Reserve Bank of India

From Wikipedia, the free encyclopedia

Jump to: navigation, search

Reserve Bank of India

भारतीय रिज़र्व बैंक

Logo of RBI The RBI headquarters in Mumbai

Headquarters Mumbai, Maharashtra

Coordinates Coordinates:

Established 1 April 1935

Governor Duvvuri Subbarao

Central bank of India

Currency Indian Rupee

ISO 4217 Code INR

Reserves US$300.21 billion (2010)

Base borrowing
6.75%
rate

Base deposit
5.75%
rate

Website rbi.org.in
The Reserve Bank of India (RBI, Hindi: भारतीय रिज़र्व बैंक) is the central banking institution of
India and controls the monetary policy of the rupee as well as US$300.21 billion (2010)[1] of
currency reserves. The institution was established on 1 April 1935 during the British Raj in
accordance with the provisions of the Reserve Bank of India Act, 1934[2] and plays an important
part in the development strategy of the government. It is a member bank of the Asian Clearing
Union.

Contents
[hide]

 1 History
o 1.1 1935—1950
o 1.2 1950—1960
o 1.3 1960—1969
o 1.4 1969—1985
o 1.5 1985—1991
o 1.6 1991—2000
o 1.7 Since 2000
 2 Structure
o 2.1 Central Board of Directors
o 2.2 Governors
o 2.3 Supportive bodies
o 2.4 Offices and branches
 3 Main functions
o 3.1 Monetary authority
o 3.2 Manager of exchange control
o 3.3 Issuer of currency
o 3.4 Developmental role
o 3.5 Related functions
 4 RBI has various tools to control which are listed below
 5 Further reading
 6 External links
 7 References

[edit] History
[edit] 1935—1950
The old RBI Building in Mumbai

The central bank was founded in 1935 to respond to economic troubles after the first world war.
[3]
The Reserve Bank of India was set up on the recommendations of the Hilton-Young
Commission. The commission submitted its report in the year 1926, though the bank was not set
up for another nine years. The Preamble of the Reserve Bank of India describes the basic
functions of the Reserve Bank as to regulate the issue of bank notes, to keep reserves with a view
to securing 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 Reserve Bank was initially established
in Kolkata, Bengal, but was permanently moved to Mumbai in 1937. The Reserve Bank
continued to act as the central bank for Myanmar till Japanese occupation of Burma and later up
to April 1947, though Burma seceded from the Indian Union in 1937. After partition, the Reserve
Bank served as the central bank for Pakistan until June 1948 when the State Bank of Pakistan
commenced operations. Though originally set up as a shareholders’ bank, the RBI has been fully
owned by the government of India since its nationalization in 1949.[4]

[edit] 1950—1960

Between 1950 and 1960, the Indian government developed a centrally planned economic policy
and focused on the agricultural sector. The administration nationalized commercial banks[5] and
established, based on the Banking Companies Act, 1949 (later called Banking Regulation Act) a
central bank regulation as part of the RBI. Furthermore, the central bank was ordered to support
the economic plan with loans.[6]

[edit] 1960—1969

As a result of bank crashes, the reserve bank was requested to establish and monitor a deposit
insurance system. It should restore the trust in the national bank system and was initialized on 7
December 1961. The Indian government founded funds to promote the economy and used the
slogan Developing Banking. The Gandhi administration and their successors restructured the
national bank market and nationalized a lot of institutes. As a result, the RBI had to play the
central part of control and support of this public banking sector.

[edit] 1969—1985

Between 1969 and 1980, the Indian government nationalized 6 more commercial banks,
following 14 major commercial banks being nationalized in 1949(As mentioned in RBI website).
The regulation of the economy and especially the financial sector was reinforced by the Gandhi
administration and their successors in the 1970s and 1980s.[7] The central bank became the
central player and increased its policies for a lot of tasks like interests, reserve ratio and visible
deposits.[8] The measures aimed at better economic development and had a huge effect on the
company policy of the institutes. The banks lent money in selected sectors, like agri-business and
small trade companies.[9]

The branch was forced to establish two new offices in the country for every newly established
office in a town.[10] The oil crises in 1973 resulted in increasing inflation, and the RBI restricted
monetary policy to reduce the effects.[11]12

[edit] 1985—1991

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" (Mackinnon and Shaw).[12] The Discount
and Finance House of India began its operations on 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.[13]

[edit] 1991—2000

The national economy came down in July 1991 and the Indian rupee was devalued.[14] The
currency lost 18% relative to the US dollar, and the Narsimahmam 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 establish a private banking sector. This
turning point should reinforce the market and was often called neo-liberal[15] The central bank
deregulated bank interests and some sectors of the financial market like the trust and property
markets.[16] This first phase was a success and the central government forced a diversity
liberalisation to diversify owner structures in 1998.[17]

The National Stock Exchange of India took the trade on in June 1994 and the RBI allowed
nationalized 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 Limited
—in February 1995 to produce banknotes.[18]

[edit] Since 2000

The Foreign Exchange Management Act from 1999 came into force in June 2000. It should
improve the foreign exchange market, international investments in India and transactions. The
RBI promoted the development of the financial market in the last years, allowed online banking
in 2001 and established a new payment system in 2004 - 2005 (National Electronic Fund
Transfer).[19] The Security Printing & Minting Corporation of India Ltd., a merger of nine
institutions, was founded in 2006 and produces banknotes and coins.[20]

The national economy's growth rate came down to 5.8% in the last quarter of 2008 - 2009[21] and
the central bank promotes the economic development.[22]

[edit] Structure
[edit] Central Board of Directors

The Central Board of Directors is the main committee of the central bank. The Government of
India appoints the directors for a four year term. The Board consists of a governor, four deputy
governors, four directors to represent the regional boards, and ten other directors from various
fields.

[edit] Governors

The central bank had 21 governors . Current Governor of Reserve Bank of India is D.
Subbarao.http://www.rbi.org.in/scripts/Annualpolicy.aspx

[edit] Supportive bodies

The Reserve Bank of India has four regional representations: North in New Delhi, South in
Chennai, East in Kolkata and West in Mumbai. The representations are formed by five members,
appointed for four years by the central government and serve - beside the advice of the Central
Board of Directors - as a forum for regional banks and to deal with delegated tasks from the
central board.[23] The institution has 22 regional offices.

The Board of Financial Supervision (BFS), formed in November 1994, serves as a CCBD
committee to control the financial institutions. It has four members, appointed for two years, and
takes measures to strength the role of statutory auditors in the financial sector, external
monitoring and internal controlling systems.

The Tarapore committee was set-up by the Reserve Bank of India under the chairmanship of
former RBI deputy governor S S Tarapore to "lay the road map" to capital account convertibility.
The five-member committee recommended a three-year time frame for complete convertibility
by 1999-2000.

On 1 July 2006, in an attempt to enhance the quality of customer service and strengthen the
grievance redressal mechanism, the Reserve Bank of India constituted a new department —
Customer Service Department (CSD).

[edit] Offices and branches

The Reserve Bank of India has 4 regional offices ,15 branches and 5 sub-offices.[24]. It has 22
branch offices at most state capitals and at a few major cities in India. Few of them are located in
Ahmedabad, Bangalore, Bhopal, Bhubaneswar, Chandigarh, Chennai, Delhi,
Guwahati,Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, Patna, and
Thiruvananthapuram. Besides it has sub-offices at Dehradun, Gangtok, Kochi, Panaji, Raipur,
Ranchi, Shimla and Srinagar.

The bank has also two training colleges for its officers, viz. Reserve Bank Staff College at
Chennai and College of Agricultural Banking at Pune. There are also four Zonal Training
Centres at Belapur, Chennai, Kolkata and New Delhi.

[edit] Main functions

Reserve Bank of India regional office, Delhi entrance with the Yakshini sculpture depicting
"Prosperity through agriculture".[25]

The RBI Regional Office in Delhi.

The RBI Regional Office in Kolkata.

[edit] Monetary authority

The Reserve Bank of India is the main monetary authority of the country and beside that the
central bank acts as the bank of the national and state governments. It formulates, implements
and monitors the monetary policy as well as it has to ensure an adequate flow of credit to
productive sectors. Objectives are maintaining price stability and ensuring adequate flow of
credit to productive sectors. The national economy depends on the public sector and the central
bank promotes an expansive monetary policy to push the private sector since the financial market
reforms of the 1990s.[26]

The institution is also the regulator and supervisor of the financial system and prescribes broad
parameters of banking operations within which the country's banking and financial system
functions. Objectives are to maintain public confidence in the system, protect depositors' interest
and provide cost-effective banking services to the public. The Banking Ombudsman Scheme has
been formulated by the Reserve Bank of India (RBI) for effective addressing of complaints by
bank customers. The RBI controls the monetary supply, monitors economic indicators like the
gross domestic product and has to decide the design of the rupee banknotes as well as coins.[27]

[edit] Manager of exchange control

The central bank manages to reach the goals of the Foreign Exchange Management Act, 1999.
Objective: to facilitate external trade and payment and promote orderly development and
maintenance of foreign exchange market in India.

[edit] Issuer of currency

The bank issues and exchanges or destroys currency and coins not fit for circulation. The
objectives are giving the public adequate supply of currency of good quality and to provide loans
to commercial banks to maintain or improve the GDP. The basic objectives of RBI are to issue
bank notes, to maintain the currency and credit system of the country to utilize it in its best
advantage, and to maintain the reserves. RBI maintains the economic structure of the country so
that it can achieve the objective of price stability as well as economic development, because both
objectives are diverse in themselves.
[edit] Developmental role

The central bank has to perform a wide range of promotional functions to support national
objectives and industries.[6] The RBI faces a lot of inter-sectoral and local inflation-related
problems. Some of this problems are results of the dominant part of the public sector.[28]

[edit] Related functions

The RBI is also a banker to the government and performs merchant banking function for the
central and the state governments. It also acts as their banker. The National Housing Bank
(NHB) was established in 1988 to promote private real estate acquisition.[29] The institution
maintains banking accounts of all scheduled banks, too.

There is now an international consensus about the need to focus the tasks of a central bank upon
central banking. RBI is far out of touch with such a principle, owing to the sprawling mandate
described above. The recent financial turmoil world-over, has however, vindicated the Reserve
Bank's role in maintaining financial stability in India.

[edit] RBI has various tools to control which are listed below
(a) Bank Rate: RBI (Reserve Bank of India) lends to the commercial banks through its discount
window to help the banks meet depositor’s demands and reserve requirements. The interest rate
the RBI charges the banks for this purpose is called bank rate. If the RBI wants to increase the
liquidity and money supply in the market, it will decrease the bank rate and if it wants to reduce
the liquidity and money supply in the system, it will increase the bank rate. The current rate is
6%.

(b) Cash Reserve Requirements (CRR): Every commercial bank has to keep certain minimum
cash reserves with RBI. RBI can vary this rate between 3% and 15%. RBI uses this tool to
increase or decrease the reserve requirement depending on whether it wants to affect a decrease
or an increase in the money supply. An increase in CRR will make it mandatory on the part of
the banks to hold a large proportion of their deposits in the form of deposits with the RBI. This
will reduce the size of their deposits and they will lend less. This will in turn decrease the money
supply. The current rate is 6%.

(c) Statutory Liquidity Requirements (SLR): Apart from the CRR, banks are required to maintain
liquid assets in the form of gold, cash and approved securities. RBI has stepped up liquidity
requirements for two reasons: - Higher liquidity ratio forces commercial banks to maintain a
larger proportion of their resources in liquid form and thus reduces their capacity to grant loans
and

advances – thus it is an anti-inflationary impact. A higher liquidity ratio diverts the bank funds
from loans and advances to investment in government and approved securities.

In well developed economies, central banks use open market operations- buying and selling of
eligible securities by central bank in the money market- to influence the volume of cash reserves
with commercial banks and thus influence the volume of loans and advances they can make to
the commercial and industrial sectors. In the open money market, government securities are
traded at market related rates of interest. The RBI is resorting more to open market operations in
the more recent years.

Generally RBI uses three kinds of selective credit controls:

a) Minimum margins for lending against specific securities. b) Ceiling on the amounts of credit
for certain purposes. c) Discriminatory rate of interest charged on certain types of advances.

Direct credit controls in India are of three types:

a) Part of the interest rate structure i.e. on small savings and provident funds, are administratively
set. b) Banks are mandatorily required to keep 25% of their deposits in the form of government
securities. c) Banks are required to lend to the priority sectors to the extent of 40% of their
advances.
Presentation Transcript
Slide 1: 

Goodmorning

RESERVE BANK OF INDIA : 

RESERVE BANK OF INDIA Powered By- : Jyoti Prasad Manoj Singh Jyoti Shankar

Introduction : 

Introduction It is the Central Bank of India Established in 1 April 1935 under the RESERVE
BANK OF INDIA ACT Its head quarters Is in Mumbai (Maharashtra). Its present governor is
Duvvuri Subbarao. It has 22 regional offices, most of them in State capitals Website:
http://www.rbi.org.in

Breif History (1 of 2) : 

Breif History (1 of 2) It was set up on the recommendations of the Hilton Young Commission It
was started as share-holders bank with a paid up capital of 5 crores. Initially it was located in
Kolkata. It moved to Mumbai in 1937. Initially it was privately owned.

Breif History (2 of 2) : 

Breif History (2 of 2) Since nationalization in 1949, the Reserve Bank is fully owned by the
Government of India. Its First governor was Sir Osborne A. SmithApril 1, 1935 to June 30, 1937
The first Indian Governor was “Sir Chintaman D.Deshmukh” (August 11, 1943 to June 30,
1949) On June 27, 2006, the Union Government of India reconstituted the Central Board of
Directors of the Reserve Bank of India (RBI) with 13 members, including Azim Premji and
Kumar Mangalam Birla

Governors (1 of 2) : 

Governors (1 of 2) Sir Osborne A. SmithApril 1, 1935 to June 30, 1937 Sir Chintaman
D.Deshmukh August 11, 1943 to June 30, 1949 INDIAN
Governors (2 of 2) : 

Governors (2 of 2) Dr.Y.V.Reddy  September 6, 2003 to September 5, 2008 Dr. D. Subbarao 

September 5, 2008 onwards

Preamble : 

Preamble The Preamble of the Reserve Bank of India describes the basic functions of the
Reserve Bank as :- "...to regulate the issue of Bank Notes and keeping of reserves with a view to
securing monetary stability in India and generally to operate the currency and credit system of
the country to its advantage."

Organization of RBI : 

Organization of RBI Central Board Local Board

Central Board (1 of 2) : 

Central Board (1 of 2) The Reserve Bank's affairs are governed by a central board of directors.
The board is appointed by the Government of India as per the Reserve Bank of India Act.
Appointed/nominated for a period of four years Constitution: Official Directors Full-time :
Governor and not more than four Deputy Governors

Central Board (2 of 2) : 

Central Board (2 of 2) Non-Official Directors Nominated by Government: ten Directors from

various fields and one government Official Others: four Directors - one each from four local
boards Functions : General superintendence and direction of the Bank's affairs

RBI Headquarters' Delhi entrance with the Yakshini Sculpture depicting

‘Prosperity through Agriculture’ : 

RBI Headquarters' Delhi entrance with the Yakshini Sculpture depicting ‘Prosperity through
Agriculture’

Local Board (1 of 2) : 
Local Board (1 of 2) One each for the four regions of the country in Mumbai, Calcutta, Chennai
and New Delhi Membership: Consist of five members each Appointed by the Central
Government For a term of four years

Local Board (2 of 2) : 

Local Board (2 of 2) Functions : To advise the Central Board on local matters and to represent
territorial and economic interests of local cooperative and indigenous banks. To perform such
other functions as delegated by Central Board from time to time.

Functions of RBI : 

Functions of RBI Monetary Authority Regulator & Supervisor of Financial System Manager of
Foreign Exchange Issuer of Currency Developmental Role

Formulate Monetary policy : 

Formulate Monetary policy Objective:Maintain price stability and ensuring adequate flow of
credit in the economy. What R.B.I does. It formulates, implements and monitors the monetary
policy. Intruments: qualitative & quantitative.

Quantitative Measures : 

Quantitative Measures BANK RATE also called discount rate.it also includes repo rate. OPEN
MARKET OPERATIONS buying and selling of government securities. VARIABLE RESERVE
RATIO it includes C.R.R and S.L.R

Qualitative measures : 

Qualitative measures Margin Requirements Moral Suasion Rationing of Credit

Regulate & Supervise the Financial System : 

Regulate & Supervise the Financial System Objective: To Maintain Public confidence in the
system, protect depositor’s interest & provide cost effective banking services to the public. What
R.B.I does….. Prescribes broad parameters of banking operations within which the country's
banking and financial system functions. The Reserve Bank of India performs this function under
the guidance of the Board for Financial Supervision (BFS). Lender of last resort
Manager of Foreign Exchange : 

Manager of Foreign Exchange Objective:To facilitate external trade and payment and promote
orderly development and maintenance of foreign exchange market in India. What R.B.I does…..
It acts as a custodian and Manages the Foreign Exchange Management Act, 1999. RBI buys and
sells foreign currency to maintain the exchange rate of  Indian Rupee v/s  foreign currencies like
the US Dollar, Euro, Pound sterling and Japanese yen. Dollar Deposits - LIBOR

Issue of Currency : 

Issue of Currency Objective:To ensure adequate quantity of supplies of currency notes and coins
of good quality. What R.B.I does….. Issues new currency and destroys currency and coins not fit
for circulation. It has to keep in forms of gold and foreign securities as per statutory rules against
notes & coins issued.

Developmental Role : 

Developmental Role Objective : To develop the quality of banking system in india. What R.B.I
does…… Performs a wide range of promotional functions to support national objectives. To
establish financial institutions of national importance, for e.g: NABARD,IDBI etc.

Subsidiaries : 

Subsidiaries Fully owned: National Housing Bank(NHB), Deposit Insurance and Credit
Guarantee Corporation of India(DICGC), Bharatiya Reserve Bank Note Mudran Private
Limited(BRBNMPL) Major stakes: National Bank for Agriculture and Rural Development
(NABARD) The Reserve Bank of India has recently divested its stake in State Bank of India to
the Government of India. R.B.I had also set up some trainning institutions.

Related Functions (1of 2) : 

Related Functions (1of 2) Banker to the Government: Performs all banking function for the
central and the state governments and also acts as their banker. Banker to banks: maintains
banking accounts of all scheduled banks. RBI also regulates the opening /installation of  ATM
Fresh currency notes for  ATMs are supplied by RBI RBI regulates the opening of branches by
banks. It ensures that all the N.B.F.S follow the Know Your Customer guidelines.

Related Functions (2 of 2) : 

Related Functions (2 of 2) The Reserve Bank of India also regulates the trade of gold. Currently
17 Indian banks are involved in the trade of gold in India. RBI has invited applications from
more banks for direct import of gold to curb illegal trade in gold and increase competition in the
market. Collection and publication of data. It issues guidelines and directives for the commercial
banks

Role of RBI in Economic Development : 

Role of RBI in Economic Development Development of banking system Development of

financial institutions Development of backward areas Economic stability Economic growth
Proper interest rate structure Miscellaneous

Narasimham Committee (1991) (1 of 2) : 

Narasimham Committee (1991) (1 of 2) High Level Committee-’Mr M.Narasimham’(Chairman)

Submitted Report in Nov. 1991 Basic Approach: Greater market orientation would strengthen
the financial system & thus improve its efficiency. The solvency, health & efficiency of the
institutions should be central to effective financial reforms.

Narasimham Committee (1991) (2 of 2) : 

Narasimham Committee (1991) (2 of 2) On Directed Investments-(SLR & CRR) On Directed

Credit Programmes On the Structure of Interest Rates On Structural Reorganization of the
Banking Structure

Banking Sector Reforms (1992-2005) (1 of 2) : 

Banking Sector Reforms (1992-2005) (1 of 2) Statutory Liquidity Ratio (SLR) Cash Reserve
Ratio (CRR) Interest Rate slabs Prudential Norms Capital Adequacy Norms Freedom of
operation Supervision of Commercial Banks Recovery of Debts

Slide 31: 

Thank you