. The restraining influence of the nominal anchor disappeared,
and for the next two decades, inflation expectations took off.
The inflation ended with Paul Volcker‘s shock therapy from 1979 to 1982, which involved monetary tightening
and the raising of policy interest rates to double digits. The Volcker shock led to a sharp recession, but it was
successful in breaking the back of high inflation expectations. In the following decades, inflation declined
significantly and has stayed low ever since. Since the early 1990s the Fed has followed a policy of implicit
inflation targeting, using the federal funds rate as its policy instrument. In many respects, the policy regime
currently followed echoes the convertibility principle of the gold standard, in the sense that the public has come
to believe in the credibility of the Fed‘s commitment to low inflation.
A key force in the history of central banking has been central bank independence. The original central banks
were private and independent. They depended on the government to maintain their charters but were otherwise
17
free to choose their own tools and policies. Their goals were constrained by gold convertibility. In the twentieth
century, most of these central banks were nationalized and completely lost their independence. Their policies
were dictated by the fiscal authorities. The Fed regained its independence after 1951, but its independence is not
absolute. It must report to Congress, which ultimately has the power to change the Federal Reserve Act. Other
central banks had to wait until the 1990s to regain their independence.
2.4 Financial Stability

An increasingly important role for central banks is financial stability. The evolution of this responsibility has
been similar across the advanced countries. In the gold standard era, central banks developed a lender-of-last-
resort function, following Bagehot‘s rule. But financial systems became unstable between the world wars, as
widespread banking crises plagued the early 1920s and the 1930s. The experience of the Fed was the worst. The
response to banking crises in Europe at the time was generally to bail out the troubled banks with public funds.
This approach was later adopted by the United States with the Reconstruction Finance Corporation, but on a
limited scale. After the Depression, every country established a financial safety net, comprising deposit
insurance and heavy regulation that included interest rate ceilings and firewalls between financial and
commercial institutions. As a result, there were no banking crises from the late 1930s until the mid-1970s
anywhere in the advanced world.
This changed dramatically in the 1970s. The Great Inflation undermined interest rate ceilings and inspired
financial innovations designed to circumvent the ceilings and other restrictions. These innovations led to
deregulation and increased competition. Banking instability reemerged in the United States and abroad, with
such examples of large-scale financial disturbances as the failures of Franklin National in 1974 and Continental
Illinois in 1984 and the savings and loan crisis in the 1980s. The reaction to these disturbances was to bail out
banks considered too big to fail, a reaction which likely increased the possibility of moral hazard. Many of these
issues were resolved by the Depository Institutions Deregulation and Monetary Control Act of 1980 and the
Basel I Accords, which emphasized the holding of bank capital as a way to encourage prudent behavior.
Another problem that has reemerged in modern times is that of asset booms and busts. Stock market and
housing booms are often associated with the business cycle boom phase, and busts often trigger economic
downturns. Orthodox central bank policy is to not defuse booms before they turn to busts for fear of triggering a
recession but to react after the bust occurs and to supply ample liquidity to protect the payments and banking
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systems. This was the policy followed by Alan Greenspan after the stock market crash of 1987. It was also the
policy followed later in the incipient financial crises of the 1990s and 2000s. Ideally, the policies should remove
the excess liquidity once the threat of crisis has passed.
2.5 Challenges for the Future

The key challenge I see facing central banks in the future will be to balance their three policy goals. The
primary goal of the central bank is to provide price stability (currently viewed as low inflation over a long-run
period). This goal requires credibility to work. In other words, people need to believe that the central bank will
tighten its policy if inflation threatens. This belief needs to be backed by actions. Such was the case in the mid-
1990s when the Fed tightened in response to an inflation scare. Such a strategy can be greatly enhanced by good
communication.
The second policy goal is stability and growth of the real economy. Considerable evidence suggests that low
inflation is associated with better growth and overall macroeconomic performance. Nevertheless, big shocks
still occur, threatening to derail the economy from its growth path. When such situations threaten, research also
suggests that the central bank should temporarily depart from its long-run inflation goal and ease monetary
policy to offset recessionary forces. Moreover, if market agents believe in the long-run credibility of the central
bank‘s commitment to low inflation, the cut in policy interest rates will not engender high inflation
expectations. Once the recession is avoided or has played its course, the central bank needs to raise rates and
return to its low-inflation goal.
The third policy goal is financial stability. Research has shown that it also will be improved in an environment
of low inflation, although some economists argue that asset price booms are spawned in such an environment. In
the case of an incipient financial crisis such as that just witnessed in August 2007, the current view is that the
course of policy should be to provide whatever liquidity is required to allay the fears of the money market. An
open discount window and the acceptance of whatever sound collateral is offered are seen as the correct
prescription. Moreover, funds should be offered at a penalty rate. The Fed followed these rules in September
2007, although it is unclear whether the funds were provided at a penalty rate. Once the crisis is over, which
generally is in a matter of days or weeks, the central bank must remove the excess liquidity and return to its
inflation objective.
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The Federal Reserve followed this strategy after Y2K. When no financial crisis occurred, it promptly withdrew
the massive infusion of liquidity it had provided. By contrast, after providing funds following the attacks of 9/11
and the technology bust of 2001, it permitted the additional funds to remain in the money market once the threat
of crisis was over. If the markets had not been infused with so much liquidity for so long, interest rates would
not have been as low in recent years as they have been, and the housing boom might not have as expanded as
much as it did.
A second challenge related to the first is for the central bank to keep abreast of financial innovations, which can
derail financial stability. Innovations in the financial markets are a challenge to deal with, as they represent
attempts to circumvent regulation as well as to reduce transactions costs and enhance leverage. The recent
subprime crisis exemplifies the danger, as many problems were caused by derivatives created to package
mortgages of dubious quality with sounder ones so the instruments could be unloaded off the balance sheets of
commercial and investment banks. This strategy, designed to dissipate risk, may have backfired because of the
opacity of the new instruments.
A third challenge facing the Federal Reserve in particular is whether to adopt an explicit inflation targeting
objective like the Bank of England, the Bank of Canada, and other central banks. The advantages of doing so
are that it simplifies policy and makes it more transparent, which eases communication with the public and
enhances credibility. However, it might be difficult to combine an explicit target with the Fed‘s dual mandate of
price stability and high employment.
A fourth challenge for all central banks is to account for globalization and other supply-side developments, such
as political instability and oil price and other shocks, which are outside of their control but which may affect
global and domestic prices.
The final challenge I wish to mention concerns whether implicit or explicit inflation targeting should be
replaced with price-level targeting, whereby inflation would be kept at zero percent. Research has shown that a
price level may be the superior target, because it avoids the problem of base drift (where inflation is allowed to
cumulate), and it also has less long-run price uncertainty. The disadvantage is that recessionary shocks might
cause a deflation, where the price level declines. This possibility should not be a problem if the nominal anchor
20
is credible, because the public would realize that inflationary and deflationary episodes are transitory and prices
will always revert to their mean, that is, toward stability.
Such a strategy is not likely to be adopted in the near future because central banks are concerned that deflation
might get out of control or be associated with recession on account of nominal rigidities. In addition, the
transition would involve reducing inflation expectations from the present plateau of about 2 percent, which
would likely involve deliberately engineering a recession—a policy not likely to ever be popular.
2.5 Central Bank of India
Central Bank of India, a government-owned bank, is one of the oldest and largest commercial banks in India.
It is based in Mumbai which is the financial capital of India and capital city of state of Maharashtra.
It is one of eighteen public sector banks in India to get recapitalised in 2009.
Central Bank of India has approached the Reserve Bank of India (RBI) for permission to open representative
offices in five more locations – Singapore, Dubai, Doha and London.
As on 30 September 2019, the bank has a network of 4,681 branches, 3,477 ATMs, ten satellite offices and one
extension counter. It has a pan-India presence covering all 28 states, seven out of nine union territories and NCT
Delhi, 574 district headquarters and 626 districts out of 707 districts in the country.
Central Bank of India is one of the oldest commercial banks of India, and reportedly is the first truly Indian
bank which was totally owned and established by Indian without any foreign help.
The Central Bank of India was established on 21 December 1911 by Sir Sorabji Pochkhanawala with Sir
Pherozeshah Mehta as Chairman,and claims to have been the first commercial Indian bank completely owned
and managed by Indians.
21
A 2010 stamp dedicated to Sorabji Pochkhanawala and the 100th anniversary of the
Central Bank of India.
Early-20th century
By 1918 it had established a branch in Hyderabad. A branch in nearby Secunderabad followed in 1925.
In 1923, it acquired the Tata Industrial Bank in the wake of the failure of the Alliance Bank of Simla. The
Tata bank, established in 1917, had opened a branch in Madras in 1920 that became the Central Bank of India,
Madras.
Central Bank of India was instrumental in the creation of the first Indian exchange bank, the Central Exchange
Bank of India, which opened in London in 1936. However, Barclays Bank acquired Central Exchange Bank of
India in 1938.
Also before World War II, Central Bank of India established a branch in Rangoon. The branch's operations
concentrated on business between Burma and India, and especially money transmission via telegraphic transfer.
22
Profits derived primarily from foreign exchange and margins. The bank also lent against land, produce, and
other assets, mostly to Indian businesses
Post-World War II
In 1963, the revolutionary government in Burma nationalized Central Bank of India's operations there, which
became People's Bank No.1.
In 1969, the Indian Government nationalized the bank on 19 July, together with 13 others.
Central Bank of India, Shankar Sheth Road Branch,
In the 1980s the managers of the London branches of Central Bank of India, Punjab National Bank, and Union
Bank of India were caught up in a fraud in which they made dubious loans to the Bangladeshi jute trader
Rajender Singh Sethia. The regulatory authorities in England and India forced all three Indian banks to close
their London branches.
Central Bank of India was one of the first banks in India to issue credit cards in the year 1980 in collaboration
with On its 108th Foundation day Central Bank of India launched its first step towards robotic banking, a robot
named "MEDHA".
Sir Sorabji Pockhanawala was the founder of the bank, who had always dreamt of establishing a thoroughly
Indian bank, who was so happy and excited about the project that he reportedly termed the Central Bank of
India as ―property of the nation and the country‘s asset‖. The first Chairman of the bank was Sir Pherozesha
Mehta, a yet another Indian enthusiast. In the year 1969 the bank was nationalized by the Government of India.
Key Attributes
Central Bank of India claims to be the first bank to be conferred with the National Award for Excellence in
23
Micro and Small Enterprises (MSE) Lending for the year 2007-08.
The bank entered a partnership with Kotak Mahindra Assets Management Company in December 2008, under
which all the Kotak Mutual Fund products will be made available through Central Bank of India branches.
Products and Services

Central Bank of India offers a host of banking services to its customers including Regular Banking Services
such as Deposits and Loans, International Banking Services, and other services including Central card
Electronic Cards, Debit Cards, No-Frills Savings Deposit Account under the name Cent Bachat Khata, and
Finance options for domestic and international tours under the name Cent Safar.
Presence in India
Central Bank of India has a strong presence in the country with over 3000 branches and more than 250
extension counters nationwide as of April 2009. The headquarters of the bank are located in Mumbai, the
financial capital of India, along with 16 other zonal offices established in different cities of the nation, including
Agra, Ahmadabad, Bhopal, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata, Lucknow, Mumbai Metro
Zonal Office, Muzaffarpur, Nagpur, New Delhi, Patna, Pune and Raipur.
OBJECTIVES OF CENTRAL BANK OF INDIA
The Central Bank of India is one of the oldest Banks in India.
It was established in the year 1911 and was the first commercial bank of India that was owned by Indians.
The objectives of the Central Bank of India are as follows:
 To help ensure the monetary stability of the country-
 To assist in regulating the financial system of the country,

 To formulate, implement and monitor the monetary policy. - To maintain the liquidity in the country-
 To ensure adequate flow of credits. - Prescribes parameters for banking in the country.
 Maintain public confidence in the system- To manage the foreign exchange
 Management Act. - To facilitate external trade.
 Issue and exchange currency-
24
 Maintain supply of currency.

 Own and operate the depository and exchange for government bonds. –
 Banker to the government
25
3. ACTIVITIES LAUNCHED & S.W.O.T. ANALYSIS OF CENTRAL BANK OF

INDIA
Established in 1911, Central Bank of India was the first Indian commercial bank which was wholly owned and
managed by Indians. The establishment of the Bank was the ultimate realisation of the dream of Sir Sorabji
Pochkhanawala, founder of the Bank. Sir Pherozesha Mehta was the first Chairman of a truly 'Swadeshi Bank'.
In fact, such was the extent of pride felt by Sir Sorabji Pochkhanawala that he proclaimed Central Bank of India
as the 'property of the nation and the country's asset'. He also added that 'Central Bank of India lives on people's
faith and regards itself as the people's own bank'.
During the past 106 years of history the Bank has weathered many storms and faced many challenges. The Bank
could successfully transform every threat into business opportunity and excelled over its peers in the Banking
industry.
A number of innovative and unique banking activities have been launched by Central Bank of India and a brief
mention of some of its pioneering services are as under:
1921 Introduction to the Home Savings Safe Deposit Schemeto build saving/thrift habits in all
sections of the society.
1924 An Exclusive Ladies Department to cater to the Bank's women clientele.
1926 Safe Deposit Locker facility and Rupee Travellers' Cheques.
1929 Setting up of the Executor and Trustee Department.
1932 Deposit Insurance Benefit Scheme.
1962 Recurring Deposit Scheme.
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Subsequently, even after the nationalisation of the Bank in the year 1969, Central Bank continued to introduce a
number of innovative banking services as under:
1976 The Merchant Banking Cell was established.
1980 Centralcard, the credit card of the Bank was introduced.
1986 'Platinum Jubilee Money Back Deposit Scheme' was launched.
1989 The housing subsidiary Cent Bank Home Finance Ltd. was started with its headquarters at
Bhopal in Madhya Pradesh.
1994 Quick Cheque Collection Service (QCC) & Express Service was set up to enable speedy
collection of outstation cheques.
Further in line with the guidelines from Reserve Bank of India as also the Government of India, Central Bank
has been playing an increasingly active role in promoting the key thrust areas of agriculture, small scale
industries as also medium and large industries. The Bank also introduced a number of Self Employment
Schemes to promote employment among the educated youth.
Among the Public Sector Banks, Central Bank of India can be truly described as an All India Bank, due to
distribution of its large network in all 29 States as also in 6 out of 7 Union Territories in India. Central Bank of
India holds a very prominent place among the Public Sector Banks on account of its network of 4659 Branches,
1 Extension counters, along with 10 Satellite Offices (as on February 2019) at various centres throughout the
length and breadth of the country
Customers' confidence in Central Bank of India's wide ranging services can very well be judged from the list of
major corporate clients such as ICICI, IDBI, UTI, LIC, HDFC as also almost all major corporate houses in the
country.
27
Central Bank of India is one of the largest commercial banks in India. Founded in December 21, 1911 by
Sorabji Pochkhanawala, Central Bank of India is believed to be the first commercial bank in India, owned and
managed fully by the Indians. In 1923, Central Bank of India acquired Tata Industrial Bank. It has made its
position in the Indian banking industry through a range of innovative and unique banking activities, which
continued even after the nationalization of banks in India in 1969.
Central Bank of India has been pioneer in introducing various services. Some of those can be listed as below:
 Introduced Home Savings Safe Deposit Scheme for building thrift/savings habits in 1921.
 Opened up an exclusive Ladies Department for the women customers in 1924.
 Safe Deposit Locker facility in 1926.
 Set up Executor and Trustee Department in 1929.
 Deposit Insurance Benefit Scheme in 1932.
 Recurring Deposit Scheme in 1962.
Central Bank of India has its presence in all the Indian state but one, and 4 out of 7 Union Territories of the
country. It has an extensive network of 3,546 branches as well as 218 extension counters across the country.
3.1CENTBANK FINANCIAL SERVICES
Cent bank Financial Services Limited is essentially providing ancillary corporate financial services. During the
year 2011-12, CFSL has significantly diversified its business profile to make CFSL a full-service investment
bank. CFSL services include:
• Project Appraisal and Loan Syndication
• Capital market Transactions (both equity and debt)
• Corporate Advisory Services including M&As and Debt Restructuring, Project Advisory, Securitization, Risk
Management, Business Valuations, Private Equity and TEVReport
• Trusteeship Services including debenture/security Trustee, Executor Trustee, Managing Charitable Trusts
• The company earned a Net Profit of Rs. 9.30 crore as of March 2012 against Net Profit of Rs.7.24 crore in the
previous year.
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3.2 S.W.O.T. ANALYSIS OF CENTRAL BANK OF INDIA
Introduction to SWOT Analysis.
The overall evaluation of the company‗s Strength, Weakness, Opportunities and Threats is
Called as SWOT Analysis
.The external environment analysis of any business will give you the opportunities and threats facing the
business. The external environment consists of two parts:
(1)Macro Environment
: Demographic, Economic, Technology, Political-legal, Socio-cultural
(2)Micro Environment
: Customers, Competition, Distributors, Suppliers. The Internal Environment Analysis will give you the strength
and weakness of the business.
STRENGTH WEAKNESS
Right strategy for the right products Some gaps in range for certain sectors
Superior customer service v/s competitors Customer service staff need training
Great brand image Processes and systems etc
High degree of customer satisfaction Management cover insufficient
Good place to work
OPPURTUNITIES THREATS
Profit margin will be good Legislation could impact
Extended to overseas broadly Great risk involved
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New specialist applications Vulnerable to reactive attack by major

competitors
Could seek better customer deals Very high competition prevailing in the
industry
STRENGHTS
1) Online Services
: CENTRAL BANK OF INDIA provides online services of all it‗s banking
Facilities. It also provides D-Mart account facilities on-line, so a person can access his account from anywhere
he is.
[D-Mat is a dematerialized account opened by a salaried person for purchase &sale of shares of different
companies.
2) Advanced Infrastructure
: Branches of: CENTRAL BANK OF INDIA are well equipped with advanced technology to provide the
customers with taster banking services. All the computerized machines are located in suitable manner & are
very useful to the customers & staff of thebank.3
3) Friendly Staff:
The staffs: CENTRAL BANK OF INDIA in all branches are very friendly & help the customers in all cases.
They provide faster services along with bonding & personal relationship with the customers.
.4) Other Facilities to the Customers & Employees:
: CENTRAL BANK OF INDIA also provides other facilities like drinking water facilities, proper sitting
arrangements to the customers. And there are also proper Ventilation & sanitary facilities for the employees of
the bank.
5) Late night ATM services:
: CENTRAL BANK OF INDIA provides night ATM services to the customers
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Weakness
1) High Bank Service Charges:
Central bank of India charges normal charges to customers for the services provided by them when compared to
other bank & that is why it is only in the reach class of society.
2) Less Credit Period:
Central bank of India provides credit facilities but only up to limited period. Even when the credit period is not
over it sends reminder letters to the customer‘s which may annoy them
OPPORTUNITIES
1) Bank- Insurance services:
The bank should also provide insurance services. That means the bank can have a tie-up with an insurance
company. The bank will advertise & promote the different policies introduced by the insurance company &
convince their customers to buy insurance policies.
2) Increase in percentage of Returns on increase:
The bank should provide higher returns on deposits in comparison of the present situation. This will also up to
large extent help the bank earn profits & popularity.
3) Recruit professionally guided students:
Bank & Insurance is a special non-aid course where the students specialize in the functioning & services of the
bank & also are knowledge about various tax policies. The bank can recruit these students through tie-ups with
colleges. Such students will surely prove as an asset to the bank.
4) Associate with social cause:
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The bank can also associate itself with social causes likeproviding relief aid patients, funding towards natural
calamities. But this falls in the fourth quadrant so the bank should neglect it.
THREATS
1) Competition
: Central bank of India is facing tight competition locally .Bank like SBI Bank, BANK OF BARODA, Standard
Chartered, and HDFC also provide equivalent facilities like Central bank of India do.
2) Net Services:
Central bank of India provides all kind of services on-line. There can be easy access to the e-mail ids of the
customers through wrong people. The confidential information of the customers can be leaked easily through
the e-mail ids.3
3) Decentralized Management:
Each branch manager is given the authority of taking decisions in their respective branches. The decisions made
by different managers are diverse and any one wrong decision can laid to heavy losses to the ba
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4. FORMATION OF RESERVE BANK OF INDIA
The origins of the Reserve Bank of India can be traced to 1926 when the Royal Commission on Indian Currency
and Finance – also known as the Hilton-Young Commission – recommended the creation of a central bank for India
to separate the control of currency and credit from the Government and to augment banking facilities throughout the
country. The Reserve Bank of India Act of 1934 established the Reserve Bank and set in motion a series of actions
culminating in the start of operations in 1935. Since then, the Reserve Bank‘s role and functions have undergone
numerous changes, as the nature of the Indian economy and financial sector changed.
There were several causes for the creation of a central bank. Though the rupee was the common currency, there
were several species of rupee coins of different values in circulation. The authorities, however, endeavored to
evolve a standard coin. For many years, the Sicca of Murshidabad was, in theory, the standard coin, and the rates of
exchange of the various rupees in terms of the Sicca rupee varied, the discount being called the batta.
The Government received enquiries from the Collectors as to the batta they should charge on the different species
they received from zamindars and farmers. The proposed bank was to fix the value, in Sicca rupees, of the bills it
had to issue in return for the money received from the Collectors, on the basis of the same batta. Thus, the bank was
expected to assist in stabilizing inland exchange and in enforcing the Sicca coin as the standard coin of the
Provinces.
The Reserve Bank of India is also known as the Nation‘s Central Bank. According to the bank dossiers, it began
operations on April 01, 1935. In the following section, we will know more about how the bank came into being. We
will also see the historic acts and the decisions that the bank has been a part of. Finally, we will summarise by listing
the functions of the Reserve Bank Of India. Let us also see the history of the history of RBI.
The Reserve Bank of India (RBI) is India's central bank, which controls the issue and supply of the Indian
rupee. RBI is the regulator of entire Banking in India. RBI plays an important part in the Development Strategy
of the Government of India.
RBI regulates commercial banks and non-banking finance companies working in India. It serves as the leader of
the banking system and the money market. It regulates money supply and credit in the country. The RBI carries
33
out India's monetary policy and exercises supervision and control over banks and non-banking finance
companies in India. RBI was set up in 1935 under the Reserve Bank of India Act,1934.
Until the Monetary Policy Committee was established in 2016, it also controlled monetary policy in India. It
commenced its operations on 1 April 1935 in accordance with the Reserve Bank of India Act, 1934. The
original share capital was divided into shares of 100 each fully paid . Following India's independence on 15
August 1947, the RBI was nationalised on 1 January 1949.
It is a member bank of the Asian Clearing Union. The general superintendence and direction of the RBI is
entrusted with the 21-member central board of directors: the governor; four deputy governors; two finance
ministry representatives (usually the Economic Affairs Secretary and the Financial Services Secretary); ten
government-nominated directors to represent important elements of India's economy; and four directors to
represent local boards headquartered at Mumbai, Kolkata, Chennai and the capital New Delhi. Each of these
local boards consists of five members who represent regional interests, the interests of co-operative and
indigenous banks.
The central bank is an independent apex monetary authority which regulates banks and provides important
financial services like storing of foreign exchange reserves, control of inflation, monetary policy report till
August 2016. A central bank is known by different names in different countries. The functions of a central bank
may vary from country to country and are autonomous or body and perform or through another agency vital
monetary functions in the country. A central bank is a vital financial apex institution of an economy and the key
objects of central banks may differ from country to country still they perform activities and functions with the
goal of maintaining economic stability and growth of an economy.
The bank is also active in promoting financial inclusion policy and is a leading member of the Alliance for
Financial Inclusion (AFI). The bank is often referred to by the name 'Mint Street'. RBI is also known as banker's
bank.
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4.1 Origin & History Of The Reserve Bank Of India
1926: The Royal Commission on Indian Currency and Finance recommended the creation of a central bank for
India.
1927: A bill to give effect to the above recommendation was introduced in the Legislative Assembly. But it was
later withdrawn due to lack of agreement among various sections of people.
1933: The White Paper on Indian Constitutional Reforms recommended the creation of a Reserve Bank. A fresh
bill was introduced in the Legislative Assembly.
1934: The Bill was passed and received the Governor General‘s assent
1935: The Reserve Bank commenced operations as India‘s central bank on April 1 as a private shareholders‘ bank
with a paid up capital of rupees five crores (rupees fifty million).
1942: The Reserve Bank ceased to be the currency issuing authority of Burma (now Myanmar).
1947: The Reserve Bank stopped acting as banker to the Government of Burma.
1948: The Reserve Bank stopped rendering central banking services to Pakistan.
1949: The Government of India nationalized the Reserve Bank under the Reserve Bank (Transfer of Public
Ownership) Act, 1948.
35
The Reserve Bank of India was established following the Reserve Bank of India Act of 1934. Though privately
owned initially, it was nationalised in 1949 and since then fully owned by Government of India (GoI).
1935–1949
Reserve Bank of India-10 Rupees (1938), first year of banknote issue.
36
The Reserve Bank of India was founded on 1 April 1935 to respond to economic troubles after the First World
War. The Reserve Bank of India was conceptualised based on the guidelines presented by the Central
Legislative Assembly which passed these guidelines as the RBI Act 1934. RBI was conceptualised as per the
guidelines, working style and outlook presented by Dr. B. R. Ambedkar in his book titled ―The Problem of the
Rupee – Its origin and its solution‖ and presented to the Hilton Young Commission. The bank was set up based
on the recommendations of the 1926 Royal Commission on Indian Currency and Finance, also known as the
Hilton–Young Commission. The original choice for the seal of RBI was the East India Company Double
Mohur, with the sketch of the Lion and Palm Tree. However, it was decided to replace the lion with the tiger,
the national animal of India. The Preamble of the RBI describes its basic functions to regulate the issue of bank
notes, keep reserves to secure monetary stability in India, and generally to operate the currency and credit
system in the best interests of the country. The Central Office of the RBI was established in Calcutta (now
Kolkata) but was moved to Bombay (now Mumbai) in 1937. The RBI also acted as Burma's (now Myanmar)
central bank until April 1947 (except during the years of Japanese occupation (1942–45)), even though Burma
seceded from the Indian Union in 1937. After the Partition of India in August 1947, the bank served as the
central bank for Pakistan until June 1948 when the State Bank of Pakistan commenced operations. Though set
up as a shareholders‘ bank, the RBI has been fully owned by the Government of India since its nationalisation in
1949. RBI has monopoly of note issue.
1950–1960
In the 1950s, the Indian government, under its first Prime Minister Jawaharlal Nehru, developed a centrally
planned economic policy that focused on the agricultural sector. The administration nationalised commercial
banks and established, based on the Banking Companies Act, 1949 (later called the Banking Regulation Act), a
central bank regulation as part of the RBI. Furthermore, the central bank was ordered to support economic plan
with loans.
1961–1968
As a result of bank crashes, the RBI was requested to establish and monitor a deposit insurance system. Meant
to restore the trust in the national bank system, it was initialised on 7 December 1961. The Indian government
founded funds to promote the economy, and used the slogan "Developing Banking". The government of India
restructured the national bank market and nationalised a lot of institutes. As a result, the RBI had to play the
central part in controlling and supporting this public banking sector.
37
1969–1984
In 1969, the Indira Gandhi-headed government nationalised 14 major commercial banks. Upon Indira Gandhi's
return to power in 1980, a further six banks were nationalised. The regulation of the economy and especially the
financial sector was reinforced by the Government of India in the 1970s and 1980s. The central bank became
the central player and increased its policies a lot for various tasks like interests, reserve ratio and visible
deposits. These measures aimed at better economic development and had a huge effect on the company policy
of the institutes. The banks lend money in selected sectors, like agricultural business and small trade companies.
The Banking Commission was established on Wednesday, 29 January 1969, to analyse banking costs, effects of
legislations and banking procedures, including non banking financial intermediaries and indigenous banking
on Government of India economy; with Mr. R.G. Saraiya as the chairman.
The branch was forced to establish two new offices in the country for every newly established office in a town.
The oil crises in 1973 resulted in increasing inflation, and the RBI restricted monetary policy to reduce the
effects.
1985–1990
A lot of committees analysed the Indian economy between 1985 and 1991. Their results had an effect on the
RBI. The Board for Industrial and Financial Reconstruction, the Indira Gandhi Institute of Development
Research and the Security & Exchange Board of India investigated the national economy as a whole, and the
security and exchange board proposed better methods for more effective markets and the protection of investor
interests. The Indian financial market was a leading example for so-called "financial repression" (Mckinnon and
Shaw). The Discount and Finance House of India began its operations in the monetary market in April 1988;
the National Housing Bank, founded in July 1988, was forced to invest in the property market and a new
financial law improved the versatility of direct deposit by more security measures and liberalisation.
1991–1999
The national economy contracted in July 1991 as the Indian rupee was devalued. The currency lost 18% of its
value relative to the US dollar, and the Narsimham Committee advised restructuring the financial sector by a
temporal reduced reserve ratio as well as the statutory liquidity ratio. New guidelines were published in 1993 to
38
establish a private banking sector. This turning point was meant to reinforce the market and was often
called neo-liberal. The central bank deregulated bank interests and some sectors of the financial market like the
trust and property markets. This first phase was a success and the central government forced a diversity
liberalisation to diversify owner structures in 1998.
The National Stock Exchange of India took the trade on in June 1994 and the RBI allowed nationalised banks in
July to interact with the capital market to reinforce their capital base. The central bank founded a subsidiary
company—the Bharatiya Reserve Bank Note Mudran Private Limited—on 3 February 1995 to produce
banknotes.
Since 2000
The Foreign Exchange Management Act, 1999 came into force in June 2000. It should improve the item in
2004–2005 (National Electronic Fund Transfer).[36] The Security Printing & Minting Corporation of India Ltd.,
a merger of nine institutions, was founded in 2006 and produces banknotes and coins. [37]
The national economy's growth rate came down to 5.8% in the last quarter of 2008–2009[38] and the central bank
promotes the economic development.
In 2016, the Government of India amended the RBI Act to establish the Monetary Policy Committee (MPC) to
set. This limited the role of the RBI in setting interest rates, as the MPC membership is evenly divided between
members of the RBI (including the RBI governor) and independent members appointed by the government.
However, in the event of a tie, the vote of the RBI governor is decisive.
The Central Board of Directors is the sole governing body of the Reserve Bank of India. The Central Board of
Directors comprises the Governor, four Deputy Governors, four regional boards directors, two directors
representing the Ministry of Finance and 10 others. All the directors of the Central Board are appointed by the
Government of India for a period of four years. The present Central Board comprises:-
4.2 Legal Fabric

There has to be a legal framework for any organisation to function smoothly and according to the law of the
land. An organisation of such prodigy as the Reserve Bank of India, needs special legal fabric to operate with
precision for public as well as national welfare. Over the 80 years of the RBI's functioning, there have been a
number of Acts laid down for the institution to work under a set paradigm.
39
4.3Acts administered by the RBI-

 Reserve Bank of India Act, 1934
 Public Debt Act, 1944
 Banking Regulation Act, 1949
 Foreign Exchange Management Act, 1999
 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
 Credit Information Companies (Regulation) Act, 2005
 Payments and Settlements Systems Act, 2007
 Payment and Settlements Systems Regulations, 2008 and Amended up to 2011 and BPSS Regulations, 2008
 Factoring Regulation Act, 2011
Some of the other reference acts-
 Negotiable Instruments Act, 1881
 State Bank of India Act, 1955
 Companies Act, 1956
 Deposit Insurance and Credit Guarantee Corporation Act, 1961
 Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
 Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980
 Recovery of Debts Due to Banks and Financial Institutions Act, 1993
 Indian Coinage Act, 2011
40
4.4 Governors of Reserve Bank of India
The Reserve bank of India was established in 1935 as per the provisions of the Reserve Bank of India Act, 1934
and was owned by private share holders initially. It was only after India's independence in 1947 that it came
under the control of the Government of India, which started appointing the Governors of the RBI from 1947
onwards. There have been 23 gentlemen who have served as the Governor of this organisation over a period of
80 years. They are:-
S.No. Name and Tenure
1 Sir Osborne A. Smith (1 April 1935 – 30 June 1937)
2 Sir James Braid Taylor (1 July 1937 – 17 February 1943)
3 Sir Chintaman D.Deshmukh (11 August 1943 – 30 June 1949)
4 Sir Benegal Rama Rau (1 July 1949 – 14 January 1957)
5 K.G. Ambegaonkar (14 January 1957 – 28 February 1957)
6 H.V.R. Iengar ( 1 March 1957 – 28 February 1962)
7 P.C. Bhattacharyya (1 March 1962 – 30 June 1967)
8 L.K. Jha (1 July 1967 – 3 May 1970)
9 B.N. Adarkar (4 May 1970 – 15 June 1970)
10 S. Jagannathan (16 June 1970 – 19 May 1975)
11 N.C. Sen Gupta (19 May 1975 – 19 August 1975)
12 K.R. Puri (20 August 1975 – 2 May 1977)
13 M. Narasimham (2 May 1977 – 30 November 1977)
14 Dr. I.G.Patel (1 December 1977 – 15 September 1982)
15 Dr. Manmohan Singh (16 September 1982 – 14 January 1985)
41
16 A. Ghosh (15 January 1985 – 4 February 1985)
17 R.N. Malhotra (4 February 1985 – 22 December 1990)
18 S.Venkitaramanan (22 December 1990 – 21 December 1992)
19 Dr. C.Rangarajan (22 December 1992 – 22 November 1997)
20 Dr. Bimal Jalan (22 November 1997 – 5 September 2003)
21 Dr.Y.V.Reddy (6 September 2003 – 5 September 2008)
22 Dr. D. Subbarao (5 September 2008 – 4 September 2013 (Close of Business))
23 Dr. Raghuram Rajan (4 September 2013 (Close of Business) – Present)
42
5. ACTIVITIES CONDUCTED BY RBI
5.1 Guidelines on Ownership and Governance in Private Sector Banks
Banks are "special" as they not only accept and deploy large amount of uncollateralized public funds in
fiduciary capacity, but they also leverage such funds through credit creation. The banks are also important for
smooth functioning of the
payment system. In view of the above, legal prescriptions for ownership and governance of banks laid down in
Banking Regulation Act, 1949 have been supplemented by regulatory prescriptions issued by RBI from time to
time. The existing legal framework and significant current practices in particular cover the following aspects:
i. The composition of Board of Directors comprising members with demonstrable professional and other
experience in specific sectors like agriculture, rural economy, co-operation, SSI, law, etc., approval of Reserve
Bank of India for appointment of CEO as well as terms and conditions thereof, and powers for removal of
managerial personnel, CEO and directors, etc. in the interest of depositors are governed by various sections of
the B.R. Act, 1949.
ii. Guidelines on corporate governance covering criteria for appointment of directors, role and responsibilities of
directors and the Board, signing of declaration and undertaking by directors, etc., were issued by RBI on June
20, 2002 and June 25, 2004, based on the recommendations of Ganguly Committee and a review by the BFS.
iii. Guidelines for acknowledgement of transfer/allotment of shares in private sector banks were issued in the
interest of transparency by RBI on February 3, 2004.
iv. Foreign investment in the banking sector is governed by Press Note dated March 5, 2004 issued by the
Government of India, Ministry of Commerce and Industries.
v. The earlier practice of RBI nominating directors on the Boards of all private sector banks has yielded place to
such nomination in select private sector banks.
2. Against this background, it is considered necessary to lay down a comprehensive framework of policy in a
transparent manner relating to ownership and governance in the Indian private sector banks as described below.
3. The broad principles underlying the framework of policy relating to ownership and governance of private
sector banks would have to ensure that
43
(i) The ultimate ownership and control of private sector banks is well diversified. While diversified ownership
minimises the risk of misuse or imprudent use of leveraged funds, it is no substitute for effective regulation.
Further, the fit and proper criterion, on a continuing basis, has to be the over-riding consideration in the path of
ensuring adequate investments, appropriate restructuring and consolidation in the banking sector. The pursuit of
the goal of diversified ownership will take account of these basic objectives, in a systematic manner and the
process will be spread over time as appropriate.
(ii) Important Shareholders (i.e., shareholding of 5 per cent and above) are „fit and proper‟, as laid down in the
guidelines dated February 3, 2004 on acknowledgement for allotment and transfer of shares.
(iii) The directors and the CEO who manage the affairs of the bank are „fit and proper‟ as indicated in circular
dated June 25, 2004 and observe sound corporate governance principles.
(iv) Private sector banks have minimum capital/net worth for optimal operations and systemic stability.
(v) The policy and the processes are transparent and fair.
4. Minimum capital
The capital requirement of existing private sector banks should be on par with the entry capital requirement for
new private sector banks prescribed in RBI guidelines of January 3, 2001, which is initially Rs.200 crore, with a
commitment to increase to Rs.300 crore within three years. In order to meet with this requirement, all banks in
private sector should have a net worth of Rs.300 crore at all times. The banks which are yet to achieve the
required level of net worth will have to submit a time-bound programme for capital augmentation to RBI.
Where the net worth declines to a level below Rs.300 crore, it should be restored to Rs. 300 crore within a
reasonable time.
5. Shareholding
i. The RBI guidelines on acknowledgement for acquisition or transfer of shares issued on February 3, 2004 will
be applicable for any acquisition of shares of 5 per cent and above of the paid up capital of the private sector
bank.
ii. In the interest of diversified ownership of banks, the objective will be to ensure that no single entity or group
of related entities has shareholding or control, directly or indirectly, in any bank in excess of 10 per cent of the
paid up capital of the private sector bank. Any higher level of acquisition will be with the prior approval of RBI
44
and in accordance with the guidelines of February 3, 2004 for grant of acknowledgement for acquisition of
shares.
iii. Where ownership is that of a corporate entity, the objective will be to ensure that no single individual/entity
has ownership and control in excess of 10 per cent of that entity. Where the ownership is that of a financial
entity the objective will be to ensure that it is a well established regulated entity, widely held, publicly listed and
enjoys good standing in the financial community.
iv, Banks (including foreign banks having branch presence in India)/FIs should not acquire any fresh stake in a
bank‟s equity shares, if by such acquisition, the investing bank‟s/FI‟s holding exceeds 5 per cent of the investee
bank‟s equity capital as indicated in RBI circular dated July 6, 2004.
v. As per existing policy, large industrial houses will be allowed to acquire, by way of strategic investment,
shares not exceeding 10 per cent of the paid up capital of the bank subject to RBI‟s prior approval. Furthermore,
such a limitation will also be considered if appropriate, in regard to important shareholders with other
commercial affiliations.
vi. In case of restructuring of problem/weak banks or in the interest of consolidation in the banking sector, RBI
may permit a higher level of shareholding, including by a bank.
6. Directors and Corporate Governance
i. The recommendations of the Ganguly Committee on corporate governance in banks have highlighted the role
envisaged for the Board of Directors. The Board of Directors should ensure that the responsibilities of directors
are well defined and the banks should arrange need-based training for the directors in this regard. While the
respective entities should perform the roles envisaged for them, private sector banks will be required to ensure
that the directors on their Boards representing specific sectors as provided under the B.R. Act, are indeed
representatives of those sectors in a demonstrable fashion, they fulfil the criteria under corporate governance
norms provided by the Ganguly Committee and they also fulfil the criteria applicable for determining „fit and
proper‟ status of Important Shareholders (i.e., shareholding of 5 per cent and above) as laid down in RBI
Circular dated June 25, 2004.
ii. As a matter of desirable practice, not more than one member of a family or a close relative (as defined under
Section 6 of the Companies Act, 1956) or an associate (partner, employee, director, etc.) should be on the Board
of a bank.
45
iii. Guidelines have been provided in respect of 'Fit and Proper' criteria for directors of banks by RBI circular
dated June 25, 2004 in accordance with the recommendations of the Ganguly Committee on Corporate
Governance. For this purpose a declaration and undertaking is required to be obtained from the proposed /
existing directors
iv. Being a Director, the CEO should satisfy the requirements of the „fit and proper‟ criteria applicable for
directors. In addition, RBI may apply any additional requirements for the Chairman and CEO. The banks will be
required to provide all information that may be required while making an application to RBI for approval of
appointment of Chairman/CEO.
7. Foreign investment in private sector banks
In terms of the Government of India press note the aggregate foreign investment in private banks from all
sources (FDI, FII, NRI) cannot exceed 74 per cent. At all
times, at least 26 per cent of the paid up capital of the private sector banks will have to be held by resident
Indians.
7.1 Foreign Direct Investment (FDI) (other than by foreign banks or foreign bank group)
i. The policy already articulated in guidelines for determining „fit and proper‟ status of shareholding of 5 per
cent and above will be equally applicable for FDI. Hence any FDI in private banks where shareholding reaches
and exceeds 5 per cent either individually or as a group will have to comply with the criteria indicated in the
aforesaid guidelines and get RBI acknowledgement for transfer of shares.
ii. To enable assessment of „fit and proper‟ the information on ownership/beneficial ownership as well as other
relevant aspects will be extensive.
7.2 Foreign Institutional Investors (FIIs)
i. Currently there is a limit of 10 per cent for individual FII investment with the aggregate limit for all FIIs
restricted to 24 per cent which can be raised to 49 per cent with the approval of Board/General Body. This
dispensation will continue.
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ii. The present policy requires RBI‟s acknowledgement for acquisition/transfer of shares of 5 per cent and more
of a private sector bank by FIIs based upon the policy guidelines on acknowledgement of acquisition/transfer of
shares issued. For this purpose RBI may seek certification from the concerned FII of all beneficial interest.
7.3 Non-Resident Indians (NRIs)
Currently there is a limit of 5 per cent for individual NRI portfolio investment with the aggregate limit for all
NRIs restricted to 10 per cent which can be raised to 24 per cent with the approval of Board/General Body.
Further, the policy guidelines on acknowledgement for acquisition/transfer will be applied.
8. Due diligence process
The process of due diligence in all cases of shareholders and directors as above, will involve reference to the
relevant regulator, revenue authorities, investigation agencies and independent credit reference agencies as
considered appropriate.
9. Transition arrangements
i. The current minimum capital requirements for entry of new banks is Rs.200 crore to be increased to Rs.300
crore within three years of commencement of business. A few private sector banks which have been in existence
before these capital requirements were prescribed have less than Rs.200 crore net worth. In the interest of
having sufficient minimum size for financial stability, all the existing private banks should also be able to fulfil
the minimum net worth requirement of Rs.300 crore required for a new entry. Hence any bank with net worth
below this level will be required to submit a time bound programme for capital augmentation to RBI for
approval.
ii. Where any existing shareholding of any individual entity/group of entities is 5 per cent and above, due
diligence outlined in the guidelines will be undertaken to ensure fulfillment of „fit and proper‟ criteria.
iii. Where any existing shareholding by any individual entity/group of related entities is in excess of 10 per cent,
the bank will be required to indicate a time table for reduction of holding to the permissible level. While
considering such cases, RBI will also take into account the terms and conditions of the banking licences.
iv. Any bank having shareholding in excess of 5 per cent in any other bank in India will be required to indicate a
time bound plan for reduction in such investments to the permissible limit. The parent of any foreign bank
having presence in India, having shareholding directly or indirectly through any other entity in the banking
47
group in excess of 5 per cent in any other bank in India will be similarly required to indicate a time bound plan
for reduction of such holding to 5 per cent.
v. Banks will be required to undertake due diligence before appointment of directors and Chairman/CEO on the
basis of criteria that will be separately indicated and provide all the necessary certifications/information to RBI.
vi. Banks having more than one member of a family, or close relatives or associates on the Board will be
required to ensure compliance with these requirements at the time of considering any induction or renewal of
terms of such directors.
vii. Action plans submitted by private sector banks outlining the milestones for compliance with the various
requirements for ownership and governance will be examined by RBI for consideration and approval.
10. Continuous monitoring arrangements
i. Where RBI acknowledgement has already been obtained for transfer of shares of 5 per cent and above, it will
be the bank‟s responsibility to ensure continuing compliance of the „fit and proper‟ criteria and provide an
annual certificate to the RBI of having undertaken such continuing due diligence.
ii. Similar continuing due diligence on compliance with the „fit and proper‟ criteria for directors/CEO of the
bank will have to be undertaken by the bank and certified to RBI annually.
iii. RBI may, when considered necessary, undertake independent verification of „fit and proper‟ test conducted
by banks through a process of due diligence as described in paragraph 8
11. On the basis of such continuous monitoring, RBI will consider appropriate measures to enforce compliance.
5.2 Guidelines on Fair Practices Code
and manner of charging (monthly/quarterly/half yearly/ rest), process fees and other charges, penal interest
rates, pre-payment options and any other matter which affects the interest of the borrower, so that a meaningful
comparison with that of other banks can be made and informed decision can be taken by the borrower.
48
ancial Institution should devise a system of giving acknowledgement for receipt of all loans
application. Banks/ Financial Institutions should verify the loan application within a reasonable period of time.
If additional details / documents are required, they should intimate the borrowers immediately. If all the
requirements are complied with the borrowers, banks/ Financial Institution should acknowledge for the same
and state the specific time period from the date of acknowledgement within which a decision on the specific
loan request will be conveyed to the borrowers.
such fees shall be refunded in the event of rejection of any application for loan.
uld convey in writing the specific reasons thereof.
which may be sanctioned, should be mutually settled.
caveats governing credit facilities given by banks / Financial Institution

arrived at after negotiation by the lending institution and the borrower should be reduced in writing duly
witnessed and certified by the authorised sanctioning authority; in respect of advances sanctioned by the Board
of Directors or its committee the documents of understanding should be certified by the authorised signatory
preferably at company secretary level. A copy of such agreement should be made available to the borrowers for
their record.
accounts from time to time and shall give

notice of any change in the terms and conditions including interest rates and charges are effected only
prospectively. To ensure the above, Banks / Financial Institution should create appropriate information
dissemination mechanism.
beyond the sanctioned limits, honouring the cheques issued for the purpose other than agreed, disallowing large
cash withdrawals and obligation to meet further requirements of the borrowers on account of growth in business
49
etc. without proper revision and sanction in credit limits, and disallowing drawings on a borrower account on its
classification as a non-performing assets or on account of non-compliance with the terms of sanction.
performance under the agreement or seeking additional securities.
ation of loan subject to any

legitimate right of lien for any other claim lenders may have against borrowers. If such right of set off is to be
exercised, borrowers shall be given notice about the same with full particulars about the remaining claims and
the documents under which lenders are entitled to retain the securities till the relevant claims are settled / paid
50
6. STRUCTURE AND IMPORTANCE OF RBI

Reserve Bank of India
Schedule Banks
Non-Schedule Banks
Central co-op
State co-op Commercial Banks Commercial Banks
Banks and Primary
Banks
Cr. Societies
Indian Foreign
Public Sector
Private Sector Banks HDFC,
Banks
ICICI etc.
State Bank of India Other Nationalized Banks Regional Rural

and its Subsidiaries Banks
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6.1Organization & management of RBI :
Central Board of Directors (20 Directors)
Dr. D. Subbarao Dr. Rakesh

Mohan Shri V. Leeladhar
Smt. Shyamala Gopinath Smt. Usha Thorat
Dr. Ashok S. Ganguly Shri Azim
Premji
Shri Kumar Mangalam Birla Smt. Shashi Rekha
Rajagopalan hri Suresh Neotia
Dr. A. Vaidyanathan Prof. Man Mohan
Sharma Dr. D. Jayavarthanavelu Shri
Sanjay Labroo
Shri H. P. Ranina Shri Y.H.
Malegam
Shri Suresh D. Tendulkar Prof. U. R. Rao
Shri Lakshmi Chand
Governor (one)
(Chairman and full-time officer)
Dr. D. Subbarao
Deputy Governors (Four)
(All full-time officers) Dr. Rakesh

Mohan Shri V. Leeladhar
Smt. Shyamala Gopinath Smt. Usha Thorat

52
Directors (Fifteen)
(All part-time officers)
10 nominated by Central Govt.
Dr. Ashok S. Ganguly Shri Azim

Premji
Shri Kumar Mangalam Birla Smt. Shashi Rekha
Rajagopalan hri Suresh Neotia
Dr. A. Vaidyanathan Prof. Man Mohan
Sharma Dr. D. Jayavarthanavelu Shri
Sanjay Labroo
Shri H. P. Ranina
4 Nominated by Local Boards
Shri Y.H. Malegam Shri Suresh D.

Tendulkar
Prof. U. R. Rao Shri Lakshmi
Chand
1 Nominated by Central Govt. as Govt. officer
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Eastern Western Northen Southern

Region Region Region Region
(Kolkata) (Mumbai) (New Delhi)
Local Boards
The organization of RBI can be divided into three parts:

1) Central Board of Directors.
2) Local Boards
3) Offices of RBI
6.1.1Central Board of Directors :
The organization and management of RBI is vested on the Central Board of Directors. It is responsible
for the management of RBI.Central Board of Directors consist of 20 members. It is constituted as
follows.
a) One Governor: it is the highest authority of RBI. He is appointed by the Government of India for a
term of 5 years. He can be re-appointed for another term.
b) Four Deputy Governors: Four deputy Governors are nominated by Central Govt. for a term of 5
years
c) Fifteen Directors : Other fifteen members of the Central Board are appointed by the Central
Government. Out of these , four directors,one each from the four local Boards are nominated by the
Government separately by the Central Government.
Ten directors nominated by the Central Government are among the experts of commerce, industries,
54
finance, economics and cooperation. The finance secretary of the Government of India is also nominated
as Govt. officer in the board. Ten directors are nominated for a period of 4 years.
The Governor acts as the Chief Executive officer and Chirman of the Central Board of Directors. In his
absence a deputy Governor nominated by the Governor, acts as the Chirman of the Central Board. The
deputy governors and government‘s officer nominee are not entitled to vote at the meetings of the
Board. The Governor and four deputy Governors are full time officers of the Bank.
6.1.2 Local Boards :
Besides the central board, there are local boards for four regional areas of the country with their head-
quarters at Mumbai, Kolkata, Chennai, and New Delhi. Local Boards consist of five members each,
appointed by the central Government for a term of 4 years to represent territorial and economic interests
and the interests of co-operatives and indigenous banks. The function of the local boards is to advise the
central board on general and specific issues referred to them and to perform duties which the central
board delegates.
6.1.3 Offices of RBI:
The Head office of the bank is situated in Mumbai and the offices of local boards are situated in Delhi,
Kolkata and Chennai. In order to maintain the smooth working of banking system, RBI has opened local
offices or branches in Ahmedabad, Bangalore, Bhopal, Bhubaneshwar, Chandigarh, Guwahati,
Hyderabad, Jaipur, Jammu, Kanpur, Nagpur, Patna, Thiruvananthpuram, Kochi, Lucknow and Byculla
(Mumbai). The RBI can open its offices with the permission of the Government of India. In places
where there are no offices of the bank, it is represented by the state Bank of India and its associate banks
as the agents of RBI.
6.2Administrative department of RBI :
In order to maintain smooth functioning, RBI has establish different administrative departments which
55
are the part of its internal organization. These are a follows :
I. Department of currency management. II.Department of

banking supervision. III.Rural planning and credit department.
IV.Department of banking operations and development. V.Exchange control
department.
VI.Secretary‘s department
VII.Industrial and export credit department
VIII.Department of administration and personnel management IX.Department of Government and
Bank accounts.
X.Department of non-Banking supervision. XI.Internal debt
management cell.
XII.Inspection department.
XIII. Department of information and technology.
Other department : Besides these above departments RBI has other departments such as premises
department, press relation department, personnel policy department etc.
6.3 Legal Framework
The Reserve Bank of India comes under the purview of the following Acts:
 Reserve Bank of India Act, 1934

 Public Debt Act, 1944
 Government Securities Regulations, 2007
 Banking Regulation Act, 1949
 Foreign Exchange Management Act, 1999
 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
 Credit Information Companies(Regulation) Act, 2005
 Payment and Settlement Systems Act, 2007
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6.4 IMPOTANCE OF RBI :-

The Reserve Bank of India is India‘s central bank and is wholly owned by the Government of India.
Established on April 1, 1935, the RBI‘s main office is located in India‘s capital of Mumbai. Active
management of the Reserve Bank of India (RBI) is provided by the central board of directors, which
includes the bank‘s governor, a maximum of four deputy governors, and a few directors of relevant local
boards. The central board delegates specific functions through its committees and sub-committees,
including: the committee of central board, which oversees the current business of the central bank; the board
for financial supervision, which regulates and supervises commercial banks, finance companies, and
financial institutions; and the board for payment and settlement systems.
The main functions of the RBI include:
 Monetary authority: formulates, implements, and monitors India‘s monetary policy. The main
objectives of which are maintaining price stability, ensuring adequate flow of credit to productive
sectors, and financial stability.
 Issuer of currency: issues currency and coins, and exchanges or destroys currency notes and
coins unfit for circulation
 Banker and debt manager to government of India: performs merchant banking functions for central
and state governments and also acts as their banker, determines how best to raise money in debt
markets to help the government finance its requirements
 Banker to banks: enables clearing and settlement of inter-bank transactions, maintains banks‘
accounts for statutory reserve requirements, and acts as a lender of last resort
 Regulator and supervisor of the financial system: protects the interests of depositors, facilitates
orderly development and conduct of banking operations, and maintains financial stability through
preventive and corrective measures
 Manager of foreign exchange: regulates transactions related to the external sector, enables the
development of the foreign exchange market (forex), ensures smooth functioning of the domestic
forex market, and manages India‘s foreign currency assets and gold reserves
 Regulator and supervisor of payment and settlement systems
 Maintaining financial stability: an explicit objective of the RBI since the early 2000s
 Development: ensures credit availability to productive economic sectors, establishes institutions to
develop India‘s financial infrastructure, expands access to affordable financial services, and promotes
financial education and literacy India‘s Growing EconomyIndia has reported top gross domestic
product (GDP) growth rates across the world. It is also known as one of the four most powerful
57
emerging market countries, collectively part of the BRICs which contain Brazil, Russia, India, and
China.
The International Monetary Fund (IMF) and World Bank have highlighted India in several reports showing
its high rate of growth. In April 2019, the World Bank projected India‘s GDP growth would expand by 7.5%
in 2020. Also in April 2019, the IMF showed an expected GDP growth rate of 7.3% for 2019 and 7.5% for
2020. Both projections have India with the highest expected GDP growth in the world over the next two
years.
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7. FUNCTION AND ROLE OF RBI
As a central bank, the Reserve Bank has significant powers and duties to perform. For smooth and speedy
progress of the Indian Financial System, it has to perform some important tasks. Among others it includes
maintaining monetary and financial stability, to develop and maintain stable payment system, to promote and
develop financial infrastructure and to regulate or control the financial institutions. For simplification, the
functions of the Reserve Bank are classified into the traditional functions, the development functions and
supervisory functions.
7.1 Traditional Functions of RBI
Traditional functions are those functions which every central bank of each nation performs all over the world.
Basically these functions are in line with the objectives with which the bank is set up. It includes fundamental
functions of the Central Bank. They comprise the following tasks.
7.1.1 Issue of Currency Notes: The Reserve Bank is the nation‘s sole note issuing authority. Along with the
Government of India, we are 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 the government. Currently it is in
denominations of Rs. 2, 5, 10, 20, 50, 100, 500, and 1,000. In consultation with the government, we routinely
address security issues and target ways to enhance security features to reduce the risk of counterfeiting or
forgery. These currency notes are legal tender issued by the RBI.. The RBI has powers not only to issue and
withdraw but even to exchange these currency notes for other denominations. It issues these notes against
the security of gold bullion, foreign securities, rupee coins, exchange bills and promissory notes and
government of India bonds.
7.1.2 Banker to other Banks: The RBI being an apex monitory institution has obligatory powers to guide,
help and direct other commercial banks in the country. The RBI can control the volumes of banks reserves
and allow other banks to create credit in that proportion. Every commercial bank has to maintain a part of
their reserves with its parent's viz. the RBI. Similarly in need or in urgency these banks approach the RBI for
fund. Thus it is called as the lender of the last resort.
7.1.3 Banker to the Government: The RBI being the apex monitory body has to work as an agent of the
central and state governments. It performs various banking function such as to accept deposits, taxes and
make payments on behalf of the government. It works as a representative of the government even at the
international level. It maintains government accounts, provides financial advice to the government. It
59
manages government public debts and maintains foreign exchange reserves on behalf of the government. It
provides overdraft facility to the government when it faces financial crunch.
7.1.4 Exchange Rate Management: It is an essential function of the RBI. In order to maintain stability in
the external value of rupee, it has to prepare domestic policies in that direction. Also it needs to prepare and
implement the foreign exchange rate policy which will help in attaining the exchange rate stability. In order
to maintain the exchange rate stability it has to bring demand and supply of the foreign currency (U.S
Dollar) close to each other.
7.1.5 Credit Control Function: Commercial bank in the country creates credit according to the demand in
the economy. But if this credit creation is unchecked or unregulated then it leads the economy into
inflationary cycles. On the other credit creation is below the required limit then it harms the growth of the
economy. As a central bank of the nation the RBI has to look for growth with price stability. Thus it
regulates the credit creation capacity of commercial banks by using various credit control tools.
7.1.6 Supervisory Function: The RBI has been endowed with vast powers for supervising the banking
system in the country. It has powers to issue license for setting up new banks, to open new branches, to
decide minimum reserves, to inspect functioning of commercial banks in India and abroad, and to guide and
direct the commercial banks in India. It can have periodical inspections an audit of the commercial banks in
India.
7.2 Developmental / Promotional Functions of RBI
Along with the routine traditional functions, central banks especially in the developing country like India have to
perform numerous functions. These functions are country specific functions and can change according to the
requirements of that country. The RBI has been performing as a promoter of the financial system since its
inception. Some of the major development functions of the RBI are maintained below.
7.2.1 Development of the Financial System: The financial system comprises the financial institutions,
financial markets and financial instruments. The sound and efficient financial system is a precondition of the
rapid economic development of the nation. The RBI has encouraged establishment of main banking and non-
banking institutions to cater to the credit requirements of diverse sectors of the economy.
7.2.2 Development of Agriculture: In an agrarian economy like ours, the RBI has to provide special
attention for the credit need of agriculture and allied activities. It has successfully rendered service in this
direction by increasing the flow of credit to this sector. It has earlier the Agriculture Refinance and
60
Development Corporation (ARDC) to look after the credit, National Bank for Agriculture and Rural
Development (NABARD) and Regional Rural Banks (RRBs).
7.2.3 Provision of Industrial Finance: Rapid industrial growth is the key to faster economic development.
In this regard, the adequate and timely availability of credit to small, medium and large industry is very
significant. In this regard the RBI has always been instrumental in setting up special financial institutions
such as ICICI Ltd. IDBI, SIDBI and EXIM BANK etc.
7.2.4 Provisions of Training: The RBI has always tried to provide essential training to the staff of the
banking industry. The RBI has set up the bankers' training colleges at several places. National Institute of
Bank Management i.e NIBM, Bankers Staff College i.e BSC and College of Agriculture Banking i.e CAB
are few to mention.
7.2.5 Collection of Data: Being the apex monetary authority of the country, the RBI collects process and
disseminates statistical data on several topics. It includes interest rate, inflation, savings and investments etc.
This data proves to be quite useful for researchers and policy makers.
7.2.6 Publication of the Reports: The Reserve Bank has its separate publication division. This division
collects and publishes data on several sectors of the economy. The reports and bulletins are regularly
published by the RBI. It includes RBI weekly reports, RBI Annual Report, Report on Trend and Progress of
Commercial Banks India., etc. This information is made available to the public also at cheaper rates.
7.2.7 Promotion of Banking Habits: As an apex organization, the RBI always tries to promote the banking
habits in the country. It institutionalizes savings and takes measures for an expansion of the banking
network. It has set up many institutions such as the Deposit Insurance Corporation-1962, UTI-1964, IDBI-
1964, NABARD-1982, NHB-1988, etc. These organizations develop and promote banking habits among the
people. During economic reforms it has taken many initiatives for encouraging and promoting banking in
India.
7.2.8 Promotion of Export through Refinance: The RBI always tries to encourage the facilities for
providing finance for foreign trade especially exports from India. The Export-Import Bank of India
(EXIM Bank India) and the Export Credit Guarantee Corporation of India (ECGC) are supported by
refinancing their lending for export purpose.
7.3 Supervisory Functions of RBI
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The reserve bank also performs many supervisory functions. It has authority to regulate and administer the entire
banking and financial system. Some of its supervisory functions are given below.
7.3.1 Granting license to banks: The RBI grants license to banks for carrying its business. License is also
given for opening extension counters, new branches, even to close down existing branches.
7.3.2 Bank Inspection: The RBI grants license to banks working as per the directives and in a prudent
manner without undue risk. In addition to this it can ask for periodical information from banks on various
components of assets and liabilities.
7.3.3 Control over NBFIs: The Non-Bank Financial Institutions are not influenced by the working of a
monitory policy. However RBI has a right to issue directives to the NBFIs from time to time regarding their
functioning. Through periodic inspection, it can control the NBFIs.
7.3.4 Implementation of the Deposit Insurance Scheme: The RBI has set up the Deposit Insurance
Guarantee Corporation in order to protect the deposits of small depositors. All bank deposits below Rs. One
lakh are insured with this corporation. The RBI work to implement the Deposit Insurance Scheme in case of
a bank failure.
7.4. Monetary Authority
Monetary policy refers to the use of instruments under the control of the central bank to regulate the
availability, cost and use of money and credit. The goal: achieving specific economic objectives, such as low
and stable inflation and promoting growth.
Approach: RBI operating framework is based on a multiple indicator approach. This means that we
monitor and analyze the movement of a number of indicators including interest rates, inflation rate, money
supply, credit, exchange rate, trade, capital flows and fiscal position, along with trends in output as we
develop our policy perspectives.
Tools: The Reserve Bank‘s Monetary Policy Department (MPD) formulates monetary policy. The Financial
Markets Department (FMD) handles day-to-day liquidity management operations. There are several direct
and indirect instruments that are used in the formulation and implementation of monitory policy.
Direct Instruments
Cash Reserve Ratio (CRR): The share of net demand and time liabilities that banks must maintain as cash
balance with the Reserve Bank.
Statutory Liquidity Ratio (SLR): The share of net demand and time liabilities that banks must maintain
62
in safe and liquid assets, such as, government securities, cash and gold.
Refinance facilities: Sector-specific refinance facilities (e.g., against lending to export sector) provided to
banks.
Indirect Instruments
Liquidity Adjustment Facility (LAF): Consists of daily infusion or absorption of liquidity on a repurchase
basis, through repo (liquidity injection) and reverse repo (liquidity absorption) auction operations, using
government securities as collateral.
Open Market Operations (OMO): Outright sales/purchases of government securities, in addition to LAF,
as a tool to determine the level of liquidity over the medium term.
Market Stabilization Scheme (MSS): This instrument for monetary management was introduced in 2004.
Liquidity of a more enduring nature arising from large capital flows is absorbed through sale of short-dated
government securities and treasury bills. The mobilised cash is held in a separate government account with
the Reserve Bank.
Repo/reverse repo rate: These rates under the Liquidity Adjustment Facility (LAF) determine the corridor
for short-term money market interest rates. In turn, this is expected to trigger movement in other segments of
the financial market and the real economy.
Bank rate: It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or
Other commercial papers. It also signals the medium-term stance of monetary policy.
7.5. Reserve Bank of India's Credit Policy ↓
The Reserve Bank of India has a credit policy which aims at pursuing higher growth with price stability.
Higher economic growth means to produce more quantity of goods and services in different sectors of an
economy; Price stability however does not mean no change in the general price level but to control the
inflation. The credit policy aims at increasing finance for the agriculture and industrial activities. When
credit policy is implemented, the role of other commercial banks is very important. Commercial banks flow
of credit to different sectors of the economy depends on the actual cost of credit and arability of funds in the
economy.
7.6 RBI: Actions in Times of Crisis
63
The Reserve Bank‘s willingness to use conventional and unconventional measures help buffer the nation
from severe crisis. Here are some examples of our responses during the 2008-9 global financial crisis:
 Carefully considered and calibrated reduction of interest rates until situation has stabilized
 Loosened restrictions on access to foreign currency
 Creation of a rupee-dollar swap facility to manage short-term funding requirements Establishment of
a refinancing window and special-purpose vehicle for non-banking financial companies
 Expansion of funding sources for umbrella financial institutions to keep credit flowing to small
businesses, housing and export businesses
64
8. VARIOUS TECHNOLOGIES ADOPTED IN BANKING SYSTEM
The world has entered what some regard as an era of 'Digital Darwinism', a time where technology and
society are evolving faster than many organisations can adapt to the changes. The emergence of the digital
five forces - Social, Mobile, Analytics, Cloud and Internet of Things is creating new and valuable sources of
business information, ways to interpret data and the means to do so cost-effectively. The value of digital in
India is huge; as per a study by the World Economic Forum just four digital initiatives could unlock US$ 1.2
trillion of value for the Indian industry and society over the next decade, representing about 40percent of
national GDP in 2015.
It was only in late 1990s that some private sector banks introduced non-branch banking services through use
of information technology. Initially transactions on internet banking were viewed as insecure. However,
internet banking witnessed growth in 2000s owing to initiatives taken by the government, the RBI, falling
internet costs and increased awareness. Online banking has enhanced customer satisfaction by providing
anywhere anytime banking and benefitted banks through cost savings and increased penetration.
In last few years, the Indian banking sector has realised the need of digital technologies and is rapidly
moving to embrace digital banking. They are making considerable investment in creating digital
infrastructure in order to offer various solutions like mobile banking, e-wallets and virtual cards, etc. The
key innovations in Digital banking are Digital-only/Virtual Banking, Biometric Technology, Artificial
Intelligence, Blockchain Technology, Bitcoin and Robotics to mention few.
Digital-only bank provides end-to-end services through digital platforms like mobile, tablets and internet. It
is paperless, branchless and signature-less banking offering 24*7 services to its customers. In India, the
digital-only banking is based on Aadhaar infrastructure. The digital-only banks offer various services like
account opening, term deposits, loans as well as financial products like insurance and mutual fund. While
digital banking is simple and cost effective, there are still security risks. The pace of growth in digital-only
banks will depend on their ability to address security concerns. Innovations like Biometric technology allows
the person to be identified uniquely by evaluating one or more distinguishing biological traits like face,
hand, retina, voice and ear features. The use of biometric authentication can eliminate the requirement of
multiple passwords and PIN codes. The Indian banking sector is also gradually adopting biometric
authentication to provide simple and secure banking experience to its customers.
Artificial Intelligence (AI) can provide quick and personalized services by dealing with each customer and
focusing on their specific requirements. It can be used to collect information, automatically build models
65
based on that information, inference and communicate in natural way. In India, only large banks are
currently seeking to introduce AI in their services. The key components of AI are machine learning,
computer vision, natural language progression and natural language generation. Indian banks are likely to
use AI like machine learning to re-engineer back office processes. Robotics is a technology that mimics the
actions of human performing simple rule-based processes. The use of robotics in the Indian banking sector
though not yet widespread, is expected to gain ground in the coming years. Robotics is expected to automate
processes which are repetitive, rule based and require less human judgement. Also, being scalable and cost
effective, it could help automate processes with high transaction volumes. Presently, some Indian banks have
started deploying robots to answer customer queries related to banking transactions, demat account, locker
facility, fixed deposit, loan, etc. Apart from humanoid robots providing customer service, software robots are
also getting deployed in functions such as retail banking operations, agri-business, trade & forex, treasury
and human resource management to name a few.
Globally, banks are seeking to use block chain technology (BCT) for operations such as money transfer,
record keeping and other back-end functions. Block chain technology can be used in banking activities like
secure document management, reporting, payments, treasury & securities and trade finance. Banking
industry can benefit from block chain technology as it helps in fraud prevention, increasing the resilience of
the bank's IT infrastructure and also increases transparency of processes. Besides these advantages BCT is
also cost efficient and provides auditability & provenance. Bitcoin is the decentralised digital currency as
well as the decentralized peer-to-peer payment network that is powered by its users with no central authority.
In India, the RBI hasn't yet authorized use of bitcoins and issued a press release on Feb 1, 2017, cautioning
the users, holders and traders of bitcoins about the potential financial, operational, legal, customer protection
and security related risks. Despite this, bitcoin exchange platforms like BTCX India, Coinsecure, Unocoin
and Zebpay have been developed in India.
8.1Other upcoming technologies

Apart from these technologies, there are many other technologies which Indian banks could harness in
future. Banks can use google glass technology to locate the nearest bank branch/ ATM, check account
balances and use video conferencing for technical support. Augmented Reality (AR) app is integration of
digital information with the user's environment in the real world. In India, AR mobile app has been launched
by a bank which lists all dining destinations, property lists, and shopping centres, bank ATMs, branches etc.
with real life pictures along with distance and directions. Installing Bluetooth beacons at bank branches
could allow banks to integrate physical and mobile channels to provide effective communication. Although
the adoption of beacon technology by Indian banks is very less, it is expected to increase going forward with
66
many Indian companies engaging in beacon technology and growing smart phone users. Indian banks are yet
to experience extensive adoption of many technologies, however, significant investments and developing
dedicated teams to test these technologies is a positive sign.
The new financial year in India has seen a fuel growth in the banking sector with the development of
innovations like Unified Payments Interface (UPI), adoption of cloud technology… etc. the Banking
challenges of changing needs and customer‗s insights, new regulations and creating more technological
innovations for customers in the banks. Nowadays we have E-Banking system along with currency notes.
India‗s monetary system can create a new instrument along with liquidity and safety. The Indian banking
sector where introduced Arrival of the card, introduction of Electronic Clearing Service (ECS) in 1990‗s,
EFT, RTGS, NEF, mobile banking, online banking are the various innovations in banking. This paper high
points out the new technological changes in Indian banking sector.
Today Indian banking Sector is a flourishing Industry; it‗s mainly focused on new Banking technological
innovations. Banks created to use technology to provide effective quality and services to the customer and
get high speed. In the recent scenario has been changed, there are around 340 banks are working in India, in
which are public and private banks. Today all the banks started with the different channels, like ATM, Credit
Cards, Debit Cards, Mobile Banking, Internet Banking, etc. But Net Banking made it an easy way for
customers to do their banking transaction from various places. In 2020 India's banking sector is a fifth
largest banking sector and 2025 the banking system was a third largest banking sector in the world. The
Indian Banking System cannot ignore the new technological challenges and banks are also facing great
challenges, that the innovations policy and strategy. This paper examines with all the innovations and new
technological changes in the banking sector.
 Consolidation of Bank up 1961

 Geographical and Functional Term 1966
 Consolidation of Branches from mid 1980s to 1991 Innovation in Indian Banking
Nowadays the Indian banking sector has seen number changes. Most of the Banks began to take an
innovative challenge towards banking with the objectives, to create more customers, and consequently to the
banks. The government result of regulations, tax policies, globalization, liberalization, privatization to raise
risk in the monetary market. The financial innovation in development and design the implementation of
innovative financial process. the financial year innovative banking sector are using Internet Banking, Mobile
Banking, Debit Card, Credit Card, Automatic teller machine, Fund Transfer, RTGS, NEFT, EFT, ECS,
Advisory Services, Payment Utility bills, fund Transfer, Insurance Schemes, Cheque Books, Travel Cheques
67
and value added services. Today's digital age and hyper-connected environment requires banks to re-imagine
their business continuously, and Indian banks are leading the pack when it comes to transforming from
digital to truly digital. The year 2017 will be no different for the Indian banking sector; there will be growth
fueled by innovative initiatives such as Unified Payments Interface (UPI) and technology. Our top picks for
major technology trends that will reshape Indian banking are as follows: 1. Open banking -a connected
ecosystem for financial and non-financial services with multiple underlying service providers is the future of
banking. 2. Banking strategy- Banks are already making gaits in cloud adoption. Technologies are changing
the face of business—Big Data, block chain, artificial intelligence (AI), will be leveraged using cloud
computing. Business models for merging banks will also be largely driven by the strategy. 3. Block chain –
the banks try to meet the increasing demands of customers; block chain will be one of the enablers for re-
imagining processes. The current year 2017 will increasingly move some project, product and leverage block
chain to automate inter-organizational processes. The new Emirates NBD and ICICI Bank Partnership to
launch a block chain pilot network for international remittances and trade finance is advancing in this
technology. 4. Artificial Intelligence- has the potential to transform both front office and back office
operations with its self-improving programs—at ICICI Bank. The banks will explore the concepts to
integrate the conversational interface into their Omni channel strategy. 5. More things to bank -The year
2016 was the year of mobile-first strategy. Indian banks leveraged the increasing adoption of mobile to
provide customized offerings on their apps. 6. Banking architecture simplification- The new technology is
the bedrock of banking architectural simplification. The New Year will see banks move to componentization
instead of the traditional monolithic architecture. In other words, complex architecture will be broken up into
smaller bite-sized pieces for ease of deployment and upgrade for specific functionalities. The Indian
government has made it clear that India will be yanked away from a cash-based economy. GST rollout will
give further impetus to the Indian economy. In 2017, banks will not only have to keep up with the growing
expectations of a billion connected customers, but they'll also have to make sure that they are leagues ahead
of the emerging competition.
8.2 Different Players of the Banking Industry

 Enhancing core banking value
 Revamping the digital agenda
 Moving from information to insight
 Dealing with a changing risk regime
 From cash to electronic modes of payment
 Grappling with financial inclusion
68
 Empowering employee
 Accelerating innovation
Recent Trends In Banking The Indian banking business has changed dramatically over the past 25 years, due
in large part to technological change. The various factors of innovations in banking and financial market are
ECS, RTGS, NEFT, ATM, and Retail Banking. Etc., and including more product and services.
8.2. 1. ATM
The automated teller machine or ATM, is such a complicated piece of technology that it does not have a
single inventor. Today we use ATM are an amalgam of several different inventions. Automatic Teller
Machine enables the customers to withdraw their money 24 hours a day 7 days a week. ATMs can be used
for cash withdrawal, payment of utility bills, funds transfer between accounts, deposit of cheques and cash
into accounts, balance enquiry etc.
8.2.2. Electronic Payment Services
 It is mainly based on the e-governance, e-mail, e-commerce, e-tail etc.
 EPS Being developed in US for introduction of e-cheque
 Negotiable Instruments Act
8.2.3. Real Time Gross Settlement (RTGS)
 Introduced in India Since March 2004
 Operated by RBI
 Transfer Funds from their account to the account of another bank
 Fast Funds transfer (2 hours)
8.2.4. NEFT
 Nationwide payment system
 One to one Fund Transfer
8.2.5. Electronic Funds Transfer
Electronic is a system whereby anyone who wants to make payment to another person/company etc. Details
- receiver's name, bank account number, account type (savings or current account), bank name, city, branch
name etc. RBI is the service provider of EFT.
8.2.6. Point of Sale Terminal
 Linked online to the computerized customer information files in a bank
 Plastic transaction card
 customer's account is debited and the retailer's account is credited
8.2.7. Tele Banking
69
 Entire non-cash related banking on telephone

 Automatic Voice Recorder
 Manned phone terminals are used
8.2.8. Electronic Data Interchange (EDI)
The electronic exchange of business documents like purchase order, invoices, shipping notices, receiving
advices etc. in a standard, computer processed, universally accepted format between trading partners.
8.2.9. Mobile banking
Mobile banking is a service provided by a bank or other financial institution that allows its customers to
conduct financial transactions remotely using a mobile device such as a smartphone or tablet.
8.2.10. Core Banking - Core banking is a banking service provided by a group of networked
8.2.11. Corporate Banking - Corporate banking, also known as business banking, refers to the aspect
of banking that deals with corporate customers Services
 Overdraft
 Domestic & International Payment
 Funding
 Channel Financing
 Letters of Guarantee
 Working Capital Facilities
 International Trade
8.2.16. Investment Banking-
Mainly two ways of fund creating Corporate Finance & M& As
8.2.17. Smart Card
 Chip Based Card
 Pin
 Powerful Cards like ATM, Credit Card, Debit Card Product and Services of Innovative Banking
1. Bank Automation
1) Speed Up
2) Friendly and Flexibility
3) Towards Less transactions
2. Banking Branches
70
3. Cash Withdrawal
4. Cash Deposit
5. Account Statement
6. Cheques
7. Fund transfer
8. Balance Enquiry
9. Purchase of Demand
10. Draft Pay Order
11. Repayment of Loan Account
12. Demat Services – Provide online trading facility
13. Microfinance- Income Producing Activities, Build Assets, Stabilize Consumption
14. Plastic Money-it is alternative to cash and convenient to carry
15. Mobile banking-Balance Enquiry, Fund Transfer
71
9. SCOPE OF RESERVE BANK OF INDIA
The Increasing scope of Reserve Bank of India:- The Reserve Bank of India (RBI) is the central bank for
India. The RBI handles many functions, from handling monetary policy to issuing currency. India has
reported some of the best gross domestic product (GDP) growth rates in the world. It is also known as one of
the four most powerful emerging market countries, collectively part of the BRICs which contain Brazil,
Russia, India, and China.
The International Monetary Fund (IMF) and World Bank have highlighted India in several reports showing
its high rate of growth. In April 2019, the World Bank projected India‘s GDP growth would expand by 7.5%
in 2020. Also in April 2019, the IMF showed an expected GDP growth rate of 7.3% for 2019 and 7.5% for
2020. Both projections have India with the highest expected GDP growth in the world over the next two
years.
India’s Growth
The above growth rates make the role of the Reserve Bank of India increasingly important as the country‘s
total GDP moves higher. India is a top 10 nation for GDP overall but its numbers fall far behind the world‘s
superpowers in the U.S. and China.
GDP Growth and Nominal GDP.
India is expected to have a GDP of $2.935 trillion and $3.304 trillion in 2019 and 2020 respectively. This
compares to expectations of $21.506 trillion and $22.336 trillion for the U.S. China‘s expected GDP for the
same time periods is $14.242 trillion and $15.678 trillion.
The RBI and Economy

As with all economies, the central bank plays a key role in managing and monitoring the monetary policies
affecting both commercial and personal finance as well as the banking system. As GDP moves higher in the
world rankings the RBI‘s actions will become increasingly important.
In April 2019 the RBI made the monetary policy decision to lower its borrowing rate to 6%. The rate cut was
the second for 2019 and is expected to help impact the borrowing rate across the credit market more
substantially. Prior to April, credit rates in the country have remained relatively high, despite the central
bank‘s positioning, which has been limiting borrowing across the economy. The central bank must also
grapple with a slightly volatile inflation rate that is projected at 2.4% in 2019, 2.9% to 3% in the first half of
2020, and 3.5% to 3.8% in the second half of 2020.
72
The RBI also has control over certain decisions regarding the country‘s currency. In 2016, it affected a
demonetization of the currency which removed Rs. 500 and Rs. 1000 notes from circulation, mainly in an
effort to stop illegal activities. Post analysis of this decision shows some wins and losses. The
demonetization of the specified currencies caused cash shortages and chaos while also requiring extra
spending from the RBI for printing more money. One of the biggest advantages, however, was the increase
in tax collection which resulted from greater consumer reporting transparency.
In December 2018, the country elected Shaktikanta Das as its new RBI leader. Das is a supporter of
demonetization inline with the top government officials‘ views. Das is also expected to better align with
India‘s government leadership and amicably support better access to credit.
The Bottom Line

As one of the fastest-growing emerging market countries in the world, India and its central bank have
several unique challenges ahead that will require nimble navigation from the RBI. Shaktikanta Das will be
charged with guiding the monetary policy direction over the next three years for the country as it continues
to take the spotlight for GDP growth.
India also has a diverse range of goods and services along with a rising inflation rate. With the Indian
economy steadily accounting for a greater share of the global economy, it is expected that the RBI will gain
greater attention from world leaders while also growing in stature as one of the world‘s most-watched
central banks.
Scope for RBI rate cut; fiscal stimulus 'less likely': ADB
Asian Development Bank (ADB) expects the RBI to go for another round of rate cut in the latter part of
2017-18 in view of sluggish economic activities but does not see possibility of any major fiscal stimulus.
The Monetary Policy Committee of the Reserve Bank reduced the key interest rate (repo) by 25 basis points
to 6 per cent in August. The committee is scheduled to come out with next bi-monthly monetary policy
decision on October 4.
"With inflation within the central bank target range of 2 6 per cent and economic activity weakening in
January June 2017, the latter part of the fiscal year offers some scope for additional monetary easing," ADB
said in a report.
In its 'Asian Development Outlook 2017 Update', the Manila-based multilateral lending agency had reduced
India's GDP growth forecast for the current fiscal to 7 per cent from 7.4 per cent owing to weakness in
private consumption, manufacturing output and business investment.
73
As per the latest data released by the Indian government, the country's growth fell to a 3-year low of 5.7 per
cent in the April-June quarter of 2017-18.
Finance Minister Arun Jaitley recently said the government would come out with additional measures to
boost economic activities, thus raising expectations of a fiscal stimulus package.
Finance Minister Arun Jaitley recently said the government would come out with additional measures to
boost economic activities, thus raising expectations of a fiscal stimulus package.
However, ADB said fiscal stimulus "is less likely with the government having exhausted 92.4 per cent of the
full fiscal year deficit to cover slippage in non-tax revenue due to slow progress in achieving disinvestment
targets".
"Meanwhile, the scope for cutting back expenditure is limited.
74
BIBLIOGRAPHY
BOOKS REFFERED:
Study Material of Symbiosis
WEBSITES REFFERED:
www.wikipedia.com
www.centralbank.co.in
www.rbi.org
www.iibf.org
www.google.co.in
REPORTS/ARTICLES REFFERED:
Annual report of Central bank of India 2015
75
CONCLUSION
The Reserve Bank of India was established with a view to fostering the banking business and not for
impeding the growth of such business. The powers vested in it under Section 22 are not one invested with a
mere officer of the Bank. The standards for the exercise of the power have been laid down in Section 22
itself. The Reserve Bank is a non-political body concerned with the finances of the country. When a power is
given to such a body under a statute which prescribes the regulations of a Banking Company, it can be
assumed that such power would be exercised so that genuine: banking concerns could be allowed to function
as a bank, while institutions masquerading as banks or those run on unsound lines or which would affect the
interests of the public could be weeded out.
The Reserve Bank‟s developmental role includes ensuring credit to productive sectors of the economy,
creating institutions to build financial infrastructure, and expanding access to affordable financial services. It
also plays an activerole in encouraging efficient customer service throughout the banking industry, as well as
extension of banking service to all, through the thrust on financial inclusion.
RBI works as the monetary authority of India and there by operates the monetary policy. Reserve Bank of
India announces Monetary Policy every year in the Month of April. This is followed by three quarterly
Reviews in July, October and January. But, RBI at its discretion can announce the measures at any point of
time. The Annual Monetary Policy is made up of two parts viz. Part A: macroeconomic and monetary
developments; Part B: Actions taken and fresh policy measures. Monetary policy of the RBI deals with
almost all other vital topics such as financial stability, financial markets, interest rates, credit delivery,
regulatory norms, financial inclusion and institutional developments etc.
These are various selective instruments of the monetary policy. However the success of these tools is limited
by the availability of alternative sources of credit in economy, working of the Non-Banking Financial
Institutions (NBFIs), profit motive of commercial banks and undemocratic nature off these tools. But a right
mix of both the general and selective tools of monetary policy can give the desired results.
76

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HISTORY AND SCOPE OF CENTRAL BANKING 2019

CHAPTER PARTICULARS PAGE NO.

2. HISTORY AND FORMATION OF CENTRAL BANK 14-25

3. ACTIVITIES LAUNCHED BY CENTRAL BANK 15-32

4. FORMATION OF RBI 33-42

5. ACTIVITIES CONDUCTED BY RBI 43-50

6. STRUCTURE AND IMPORTANCE OF RBI 51-58

7. FUNCTION AND ROLE OF RBI 59-64

8. VARIOUS TECHNOLOGIES ADOPTED IN 65-71

9. SCOPE OF RBI 72-74

BANKING STRUCTURE IN INDIA

INDIAN BANKING SYSTEM

State Bank of India Other Nationalized Banks Regional Rural

INDIAN BANKING INDUSTRY ANALYSIS

MAJOR PLAYER IN INDIA

1. CENTRAL BANK OF INDIA

Industry Finance - Banks - Private Sector.

Business Group CENTRAL BANK OF INDIA

Incorporation Date 21/12/1911

Public Issue Date 31/12/1995

Face Value 10.0000

Slogan Build a Better life around us

Company/Business Registration No INE040A01018

Key Officials CEO Rajeev Rishi

1.2 CORPORATE MISSION

♦ To have bouquet of product and services tailor-made to meet customers aspirations.

1.3VISION STATEMENT OF CENTRAL BANK OF INDIA

1.4 BUSINESS STRATEGY

I. Increasing market share in India‘s expanding banking

BOARD OF DIRECTORS/TOP MANAGEMENT

Mr. Rajeev Rishi Chairman & Managing Director

Mr. Raj Kumar Goyal Executive Director

Mr.B.K.Divakar Executive Director

Mr. R.C.Lodha Executive Director

Dr. Saurabh Garg GOI Nominee Director

Mr. Shekhar Bhatnagar RBI Nominee Director

Mr. M.P.Shorawala Director

Mrs. Krishan Sethi Director

Mr. S.B.Rode Officer Employee Director

Mr. Gurbax Kumar Joshi Workmen Employee Director

Mrs. N.S.Rathnaprabha Director

Mr Ketul Ramubhai Patel Shareholder DIrector

Mr Supratim Bandyopadyay shareholder director

-Central Bank of India launched Go Green Campaign for customers.

-Board recommended a Final Dividend of Rs. 25%.

-CBI received Rajbhasha shield from NARAKAS

-CBI Received National Award for Excellence in MSME Lending

1.6 BUSINESS SEGMENT

1.6.1Wholesale Banking Services:

1.6.2 Retail Banking Services :

HISTORY AND FORMATION OF CENTRAL BANKING

2.3 The Genesis of Modern Central Banking Goals

2.4 Financial Stability

2.5 Challenges for the Future

2.5 Central Bank of India

It is one of eighteen public sector banks in India to get recapitalised in 2009.

Central Bank of India, Shankar Sheth Road Branch,

Products and Services

OBJECTIVES OF CENTRAL BANK OF INDIA

The Central Bank of India is one of the oldest Banks in India.

The objectives of the Central Bank of India are as follows:

 To help ensure the monetary stability of the country-

 To assist in regulating the financial system of the country,