A PROJECT REPORT

ON
“THEROLEOFRBISOCIAL ECONOMIC DEVELOPMENTOFINDIA ”

TO BE SUBMITTED TO CHAUDHARY CHARAN SINGH UNIVERSITY,

MEERUT

IN THE PARTIAL FULLFILLMENT OF THE REQUIREMENT

FOR THE DEGREE OF

MASTER OF COMMERCE
(BATCH 2019-21)

SUBMITTEDBY: SUBMITTEDTO:
MANISH KANSAL DR. KAPIL GARG&

M.COM3SEMESTER DR. REKHA GARG

ROLL NO 190056186033

DATE 23FEB2021 ( TEACHER “S SIGN)

 ACKNOWLEDGMENT

I WOULD LIKE TO EXPRESS MY SPEICAL THANKSOF

GRATITUDETOMY PROJECTFILE TEACHER “DR.
REKHpAGARG MAM” AND DR. KAPIL GARG FOR THEIR
ABLE GUIDANCE AND SUPPORT IN COMLETING MY
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THEPRINCIPAL SIR “ DR .V.P RAKESH” FOR
PROVIDING ME WITH ALL THE FACILITY THAT WAS
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3 SEMESTER
 INDEX
1 CHAPTER INTRODUCTION OF RBI
2 CHAPTER THE IMPORTANCE OFRBI
3 CHAPTER FUNCTION OF RESERVEBANK
4 CHAPTER ORGANISATION STRUTURE OFRBI
5 CHAPTER RBI ANNUALPUBLICATION
6 CHAPTER RBI POLICIES
7 CHAPTER GOVERNANCE .HOW WEFUNCTION
8 CHAPTER RBI AS MONETARY AUTHORITY OFINDIA
9 CHAPTER ISSUE OFCURRENCY
10CHAPTER RBI THE BANKER & DEBT MANAGER TOGOVT
11CHAPTER BANKER TOBANK
12CHAPTER REGULTER OF BANKINGSYSTEM
13CHAPTER MANGER OF FOREIGNEXCHANGE
14CHAPTER MOST RECENT CPI INDIA9.303%
CHAPTER-1
INTRODUCTION OF RBI
The Reserve Bank of India was founded on 1 April 1935 to respond to
economic troubles after the RBI was conceptualised as per the
guidelines,working style and outlook presented by Dr. B. R. Ambedkar in
his book titled "The Problem of Rupee - Its origin and its solutions" and
presented to the Hilton Young Commission. Eventually, the Central
Legislative Assembly passed these guidelines as the RBI Act 1931The
bank was set up based on the recommendations of the 1926 Royal
Commission on Indian Currency and Finance, also known as the
HiltonYoung CommissionThe 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 banknotes, 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
theIndianUnionin1937.AfterthePartitionofIndiainAugust1947,the bank
served as the central bank for Pakistanuntil 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
ofIndia since its nationalisation in 1949 RBI has a 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.

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.

1969–1984

In 1969, the India Gandhi-headed government nationalised 14 major

commercial banks. Upon India 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 crisesin 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 andliberalisation.

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 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 in1998.

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
PrivateLimited—on 3 February 1995 to produce banknotes.

Since 2000

The Foreign Exchange Management Act, 1999 came into force in June
2000.Itshouldimprovetheitemin2004–
2005(NationalElectronicFundTransfer)TheSecurityPrinting&MintingCorpor
ationofIndiaLtd.,amerger
ofnineinstitutions,wasfoundedin2006andproducesbanknotesandcoins.
The national economy's growth rate came down to 5.8% in the last quarter
of 2008–2009 and the central bank promotes the economic development.

In 2016, the Government of India amended the RBI Act to establish the
MonetaryPolicy 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 isdecisive.

In April 2018, the RBI announced that "entities regulated by RBI shall not
deal with or provide services to any individual or business entities dealing
with or settling virtual currencies," including BitcoinWhile the RBI later
clarified that it "has not prohibited" virtual currencies a three-judge panel
of the Supreme Court of Indiaissued a ruling on 4 March 2020 that the RBI
had failed to show "at least some semblance of any damage suffered by its
regulated entities" through the handling of virtual currencies to justify its
decision. The court challenge was filesome cryptocurrency exchanges whose
businesses suffered following
The RBILOGO

The selection of the Bank's common seal to be used as the emblem of the
Bank on currency notes, cheques and publications, was an issue that had
to be taken up at an early stage of the Bank's formation.

The general ideas on the seal were as follows:

The seal should emphasise the Governmental status of the Bank, but not
too closely;
It should have something Indian in the design;
It should be simple, artistic and heraldically correct; and
The design should be such that it could be used without substantial
alteration for letter heading, etc.

For this purpose, various seals, medals and coins were examined. The
East India Company Double Mohur, with the sketch of the Lion and Palm
Tree, was found most suitable; however, it was decided to replace thelion
by the tiger, the latter being regarded as the more characteristic animal of
India!

To meet the immediate requirements in connection with the stamping of

the Bank's share certificates, the work was entrusted to a Madras firm.
The Board, at its meeting on February 23, 1935, approved the design of
the seal but desired improvement of the animal's appearance.
Unfortunately it was not possible to make any major changes at that
stage. But the Deputy Governor, Sir James Taylor, did not rest content
with this. He took keen interest in getting fresh sketches prepared by the
Government of India Mint and the Security Printing Press, Nasik. As a
basis for good design, he arranged for a photograph to be taken of the
statue of the tiger on the entrance gate at Belvedere, Calcutta. Something
or the other went wrong with the sketches so that Sir James, writing in
September I938, was led toremark:

tree is all right but his tiger looks too like some species of dog, and I am
afraid that a design of a dog and a tree would arouse derisioamong the
irreverent. 's tiger is distinctly good but the tree has spoiled it. The stem is
too long and the branches too spidery, but I should have thought that by
putting a firm line under the feet of his tiger and making his tree stronger
and lower we could get quite a good result from his design.

Later, with further efforts, it was possible to have better proofs prepared
by the Security Printing Press, Nasik. However, it was eventually decided
not to make any change in the existing seal of the Bank, and the new
sketches came to be used as an emblem for the Bank's currency notes,
letter-heads, cheques and publications issue.
 CHAPTER 2
THE IMPORTANCE OFRBI
The Reserve Bank of India has worked as efficiently as any top central bank
of the world right from its inception. It was blessed with absolute
independence to control or manage monetary liquidity, price stability,
exchange rate stability, and later on financial stability also. The governor
and his team have ably served the nation during all the financial storms and
crises, domestic as well as external, that beset the country.
In the early, post-Independence period, the RBI is credited with
monetisation of the entire economy by promoting and launching rapid
branch expansion of commercial banks and the setting up of financial
institutions such as the Industrial Finance Corporation of India (IFCI), the
IDBI and co-operative banks, giant insurance companies and so on.
Today’s strong financial system stands on the shoulders of the RBI, and this
pyramidal edifice has been possible due to the independence given to the
governor under the RBI Act,1934
However, for the last few years, the Union government has been making
efforts to dilute the power of the RBI by distorting the independence of the
central bank. Of course, in a way, some of the principles of central banking
have been overlooked from the time the political administration started
interfering in the appointments of the governor and the deputy governors of
the central bank, approving the salaries and wages of RBI employees, and
directing the monetary policy through distribution of bank credit by way of
priority sector policy.
But the move to restructure the monetary policy committee (MPC) marks
the biggest dent yet in the independence of the RBI. Earlier, the governor
used to appoint one member of the committee and had a say in two more.
The remaining three members were appointed by the government. Now, the
committee will be headed or chaired by the governor, who will only have a
say in one appointment. One appointment will be done by the Reserve Bank
Board from among the executive officers; one employee of the RBI will be
nominated by the governor, while four persons will be appointed by the
Centre. Moreover, the governor will not have veto powers, though he can
exercise a tie-breaker vote in case of a tie.
If the present draft is approved, the governor will find himself in an isolated
situation. As regards the committee, its quality of discussion will be
lowered since it is possible that the ruling parties today or in the future
would like to appoint their own representatives as members of the MPC and
not on the basis ofmerit.
For instance, there can be a lot of liberal deficit financing with the pretext
of increasing employment and economic growth. Moreover, where the
governor is not strong, the varying opinions of different members of the
MPC can impact the decision-making powers. However, this weakness can
be removed by publishing individual policymakers’ views on the RBI’s
website whenever the views are at odds with oneanother.
In a central bank dominated by the government, the temptation to tamper
with various instruments of monetary policy in order to achieve the
government’s objectives would be hard to resist. For instance, the ministry
of finance could want to reduce interest rate to push up demand, without
considering the impact of rate cut on foreign inflows, depreciation of the
rupee and increase in domestic money stock and inflation. There could be
many more such examples.
This situation can only be countered by having a robust governor with
absolute independence in charge of the RBI. Of course, more independence
has to be reconciled with more personal accountability on the part of the
governor as well as that of other financial institutions. The governor should
be responsible and accountable to Parliament and not to a particular
government or the ministry of finance, or minister.
The fears of a discretionary monetary policy adversely impacting the
economy are not unfounded. There are a number of studies that have
revealed that there is a reverse relationship between inflation and
independence of the monetary authority; the higher the independence of the
central bank, the lower the inflation. Giving higher discretionary powers to
the central bank has been seen to be successful in many other countries.
 CHAPTER-3
FunctionsofReserveBank

ReserveBankofIndia(RBI)istheCentralBankofIndia.RBIwas
establishedon1April1935bytheRBIAct1934.KeyfunctionsofRBI are,
banker’s bank, the custodian of foreign reserve, controller of credit
and to manage printing and supply of currency notes in the
country.
Reserve Bank of India (RBI) is the central bank of the country. RBI is a
statutory body. It is responsible for the printing of currency notes and
managing the supply of money in the Indian economy.

Initially, the ownership of almost all the share capital was in the hands of
non-government shareholders. So in order to prevent the centralisation of
thesharesinfewhands,theRBIwasnationalisedonJanuary1,1949.

Functions of Reserve Bank

1. Issue of Notes —The Reserve Bank has a monopoly for printing the
currency notes in the country. It has the sole right to issue currency notes of
various denominations except one rupee note (which is issued by the
Ministry ofFinance).
The Reserve Bank has adopted the Minimum Reserve System for
issuing/printing the currency notes. Since 1957, it maintains gold and
foreign exchange reserves of Rs. 200 Cr. of which at least Rs. 115 cr.
should be in gold and remaining in the foreign currencies.
2. Banker to the Government–The second important function of the
Reserve Bank is to act as the Banker, Agent and Adviser to the Government
of India and states. It performs all the banking functions of the State and
Central Government and it also tenders useful advice to the government on
matters related to economic and monetary policy. It also manages
the public debt of thegovernment.
3. Banker’sBank:-TheReserveBankperformsthesamefunctionsforthe
other commercial banks as the other banks ordinarily perform for their
customers. RBI lends money to all the commercial banks of the country.
Structure of BankingSector OF INDIA
4. Controller of the Credit:- The RBI undertakes the responsibility of
controlling credit created by commercial banks. RBI uses two methods to
control the extra flow of money in the economy. These methods are
quantitative and qualitative techniques to control and regulate the credit
flow in the country. When RBI observes that the economy has sufficient
money supply and it may cause an inflationary situation in the
country then it squeezes the money supply through its tight
monetarypolicy and viceversa.

5. CustodianofForeignReserves:-Forthepurposeofkeepingtheforeign
exchange rates stable, the Reserve Bank buys and sells foreign currencies
and also protects the country's foreign exchange funds. RBI sells the foreign
currency in the foreign exchange market when its supply decreases in the
economy and vice-versa. Currently, India has a ForeignExchange
ReserveofaroundUS$487bn.

6. Other Functions:-The Reserve Bank performs a number of other

developmental works. These works include the function of clearinghouse
arranging credit for agriculture (which has been transferred to NABARD)
collecting and publishing the economic data, buying and selling of
Government securities (gilt edge, treasury bills etc)and trade bills, giving
loans to the Government buying and selling of valuable commodities etc. It
also acts as the representative of the Government in theIMF.
 CHAPTER -4
Organisation Structure Of RBI
The Reserve Bank of India (RBI) is India’s central bank, also known as
the banker’s bank. The RBI controls monetary and other banking
policies of the Indian government. The Reserve Bank of India (RBI)
was established on April 1, 1935, in accordance with the Reserve Bank
of India Act, 1934. The Reserve Bank is permanently situated in
Mumbai since1937.

Establishment of Reserve Bank of India

The Reserve Bank is fully owned and operated by the Government of
India.
The Preamble of the Reserve Bank of India describes the basic
functions of the Reserve Bank as:

• Regulating the issue ofBanknotes

• Securing monetary stability inIndia
• Modernising the monetary policy framework to meet economic
challenges

The Reserve Bank’s operations are governed by a central board of

directors, RBI is on the whole operated with a 21-member central
board of directors appointed by the Government of India in accordance
with the Reserve Bank of IndiaAct.
The Central board of directors comprise of:

• Official Directors – The governor who is appointed/nominated for

a period of four years along with four DeputyGovernors
• Non-Official Directors – Ten Directors from various fields and two
governmentOfficia
Organisation Structure

Objectives
The primary objectives of RBI are to supervise and undertake
initiatives for the financial sector consisting of commercial banks,
financial institutions and non-banking financial companies(NBFCs).
Some key initiatives are:

i. Restructuring bankinspections
ii. Fortifying the role of statutory auditors in the bankingsystem
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

Major Functions of RBI

Monetary Authority

• Formulating and implementing the national monetarypolicy.

• Maintaining price stability across all sectors while also keeping
the objective ofgrowth.

Regulatory and Supervisory

• Set parameters for banks and financial operations within which
banking and financial systemsfunction.
• Protect investors interest and provide economic and cost-effective
banking to thepublic.

Foreign Exchange Management

• Oversees the Foreign Exchange Management Act,1999.
• Facilitate external trade and development of foreign exchange market
inIndia.

Currency Issuer
 • Issues, exchanges or destroys currency and not fit forcirculation.
• Provides the public adequately with currency notes and coins and in
goodquality.

Developmental role
• Promotes and performs promotional functions to support national
banking and financialobjectives.

Related Functions
• Provides banking solutions to the central and the state governments
and also acts as theirbanker.
• Chief Banker to all banks: maintains banking accounts of all scheduled
banks.
 CHAPTER -5
RBI Annual Publications
Annual Report – The annual report is a statutory report of the
Reserve Bank of India that is released every year. This report consists of
valuation and progress of the Indian economy. Overview of the economy,
theworkingoftheReserveBankduringthatyearandtheRBI’sprojected
vision and agenda for the following year along with the annual accounts of
the ReserveBank.

Report on Trend and Progress of Banking in

India–Thisdocumentisanassessmentofthepoliciesandprogressofthe
financial sector for the precedingyear.
Lectures –The Reserve Bank of India has constituted three annual
lectures. Two of these lectures are conducted by past Governors of the
Reserve Bank and one lecture is by a noted economist.
ReportonCurrencyandFinance–Thisreportisdocumented and
presented by the staff of Reserve Bank of India bank and focusses on a
particular theme and presents a detailed economic analysis of the issues
related to the theme. Handbook of Statistics on the Indian
Economy–ThisreportisanimportantinitiativebytheReserveBankto
improve data distribution. It is a resourceful storehouse of major
statisticalinformation.

StateFinances:AStudyofBudgets–Thereportisanessential
source of segregated state-wise financial data and provides an analytical
data-driven conceptualisation on the fiscal position of state governments
across India. These data inputs are used to analyse specific issues of
relevance.
Statistical Tables Relating to Banks in India – This annual
publication contains holistic timeline data with regards to the Scheduled
Commercial Banks (SCBs) of India. The report also covers the information
of balance sheets and performance indicators for each SCB in India. The
journal also includes segregated data sources on some essential factors
relating to bank-wise, bank group-wise and state-wise level ofinformation.
Basic Statistical Returns– This is another data-focused yearly
journal which represents complex information on the number of offices,
employees, deposits and credit of Scheduled Commercial Banks in minute
levels of detail such as, region-wise, state-wise and district-wise
information. This information also trickles down to the population and
credit requirements in eachbank.
 CHAPTER -6
RBI Policies
RepoRateRepoorrepurchaserateisthebenchmarkinterestrateatwhich the
RBI lends money to all other banks for a short-term. When the repo rate
increases, borrowing from RBI becomes more expensive and hence
customers or the public bear the outcome of high-interest rates. Reverse
Repo Rate (RRR) Reverse Repo rate is the short-term borrowing rate at
which RBI borrows money from other banks. The Reserve Bank of India uses
this method to reduce inflation when there is excess money in the banking
system. Cash Reserve Ratio (CRR) is the particular share of any bank’s
total deposit that is mandatory and to be maintained with the Reserve Bank
ofIndiaintheformofliquidcash.Statutoryliquidityratio(SLR)Leaving
aside the cash reserve ratio, banks are required to maintain liquid assets in
the form of gold and approved securities. A higher SLR disables the banks to
grant more loans.

Payment System Initiatives

• The Reserve Bank has taken many steps towards initiating and
updating secure and sustainable methods of payment systems in
India to meet publicrequirements.
• Currently, payment methods in India consist of paper-based
instruments, electronic instruments and other instruments, such
as pre-paid system (e-wallets), mobile internet banking, ATM-
based transactions, Point-of-sale terminals and online
transactions.

Paper-based Payments
 • Use of paper-based instruments such as cheques and demand drafts
accounts for nearly 60% of the volume of total non-cash transactions
in India. These forms of payments have been steadily decreasing over
a period of time due to the electronic modes of payments gaining
popularity due to the comparative convenience, safety and overall
efficiency.
• Magnetic Ink Character Recognition (MICR) technology was
introduced by RBI in the paper-based payment method for speeding
up and bringing in efficiency in the processing ofcheques.
• A separate clearing system for paper-based payment method was
introduced for clearing cheques of high-value ranging from rupees
one lakh and above. Also, the introduction of cheque truncation (CTS)
system restricts the physical movement of cheques and utilises images
for enhanced secure paymentprocessing.

Electronic Payments
The initiatives taken by the Reserve Bank in the domain of electronic
payment systems are immense and vast. The types of electronic forms of
payment by the RBI are as follows:

• Electronic Clearing Service (ECS) – This enables customer bank

accounts to be credited with a specified value and payment on a set
date. This makes EMIs, or other monthly bills hasslefree.
• National Electronic Clearing Service (NECS) – This facilitates multiple
advantages to beneficiary accounts with destination branches against
a single debit of the account of the sponsorbank.
• Electronic Funds Transfer (EFT) – This retail funds transfer system
was to enable an account holder of a bank to electronically transfer
funds to another account holder with any other intermediate or
participatingbank.
• National Electronic Funds Transfer (NEFT) – A secure system to
facilitate real-time fund transfer betweenindividuals/corporates.
• Real Time Gross Settlement (RTGS) – A funds transfer function in
which transfer of money takes place from one bank to another on a
real-time basis without delaying or netting with any other
transaction.
• Clearing Corporation of India Limited (CCIL) – This system is
for banks, financial institutions, non- banking financial companies and
primary dealers, to serve as an industry service mechanism for
clearing settlement of trades in money market, government securities
and foreign exchangemarkets.
• The RBI (Reserve Bank of India) has made changes to the Prepaid
Payment Instruments (PPI) also know as e-wallets. These changes
include KYC – known your customer compliance. KYC is the process of
collecting user details by the service provider and verifying the same
with the respective government bodies.
 CHAPTER -7
Governance. How We Function

Functions and Organization

The Central Board of Direct Taxes is a statutory authority functioning
under the Central Board of Revenue Act, 1963. The officials of the Board in
their ex-officio capacity also function as a Division of the Ministry dealing
with matters relating to levy and collection of direct taxes.

1. Historical Background ofC.B.D.T.

The Central Board of Revenue as the apex body of the Department,
charged with the administration of taxes, came into existence as a result
of the Central Board of Revenue Act, 1924. Initially the Board was in
charge of both direct and indirect taxes. However, when the
administration of taxes became too unwieldy for one Board to handle, the
Board was split up into two, namely the Central Board of Direct Taxes and
Central Board of Excise and Customs with effect from 1.1.1964. This
bifurcation was brought about by constitution of two Boards u/s 3 of the
Central Board of Revenue Act, 1963.

2. Composition and Functions of CBDT

The Central Board of Direct Taxes consists of a Chairman and following
six Members:-

1. Chairman
2. Member (Income Tax &Revenue)
3. Member(Legislation)
4. Member(Admn.)
5. Member(investigation)
 6. Member (TPS &system)
7. Member (Audit &Judicial)
3. Jurisdiction(Zonal)
o Chairman
o Member (IT&C) Chennai, Hyderabad, Bengaluru, Kochi & Pr. CCIT
(Exemptions)
o Member (L) NWR, Delhi, UP (East), UP (West) &Uttarakhand
o Member (Admn.) Mumbai, Pune, Nagpur, Pr. DGIT (Vig.), Pr. DGIT (HRD)
& Pr. DGIT(Trg.)
o Member (Inv.) All DGsIT (Inv.), all CCsIT (Central) and DGIT(I&CI)
o Member (R&TPS) Kolkata, Guwahati, Patna, Bhubaneshwar, Pr. DGIT
(Admn. &TPS)
o Member (A&J) Ahmedabad, Jaipur, Bhopal, Pr. DGIT (L&R) & Pr. DGIT
(Logistics).
Allocation of Work
. Cases or Classes of Cases, which Shall be Considered Jointly by
theBoard
1. Policy regarding discharge of statutory functions of the Board and of
the Union Govt. under the various laws relating to directtaxes.
2. General Policy relating to:-
▪ a. Organization of the set-up and structure of Income-tax
Department.
▪ b. Methods and procedures of work of theBoard.

▪ c. Measures for disposal of assessments, collection of taxes,

prevention and detection of tax evasion and taxavoidance.
▪ d. Recruitment, training and all other matters relating to service
conditions and career prospects of the personnel of the Income-tax
Department.
3. Laying down of targets and fixing of priorities for disposal of
assessments and collection of taxes and other relatedmatters.
4. Write off of tax demands exceeding Rs. 25 lakhs in eachcase.
 5. Policy regarding grant of rewards and appreciationcertificates.
6. Any other matter which the Chairman or any Member of the Board,
with the approval of the Chairman, may refer for joint consideration
of theBoard.
7. gn Income and Assets) and Imposition of Tax Act,2015.
8. All matter and cases or classes of cases relating to the Benami
Transactions (Prohibition) Act, 1988 and/or the Prohibition of
Benami Property Transactions Act, 1988, other than those considered
by Member (Legislation), CBDT and by Member (A&J),CBDT.
9. Verification of Global Entry Program (GEP)applications.

of Benami Property Transactions Act, 1988.

Board of Direct Taxes(CBDT) which is headed by an officer of the level of
Commissioner of Income Tax who is designated as the Media Coordinator
for CBDT. The Media Coordinator also functions as the Official
Spokesperson for CBDT and reports directly to Chairman/Chairperson,
CBDT.

Functions of media cell

1. The Media Cell handles all matters including dealing with the media on
issues pertaining to CBDT (print, electronic & digitaletc.).
2. It is the nodal point for dissemination of information relating to Direct
Taxes and of public value to themedia.
3. It seeks information from the divisions/desks in CBDT, attached offices
and field formations of CBDT for responding to queries raised in the
media.
4. It acts as office of the Spokesperson, CBDT, and organizes press
conferences/briefings of senior functionaries of CBDT, besides
maintaining record of thesame.
5. It closely coordinates with the Media Coordinator of FinanceMinistry.
6. It conveys the factual/official position on action taken by the
Department against individuals/institutions reported in themedia.
7. It gives periodic feedback about public opinion expressed through the
media.
8. It acts as resource centre for keeping record of information, both paper
and electronic, appearing in themedia.
9. It looks after the work of social media, at present, through the Twitter
account of the Department, maintained and operated by the Media Cell.
Dissemination of information relating to Direct Taxes is being done
regularly through the Twitter handle @IncomeTaxIndia. The media cell
also responds to Tweets including grievances received from the public
as part of Response Management and Online Reputation Management
ofCBDT/ITD
 CHAPTER -8

RBI as Monetary Authority of India

RBIhasreducedtheReporateagainby25pointsonJune6,2019.NowtheRepo
rateis5.75%.ReserveBankofIndia(RBI)asCentralBankofthecountryisthe
monetaryauthorityandthemajorRoleofRBIisofacontrollerofcredit.Since
theroleofRBIisexpandingdaybyday,ithasbecomeoneofthefavouriteGD
topicsintopMBAcollegesandthequestionsonRBIalsofigureinGKsectionof
variousMBAentranceexamslikeIIFT,XAT,CMAT,SNAPamongothers.

Recent changes in RBI monetary policy announced for 2019, change in

RBI leadership and changes in the rates of its various credit control tools,
have again brought RBI in the lime light of discussion at various economic
and business forums especially at the top B-schools where a slight change
in RBI Monetary policy becomes a point of analysis as it impacts the
economy of the country.
Reserve Bank of India plays multi-facet role by executing multiple
functions such as overseeing monetary policy, issuing currency,managing
foreign exchange, working as a bank of government, this article shares
the key aspects related to RBI role, changes in the Bank Rate, CRR, Repo
Rate, SLR and other key functions performed by theRBI
RBI: Favourite GD & GK Topic
One of the most favourite GD and GK topics on which questions are asked
almost in every exam whether MBA, Civil Services, Bank PO or others is
the Role of Reserve Bank of India as Monetary Authority and controller of
money supply in India.
Credit Control by RBI: Most Discussed Topic
In fact these are the credit control measures adopted by Reserve Bank of
India, which form GD Discussion and also source of GK questions in
entrance exams including MBA entrance tests.
RBI brings timely changes in its credit control measures and sometimes
uses more Quantitative Credit control measures and sometimes
Qualitative Credit Control measures as per the economic requirement.
The measure tools to regulate the credit control are Bank Rate, Cash
Reserve Ratio, Statutory Liquidity Ratio, Repo Rate among others.
While GD carries a weightage of 10 to 20 percent in final selection
process, the questions on GK or General Awareness form an important
section with a weightage of 15 to 25% in almost all the national level MBA
entrance tests including XAT, IIFT, SNAP. They are also the source of
discussion during GD, PI, WAT, Extempore topics for MBA admission in
IIMs, FMS, MDI, SPJIMR, XLRI and other highly ranked institutes.
This article by MBAUniverse.com shares all about the Role of Reserve
Bank of India as the Bank of the Banks, Government’s Bank, its credit
control measures and other policies that regulate the money supply in
India and control the foreign exchange flow in the economy.
Reserve Bank of India: How different from other banks
Reserve Bank of India (RBI) is the Central Bank of the country. Role of RBI
differs from other banks since it does not get engaged in day to day retail
banking; does not do micro or macro regular financing. On the contrary, it
is the Bankers’ Bank and formulates monetary guidelines and policies
which are to be followed by all the banks operating in the country.
The Reserve Bank of India was established in 1935 with the provision of
Reserve Bank of India Act, 1934. Till 1949 RBI was privately owned and
was nationalised in 1949. Since then RBI is fully owned by the
Government of India.
Role of RBI
Reserve Bank of India (RBI) is India's Central bank. It plays multi-facet
role by executing multiple functions such as overseeing monetary policy,
issuing currency, managing foreign exchange, working as a bank of
government and as banker of scheduled commercial banks, among
others. It also works for overall economic growth of the country.

Key functions of RBI

The preamble of the Reserve Bank of India describes its main functions 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’.
Currency Issue
Reserve bank of India is the only authority who is authorized to issue
currency in India. While coins are minted by Government of India (GoI),
the RBI works as an agent of GoI for distributing and handling of coins.
Upto Re.1 coins are minted by GoI although RBI ensures their distribution
in the country.
RBI also works to prevent counterfeiting of currency by regularly
upgrading security features of currency. RBI prints currency at its 4
currency printing facilities at Dewas, Nasik, Mysore and Hyderabad. The
RBI is authorized to issue notes up to the value of Rupees 10,000 (Ten
thousand).
Banker to Government
Like individuals, firms and companies who need a bank to carry out their
financial transactions effectively & efficiently, Governments also need a
bank to carry out their financial transactions. RBI serves this purpose for
the Government of India (GoI). As a banker to the GoI, RBI maintains its
accounts, receive in and make payments out of these accounts. RBI also
helps GoI to raise money from public via issuing bonds and government
approved securities.
Supervisor of Banks: Bankers’ Bank
RBI also works as banker to all the scheduled commercial banks. All the
banks in India maintain accounts with RBI which help them in clearing &
settling inter-bank transactions and customer transactions smoothly &
swiftly. Maintaining accounts with RBI help banks to maintain statutory
reserve requirements. RBI also acts as lender of last resort for all the
banks.
RBI has the responsibility of regulating the nation's financial system. As a
regulator and supervisor of the Indian banking system it ensures financial
stability & public confidence in the banking system. RBI uses methods like
On-site inspections, off-site surveillance, scrutiny & periodic meetings to
supervise new bank licenses, setting capital requirements and regulating
interest rates in specific areas. RBI is currently focused on
implementing Basel-III norms to regulate the hidden Non Performing
Assets (NPAs) in Banking system.
RBI as Country’s Foreign Exchange Manager
RBI has an important role to play in regulating & managing Foreign
Exchange of the country. It manages forex and gold reserves of the nation.
On a given day, the foreign exchange rate reflects the demand for and
supply of foreign exchange arising from trade and capital transactions.
The RBI’s Financial Markets Department (FMD) participates in the
foreign exchange market by undertaking sales / purchases of foreign
currency to ease volatility in periods of excess demand for/supply of
foreign currency.
 CHAPTER-9

ISSUE OFCURRENCY

RBI as Controller of Credit: Regulator of Money supply

RBI formulates and implements the Monetary Policy of India to keep the
economy on growth path. Monetary Policy refers to the process employed
by RBI to control availability & cost of currency and thus keeping
Inflationary & deflationary trends low and stable. RBI adopts various
measures to regulate the flow of credit in the country. The measures
adopted by RBI can broadly be categorized as Quantitative & Qualitative
tools.
1. Quantitative Tools
Quantitative measures of credit control are applicable to entire money
and banking system without discriminations. They broadly refer to
reserve ratios, bank rate policy etc. Reserve ratios are the share of net
demand & time liabilities (NDTL) which banks have to keep aside to
ensure that they have sufficient cash to cover customer withdrawals.
A. Cash Reserve Ratio (CRR):
CRR is one of the most commonly used by RBI as quantitative tool of
credit control. The ratio specifies minimum fraction of the total deposits
of customers, which commercial banks have to hold as reserves either in
cash or as deposits with the central bank. CRR is set according to the
guidelines of the central bank of a country. RBI is empowered to
vary CRR between 3 percent and 15percent.
Present situation
Current CRR is 4% in India. Cash Reserve Ratio was quoted at 4 percent
in its recently announced Sixth bi-monthly Monetary Policy Statement
2019-20. Earlier, the Cash Reserve Ratio in India averaged 5.67 percent
from 1999 until 2016, reaching an all time high of 10.50 percent in March
of 1999 and a record low of 4 percent in February of2013.
CRR: Impact of Increase & decrease
CRR is the share of Net Demand and Time Liabilities (NDTL) that banks
must maintain as cash with RBI. The RBI has set CRR at 4%. So if a bank
has 200 Crore of NDTL then it has to keep Rs. 8 Crore in cash with RBI.
RBI pays no interest onCRR.
For example – if we assume that economy is showing inflationary trends
& RBI wants to control this situation by adjusting SLR & CRR. If RBI
increases SLR to 50% and CRR to 20% then bank will be left only with Rs.
60 crore for operations. Now it will be very difficult for bank to maintain
profitability with such small capital. Bank will be left with no choice but
to raise interest rate which will make borrowing costly. This will in turn
reduce the overall demand & hence price will come downeventually.
B.StatutoryLiquidityRatio(SLR)
The current SLR announced by RBI is 19% of NDTL as announced by RBI
in May 2019. The share of net demand and time liabilities that banks
must maintain in safe and liquid assets, such as government securities,
cash and gold isSLR.
C.BankRate
Current Bank rate is 6.25% . When banks want to borrow long term funds
from RBI, it is the interest rate which RBI charges from them. The bank
rate is not used to control money supply these days although it provides
the basis of arriving at lending and deposit rates. However, if a bank fails
to keep SLR or CRR, RBI will then impose penalty & it will be 300 basis
points above bank rate.
D.RepoRate
Present Repo rate is 5.75% with effect from June 6, 2019. If banks want to
borrow money (for short term, usually overnight) from RBI, the banks
have to pay this interest rate. Banks have to pledge government securities
as collateral. This kind of deal happens through a repurchase agreement.
If a bank wants to borrow Rs. 100 crores, it has to provide government
securities at least worth Rs. 100 crore (could be more because of
marginrequirement which is 5%-10% of loan amount) and agree to
repurchase them at Rs. 106.50 crore at the end of borrowing period. So
the bank has paid Rs. 6.50 crore as interest. This is the reason it is called
repo rate. The government securities which are provided by banks as
collateral cannot come from SLR quota (otherwise the SLR will go below
21.5% of NDTL and attract penalty). Banks have to provide these
securitiesadditionally.
To curb inflation, RBI increases Repo rate which will make borrowing
costly for banks. Banks will pass this increased cost to their customers
which make borrowing costly in whole economy. Fewer people will apply
for loan and aggregate demand will get reduced. This will result in
inflation coming down. RBI does the opposite to fight deflation. Although
when RBI reduces Repo rate, banks are not legally required to reduce
their base rate.
Currentsituation
The Reserve Bank of India on Thursday June 6, 2019, cut its benchmark
repo rate by 25 basis points to 5.75%. This is the third rate cut in 2019.
The change in repo rate is likely to lower interest rates on new bank
loans.
E.ReverseRepoRate
At present,reverse repo rate is 5.75% with effect from May 2019. Reverse
repo rate is just the opposite of repo rate. If a bank has surplus money,
they can park this excess liquidity with RBI and central bank will pay
interest on this. This interest rate is called reverse repo rate.
F.OpenMarketOperation(OMO)
Open market operation is the activity of buying and selling of government
securities in open market to control the supply of money in banking
system. When there is excess supply of money, RBI sells government
securities thereby taking away excess liquidity. Similarly, when economy
needs more liquidity, RBI buys government securities and infuses more
money supply into the economy.
G.MarginalStandingFacility(MSF)
This scheme was introduced in May, 2011 and all the scheduled
commercial banks can participate in this scheme. Banks can borrow up to
2.5% of their respective Net Demand and Time Liabilities. RBI receives
application under this facility for a minimum amount of Rs. 1 crore and in
multiples of Rs. 1 crore thereafter. The important difference with repo
rate is that bank can pledge government securities from SLR quota (up to
1%). Current MSF rate is 6.25%.

QualitativeToolsofMoneyControl
Qualitative measures of credit control are discriminatory in nature and
are applied for specific purpose or to specific financial organization, bank
or others which RBI thinks are violating the monetary policy norms.
A. Loan to Value LTV or Margin Requirements
Loan to Value is the ratio of loan amount to the actual value of asset
purchased. RBI regulates this ratio so as to control the amount bank can
lend to its customers. For example, if an individual wants to buy a car
from borrowed money and the car value is Rs. 10 Lac, he can only avail a
loan amount of Rs. 7 Lac if the LTV is set to 70%. RBI can decrease or
increase to curb inflation or deflation respectively.
B.Selectivecreditcontrol
RBI can specifically instruct banks not to give loans to traders of certain
commodities. This prevents speculations/ hoarding of commodities using
money borrowed from banks.
C.MoralSuasion
RBI persuades bank through meetings, conferences, media statements to
do specific things under certain economic trends. An example of this
measure is to ask banks to reduce their Non-performing assets (NPAs).
Regulates and Supervises the Payment and Settlement Systems
The Payment and Settlement Systems Act of 2007 (PSS Act) gives the
Reserve Bank oversight authority, including regulation and supervision,
for the payment and settlement systems in the country. In this role, the
RBI focuses on the development and functioning of safe, secure and
efficient payment and settlement mechanisms. Two payment systems
National Electronic Fund Transfer (NEFT) and Real Time Gross
Settlement (RTGS) allow individuals, companies and firms to transfer
funds from one bank to another. These facilities can only be used for
transferring money within thecountry.
The RBI follows a minimum reserve system in the note issue. Initially, it
used to keep 40 per cent of gold reserves in its total assets. But, since
1957, it has to maintain only Rs. 200 crores of gold and foreign exchange
reserves, of which gold reserves should be of the value of Rs. 115 crores.
As such, India has adopted the “managed paper currency standard.”

As a currency authority, the Reserve Bank provides different

denominations of currency for facilitating the transactions of the Central
and State Governments, and caters to the exchange and remittance needs
of the public, banks as well as the government departments.
The bank has established 14 offices of the Issues Department for the
discharge of its currency functions. At all the other centres of the country,
the currency requirements are met by the bank through currency chests.
Currency chests are maintained by the bank with the branches of the SBI
group, Government Treasuries and Sub-Treasuries, and public sector
banks.

Currency Chest:
A currency chest is a pocket edition of the Issue Department. The stock of
notes and coins kept in the currency chests varies as per the needs of the
respective areas served by the Treasury or an agency of the bank.
 CHAPTER -10

RBI: The Banker and Debt Manager to

Government
Managing the government's banking transactions is the traditional
central banking function of RBI. RBI has the obligation to undertake
the receipts and payments of the Central Government and to carry
out the exchange, remittance and other banking operations,
including the management of the public debt of the Central
Government.
Managing the government's banking transactions is the traditional
central banking function of RBI. Like individuals, businesses and banks,
governments also need a banker to carry out their financial transactions
in an efficient and effective manner, including the raising of resources
from the public. As per Section 20 of the RBI Act 1934, RBI has the
obligation to undertake the receipts and payments of the Central
Government and to carry out the exchange, remittance and other banking
operations, including the management of the public debt of the Central
Government. The Government also deposits its cash balances with the
RBI.

As per section 21 A of the RBI Act 1934, RBI act as the banker and debt
manager to State Governments. Currently, the RBI acts as banker to all
the State Governments in India (including Union Territory of
Puducherry), CHAPexcept Sikkim. For Sikkim, it has limited agreement
for management of its publicdebt.
• The Reserve Bank acts as adviser to Government, whenever called upon
to do so, on monetary and banking relatedmatters.
The banking functions for the governments are carried out by the Public
Accounts Departments atthe offices/branches of the RBI. TheRBI
appoints other banks to act as its agents for undertaking the banking
business on behalf of the governments. The RBI pays agency bankcharges
to the banks for undertaking the government business on itsbehalf.

Banker to the Central Government:

RBI maintains the Principal Accounts of Central as well as State
Governments at its Central Accounts Section, Nagpur. It has put in place a
well structured arrangement for revenue collection as well as payments
on behalf of Government across the country. At present all the public
sector banks and three private sector banks viz. ICICI Bank Ltd.,
HDFC Bank Ltd. and Axis Bank Ltd. act as RBI's agents. Only
authorised branches of Agency banks can conduct Govt.business.
Under the administrative arrangements, the Central Government is
required to maintain a minimum cash balance with the RBI. Currently,
this amount is Rs.10 crore on a dailybasis.

Banker to State Governments

All the State Governments are required to maintain a minimum balance
with the RBI which varies from state to state depending on the relative
size of the state budget and economic activity. To surge over temporary
mismatches in the cash flow of receipts and payments, the Reserve Bank
provides Ways and Means Advances/Overdraft to the State
Governments.
The WMA scheme for the State Governments has provision for Special
Drawing Facility (SDF) and Normal WMA. The SDF is extended against
the collateral of the government securities held by the State Government.
Management of Public Debt
The RBI manages public debt on behalf of the Central and the State
Governments. It involves issue of new rupee loans, payment of interest
and repayment of these loans and other operational matters such as debt
certificates and their registration.
 CHAPTER -11

BANKER TO BANK
Banks are required to maintain a portion of their demand and time
liabilities as cash reserves with the Reserve Bank. For this purpose, they
need to maintain accounts with the Reserve Bank. They also need to keep
accounts with the Reserve Bank for settling inter-bank obligations, such
as, clearing transactions of individual bank customers who have their
accounts with different banks or clearing money market transactions
between two banks, buying and selling securities and foreign currencies.

In order to facilitate a smooth inter-bank transfer of funds, or to make

payments and to receive funds on their behalf, banks need a common
banker. By providing the facility of opening accounts for banks, the
ReserveBankbecomesthiscommonbanker,knownas‘BankertoBanks’
function. The function is performed through the Deposit Accounts
Department (DAD) at the Reserve Bank’s Regional offices. The
Department of Government and Bank Accounts oversees this function
and formulates policy and issues operational instructions toDAD.

Reserve Bank as Banker to Banks

The Reserve Bank continuously monitors operations of these accounts to
ensure that defaults do not take place. Among other provisions, the
Reserve Bank stipulates minimum balances to be maintained by banks in
these accounts. Since banks need to settle transactions with each other
occurring at various places in India, they are allowed to open accounts
with different regional offices of the Reserve Bank. The Reserve Bank also
facilitates remittance of funds from a bank’s surplus account at one
location to its deficit account at another. Such transfers are electronically
routed through a computerised system called e-Kuber. The
computerisation of accounts at the Reserve Bank has greatly facilitated
banks’ monitoring of their funds position in various accounts across
different locations on a real-time basis.

In addition, the Reserve Bank has also introduced the Centralised Funds
Management System (CFMS) to facilitate centralised funds enquiry and
transfer of funds across DADs. This helps banks in their fund
management as they can access information on their balances maintained
across different DADs from a single location. Currently, 75 banks are
using the system and all DADs are connected to the system. As Banker to
Banks, the Reserve Bank provides short-term loans and advances to
select banks, when necessary, to facilitate lending to specific sectors and
for specific purposes. These loans are provided against promissory notes
and other collateral given by thebanks.
 CHAPTER-12

REGULTER OF BANKING SYSTEM

The Indian banking sector is regulated by the Reserve Bank of India Act
1934 (RBI Act) and the Banking Regulation Act 1949 (BR Act). The
Reserve Bank of India (RBI), India’s central bank, issues various
guidelines, notifications and policies from time to time to regulate the
banking sector. In addition, the Foreign Exchange Management Act 1999
(FEMA) regulates cross-border exchange transactions by Indian entities,
including banks.
Primary and secondary legislation
Summarise the primary statutes and regulations that govern the
banking industry.
India has both private sector banks (which include branches and
subsidiaries of foreign banks) and public-sector banks (ie, banks in which
the government directly or indirectly holds ownership interest). Banks in
India can primarily be classified as:

• scheduled commercial banks (ie, commercial banks performing all

banking functions);
• cooperative banks (set up by cooperative societies for providing
financing to small borrowers);and
• regional rural banks (RRBs) (for providing credit to rural and
agricultural areas).
Recently, the RBI has also introduced specialised banks such as payments
banks and small finance banks that perform only some banking functions.
The key statutes and regulations that govern the banking industry in
India and particularly scheduled commercial banks are asfollows:
RBI Act
The RBI Act was enacted to establish and set out functions of the RBI. It
grants the RBI powers to regulate the monetary policy of India and lays
down the constitution, incorporation, capital, management, business and
functions of the RBI.
BR Act
The BR Act provides a framework for supervision and regulation of all
banks. It also gives the RBI the power to grant licences to banks and
regulate their business operation.
FEMA
FEMA is the primary exchange control legislation in India. FEMA and the
rules made thereunder regulate cross-border activities of banks. These
are administered by the RBI.
Other key statutes
The other key statutes include:

• the Negotiable Instruments Act1881;

• the Recovery of Debts Due to Banks and Financial Institutions Act
1993;
• the Bankers Books Evidence Act1891;
• the Payment and Settlement Systems Act2007;
• the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act 2002;and
• the Banking Ombudsman Scheme2006.
Public sector banks are regulated by the BR Act and the statute pursuant
to which they have been nationalised and constituted. These include:

• banks constituted under the Banking Companies (Acquisition and

Transfer of Undertakings) Act 1970 or the Banking Companies
(Acquisition and Transfer of Undertaking Act) 1980;and
• the State Bank of India and subsidiaries and affiliates of the State
BankofIndiaconstitutedandregulatedbytheStateBankofIndia
 Act 1955 and the State Bank of India (Subsidiary Banks) Act, 1959
respectively.
Unless otherwise specified, this chapter focuses on the regulatory regime
governing private sector banks.
Regulatory authorities
Which regulatory authorities are primarily responsible for
overseeing banks?
The RBI supervises and is responsible for managing the operation of the
Indian financial system. In addition to issuing regulations and guidelines
for banking operations, it also administers the provisions of the RBI Act,
the BR Act and FEMA. It has wide discretionary powers and is authorised
to inspect and investigate the affairs of banks and to impose penalties in
the event of non-compliance.
Government deposit insurance
Describe the extent to which deposits are insured by the
government. Describe the extent to which the government has taken
an ownership interest in the banking sector and intends to maintain,
increase or decrease that interest.
The deposits placed with various banks are insured by the Deposits
Insurance and Credit Guarantee Corporation (DICGC), which is a
subsidiary of the RBI and is governed by the Deposits Insurance and
Credit Guarantee Corporation Act 1961. The DICGC insures all deposits
such as savings, fixed, current, recurring, etc, except the following:

• deposits of foreigngovernments;
• deposits of central and stategovernments;
• inter-bankdeposits;
• deposits of the state land development banks with state cooperative
banks;
• any amount due on account of any deposit received outside India;
and
• any amount that is specifically exempted with prior RBIapproval.
Each depositor of a bank is insured up to a maximum amount of 100,000
rupees. The premium for such deposit insurance is borne by the relevant
bank.
In the past, the government of India (GOI) has nationalised a number of
major commercial banks. There are currently 19 commercial banks that
were nationalised in two phases: in the 1960s and 1980s. While the GOI
has not made any moves for further nationalisation of banks, the BR Act
gives the GOI the power to acquire undertakings of an Indian bank in
certain situations, such as breach of banking policy by the bank. In
addition, the GOI also establishes RRBs (which are primarily controlled
by the GOI, directly or indirectly) in different states from time to time, as
it considers necessary.
Since the early 1990s, the government has generally liberalised
regulations and encouraged private sector involvement in the banking
sector. Measures taken include:

• providing banking licences to privatebanks;

• granting licences to set up different types of banks such as payments
banks, small sector banks and universal banks;and
• encouraging foreign banks to convert to wholly owned subsidiaries
(WOS) with consequential liberalisation of branch licensing
restrictions.
At present, the foreign direct investment (FDI) limit in private sector
banks is 74 per cent. At all times, at least 26 per cent of the paid-up
capital will have to be held by residents, except in regard to a WOS of a
foreign bank. In public sector banks, the FDI limit is 20 per cent. The RBI
is currently in discussions with various stakeholders for liberalising the
sector and permitting 100 per cent foreign direct investment in private
banks.
Transactions between affiliates
Which legal and regulatory limitations apply to transactions
betweenabankanditsaffiliates?Whatconstitutesan‘affiliate’for
this purpose? Briefly describe the range of permissible and
prohibited activities for financial institutions and whether there
have been any changes to how those activities areclassified.
Transactions with affiliates (referred to as related-party transactions
(RPTs)) are mainly regulated by the Companies Act 2013 (CA 2013). If
the bank is a listed company, it will also need to comply with the norms
set out for RPTs in the SEBI (Listing Obligations and Disclosure
Requirements) Regulations 2015 (the Listing Regulations). Related
partiesinclude:

• directors (or theirrelatives);

• key managerial personnel (or theirrelatives);
• subsidiaries;
• holding companies;and
• associatecompanies.
The relevant regulations set out separate thresholds and approval
requirements (usually approval from board of directors or shareholders,
or both) for entering into an RPT. CA 2013 and the Listing Regulations
also provide exemptions to certain types of transactions from such
compliance (eg, a transaction between a company and its WOS is
exempted from the requirement of obtaining board or shareholder
approval under CA 2013 and the Listing Regulations). Further,
transactions entered into in the ordinary course of business and on an
arm’s-length basis are exempted from the approval requirements under
CA 2013.
RPTs by a bank must be disclosed in the bank’s annual accounts in
accordance with Indian generally accepted accounting principles. In
addition, banks are prohibited from entering into certain RPTs under the
BR Act. For example, a bank cannot give loans or advances to, or on behalf
of, or remit any amounts due to it by:

• any of its directors (or spouse or minor children of such adirector);

• any partnership firm in which any of its directors is interested as a
partner, manager, employee orguarantor;
• any company or subsidiary or holding company of a company in
which any of its directors is interested as a director, managingagent,
manager, employee or guarantor, or in whicha director (together
 with its spouse and minor children) holds interest of more than
500,000 rupees or 10 per cent of the paid-up capital of the company,
whichever is lower; and
• any individual in respect to whom a director is a partner or a
guarantor.
An approval from the board of the bank will be required for any loans
given to relatives of any directors of that bank or directors or relatives of
directors of any other bank.
Further, all transactions between a bank and a subsidiary or mutual fund
sponsoredbyitshouldbeonanarm’s-lengthbasis.Thebankwillneedto
evolve appropriate strategies and undertake regular review of the
working of the subsidiary or mutual fund to ensurethis.
 CHAPTER-13

MANGER OF FOREIGN EXCHANGE

T heReserveBankofIndia,isthecustodianofthecountry’sforeign exchange
reserves and is vested with the responsibility of managing their
investment. The legal provisions governing management of foreign
exchange reserves are laid down in the Reserve Bank of India Act,1934.

The Reserve Bank’s reserves management function has in recent years

grown both in terms of importance and sophistication for two main
reasons. First, the share of foreign currency assets in the balance sheet of
the Reserve Bank has substantially increased. Second, with the increased
volatility in exchange and interest rates in the global market, the task of
preserving the value of reserves and obtaining a reasonable return on
them has become challenging.

ThebasicparametersoftheReserveBank’spoliciesforforeignexchange
reserves management are safety, liquidity and returns. The Reserve Bank
of India Act permits the Reserve Bank to invest the reserves in the
following types of instruments:

1) Deposits with Bank for International Settlements and other central

banks
2) Deposits with foreign commercial banks
3) Debt instruments representing sovereign or sovereign-guaranteed
liability of not more than 10 years of residual maturity
4) Other instruments and institutions as approved by the Central Board
oftheReserveBankinaccordancewiththeprovisionsoftheAct
5) Certain types ofderivatives
While safety and liquidity continue to be the twin-pillars of reserves
management, return optimisation has become an embedded strategy
within this framework. The Reserve Bank has framed policy guidelines
stipulating stringent eligibility criteria for issuers, counterparties, and
investments to be made with them to enhance the safety and liquidity of
reserves. The Reserve Bank, in consultation with the Government,
continuously reviews the reserves management strategies.

DEVELOPMENT ROLE OF RBI

The role of a Development Manager can be a very stressful one. You are the
"man in the middle'', being pulled in different directions by management,
customers, sales, developers etc.. If you are doing your job well nobody
notices: things work fluently, the work gets done without drama and
everyone gets what they want. If things go wrong, no matter what the
cause, then it is yourfault.

The secret to being successful as a Development Manager is managing

expectations and making sure everyone understands your role is the first
step. Both you, and the people you work, with need to agree on what is
expected of you as a Development Manager.

I have seen job postings for Development Managers that leave me shaking
my head. One required in depth knowledge of a large number of a
programming languages and environments, in another the position was
66% (why not 2/3rds?) programming, still others required PMO
certification and this list could go on. While I agree the role of the
Development Manager is sort of nebulous, job postings like these give me
the feeling that the companies posting the jobs really have not thought
about the role. This is a recipe for disaster for both the company and
anyone hired under these conditions

As Development Manager you have a number of responsibilities, but the

primary one is to get a product out the door. Your goal is deliver results
to the customer, or market, and do everything necessary to achieve this.
Todothisyouneedtomakesurethedevelopmentteamisabletowork
as efficiently as possible and this means making sure they have clear
goals, both short term and long term, and that nothing prevents them
from doing their work. From the initial project scope to deploying the
product out to customer sites, each step is your responsibility. You can,
and should, delegate as much as you can but be ready to check that things
are being done as you want and be ready to jump in if it is not

Reserve Bank of India (RBI)

Reserve Bank of India (RBI) is the central bank of India entrusted with a
multidimensional role which includes implementation of monetary policy
and maintaining monetary stability in the country. RBI was established
on 1st April 1935 under the Reserve Bank of India Act, 1934. RBI was set
up after the recommendations of Hilton young Commission which had
submitted its report in the year 1926. Later on, in 1931 the Indian Central
banking enquiry committee had also recommended for the establishment
of the central bank inIndia.

Initially, Reserve Bank of India was established as a private shareholders

bank, but it was nationalised after independence in the year 1949
through the Reserve Bank (Transfer of public ownership) act,1948.

As per the Preamble of Reserve Bank of India, the role and functions of
RBI are described 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; to have a modern
monetary policy framework to meet the challenge of an increasingly
complex economy, to maintain price stability while keeping in mind the
objective of growth.

Organisational and Management structure of

Reserve Bank of India
The supervision and general affairs of RBI are governed by the central
board of directors. The Government of India appoints the central board of
directors for a tenure of 4 years.

• The Central Board of directors consists of full-time officials which

include the Governor and not more than four DeputyGovernors.
• The government nominates ten directors from different fields and
two government officials. Other four directors one each from the
local boards are alsoappointed.
• The current Reserve Bank of India governor is Dr. Urjit R. Patel. The
current 4 Deputy Governors are Shri M. K. Jain, Shri B.P Kanungo, Dr.
Viral V. Acharya, and Shri N.S.Vishwanathan.
• The Deputy Governor and director attend the meetings of the
Central Board, however, they are not entitled tovote.

Role and functions of RBI

Traditional functions.
Traditional role and functions of RBI refer to those functions which every
Central Bank of a country has to perform all over the world. Traditional
functions are mainly the basic and fundamental functions of RBI.

1. Issue currency notes: RBI has the sole authority to issue

currency notes in India. Earlier all currency notes except one rupee note
and coins of smaller denomination were issued by RBI. However,
Reserve Bank of India in New Mahatma Gandhi series has issued notes
in the denominations of Rs 10 and above. Reserve Bank of India has
been given these exclusive powers under the provisions of section 22 of
Reserve Bank of India Act, 1934. This system of issuing currency notes
is known as minimum reserve system. The currency notes issued by RBI
is a legal tender throughout the territory of India without anylimitations.
 It issues these currency notes against the security of gold bullion, gold
coins, promissory notes, exchange bills and government of India bonds
etc.
2. Banker to other banks: Reserve Bank of India is the apex
monetary body in the country and it controls the volume of bank
reserves. It helps and regulates other banks to create credit in the right
proportion. It has obligatory powers to regulate, guide, help and direct
other banks of the country, and hence it acts as the guardian of
commercial banks in India. Every commercial bank has to maintain a
certain part of the Reserves with RBI. Reserve Bank of India acts as the
lender of last resort and banks can approach RBI when they need funds.
Under the Banking Regulation Act, 1949 RBI has extensive powers to
supervise and control the banking system of thecountry.
3. Banker, agent and financial advisor of the government: under
section 20 of Reserve Bank of India act, it acts as the banker and agent
to the government. Section 21 and 21A gives powers to RBI to conduct
transactions of Central and state governments. It has the duty to make
payments, taxes, and deposits on behalf of the government. It represents
Government of India at International levels. It gives financial advice to
the government and maintains government accounts. It has a
responsibility to manage public debt and maintain the foreign exchange
reserves. It provides overdraft facilities to Central and state
governments.
4. Exchange rate management and the custodian of Foreign
Exchange Reserves: Reserve Bank of India has the responsibility
to stabilize the external value of Indian currency. It keeps gold
bullions and foreign currency reserves etc. against currency note
issue and has the responsibility to meet the adverse balance of
payment with other nations. RBI has the responsibility to maintain
exchange rate stability and for this, it has to bring demand and
supply of foreign currency (usually US Dollar) to similar levels. It
maintains this stability through buying and selling of foreign
currencyetc.
5. RBI as the bank of Central clearance, settlement, and transfer:
RBI provides the facility of clearing house for settling banking
transactions. This allows other banks to settle their interbankclaims
 smoothly and economically. At places where RBI does not have its
own office, this function is carried out in the premises of State Bank
of India. This facility is provided by Reserve Bank of India through a
cell called as the National Clearing Cell.
6. Credit control function: RBI tries to maintain price stability in the
country which is essential for economic development. It regulates
money supply in the economy according to the changing
circumstances of the economy. It uses various measures such as
qualitative and quantitative techniques to regulate credit in the
economy. It uses quantitative controls such as bank rate policy, cash
reserve ratio, open market operations etc. Qualitative controls
include selective credit control, rationing of creditetc.

Supervisory Role and Functions of RBI

RBI performs certain non-monetary functions for the supervision of
banks and promotion of sound banking system in India. Supervisory
functions ensure improvement in the methods of operation of Banking in
India. It controls and administers the entire financial and banking system
of India through thesefunctions.

• Giving licence to banks: RBI has the authority to grant licence to

the banks for carrying out business. It provides licence for the
opening of new branches, opening extension counters, and also for
closing down existing branches. Reserve Bank of India through this
power avoids unnecessary competition among different banks at
any particular location. It helps RBI to remove undesirable people
from entering into the bankingbusiness.
• Bank inspection and enquiry: RBI has the power to inspect and
enquire banks in various matters under the Banking Regulation Act,
and the Reserve Bank of India act. It can inspect loans and advances,
deposits, investment functions etc. which helps to ensure that
financial Institutions and banks carry out their operations in a
proper manner. It carries out periodical inspection once or twice a
year and banks have to take remedial measures pointed out during
an inspection. It also asks for periodical information regarding
certain Assets and liabilities ofbanks.
 • Implementation of deposit Insurance Scheme: RBI has the
responsibility to implement the deposit Insurance Scheme to ensure
the protection of deposits of small depositors. Under this scheme,
deposits below Rs 1 lakh are insured with the Deposit Insurance
Guarantee Corporation set up by Reserve Bank of India. It
implements the deposit Insurance Scheme in case of failure of any
Bank. Deposits made in the accounts of commercial banks,
cooperative banks and RRBs are covered under this scheme. The
fixed deposits with Institutions such as ICICI, IDBI etc are not
covered under thisscheme.

• Control over Non-Banking Financial Institutions: The monetary

policy of RBI does not influence the Non-Banking Financial
Institutions. However, it gives directions to the Non-Banking
Financial Institutions and also conducts enquiry and inspection to
exercise control over these institutions. For example, it requires
permission from the Reserve Bank of India for deposit-taking
operations by Non-Banking FinancialInstitutions.

• Periodic review of the working of commercial banks: the

supervisory functions of RBI also includes periodic review of the
working of commercial banks. It takes necessary steps to increase
the efficiency of the commercial banks, and for the implementation
of policy changes and schemes for the improvement of the banking
system.

1. RBI cannot purchase the shares of any industrial undertaking or

even its ownshare.
2. It cannot provide direct monetary or financial assistance to any
commercial undertaking or tradeetc.
3. RBI does not have the power to buy any immovableproperty.
4. RBI does not have the authority to give loans on the security of
property orshares.

Instruments of monetary policy of Reserve Bank of India (RBI)

The monetary policy committee of RBI has the responsibility to fix the
benchmark policy interest, also known as a repo rate for the controlling
inflation rate. One of the major objectives of monetary policy is to contain
inflation rate at 4%, with maximum standard deviation of 2%.

Quantitative measures:

It refers to those measures of RBI in which affects the overall money

supply in the economy. Various instruments of quantitative measures are:

• Bank rate: it is the interest rate at which RBI provides long term
loan to commercial banks. The present bank rate is 6.5%. It controls
the money supply in long term lending through this instrument.
When RBI increases bank rate the interest rate charged by
commercial banks also increases. This, in turn, reduces demand for
credit in the economy. The reverse happens when RBI reduces the
bankrate.
• Liquidity adjustment facility: it allows banks to adjust their daily
liquidity mismatches. It includes a Repo and reverse repo
operations.
• Repo rate: Repo repurchase agreement rate is the interest rate at
which the Reserve Bank provides short term loans to commercial
banks against securities. At present, the repo rate is6.25%.
• Reverse repo rate: It is the opposite of Repo, in which banks lend
money to RBI by purchasing government securities and earn
interest on that amount. Presently the reverse repo rate is6%.
• Marginal Standing Facility (MSF): It was introduced in 2011-12
through which the commercial banks can borrow money from RBI
by pledging government securities which are within the limits of the
statutory liquidity ratio (SLR). Presently the Marginal Standing
Facility rate is6.5%.

Varying reserve ratios

Reserve Bank of India uses the tools of varying the reserve requirements
that banks have to maintain with RBI.

• Cash reserve ratio (CRR): It is the minimum amount of cash that

commercialbankshavetomaintainwiththeReserveBankofIndia
 in the form of deposits. An increase in CRR decreases money supply
in the economy whereas a decrease in CRR increases the money
supply. The current CRR rate is 4%.
• Statutory liquidity ratio (SLR): It is the minimum percentage of
non-cash assets to be kept with RBI. It includes government
securities, bonds, gold etc. An increase in SLR reduces the capacity
of banks to give loans to its customers. The reverse happens when
SLR is reduced. The current SLR rate is19.5%.
Open market operations (OMOs): open market operations include the
sale and purchase of government securities for either injecting or
absorbing liquidity from the economy.

Market stabilisation scheme (MSS): this instrument is used to absorb

the surplus liquidity from the economy through the sale of short-dated
government securities. The cash collected through this instrument is held
in a separate account with the Reserve Bank. It was introduced in 2004.
RBI had raised the ceiling of the market stabilisation scheme after
demonetization in 2016.

Repo Rate vs. Bank Rate

The Reserve Bank of India (RBI) reduced the repo rate on 27 March 2020
by 75 basis points (bps). The reduction saw the repo rate reduce to
4.40% from 5.15%. Currently, the bank rate is 4.65%. Any reduction in
the bank rate and the repo rate will lead to borrowers getting loans at
lower interest rates.
Differences between Repo Rate and Bank Rate
Repo Rate and Bank Rate are the two most popular rates calculated for
borrowing and lending activities carried on by commercial and central
banks. They are the lending rates at which the Central Bank of India lends
funds to commercial banks and other financial institutions. While both
rates are short term tools used to control the cash flow in the market and
are often mistaken to be one and the same, there is some noteworthy
difference between the two.
Before we make a comparison about the repo rate and the bank rate, it is
important to first understand what both these terms mean. Simply
put, repo rata is the rate at which the RBI lends to commercial banks by
purchasing securities while bank rate is the lending rate at which
commercial banks can borrow from the RBI without providing any
security.
CHAPTER 14
MOST RECENT CPI INDIA 9.303%

Consumer Price Index or CPI as it is commonly called is an index

measuring retail inflation in the economy by collecting the change in
prices of most common goods and services used by consumers. Called
market basket, CPI is calculated for a fixed list of items including food,
housing, apparel, transportation, electronics, medical care, education, etc.
Note that the price data is collected periodically, and thus, the CPI is used
to calculate the inflation levels in an economy. This can be further used to
compute the cost of living. This also provides insights as to how much a
consumer can spend to be on par with the price change.
Remember, CPI is different from WPI, or Wholesale Price Index, which
measures inflation at the wholesale level.
In India, there are four consumer price index numbers, which are
calculated, and these are as follows:
• CPI for Industrial Workers(IW)
• CPI for Agricultural Labourers(AL)
• CPI for Rural Labourers (RL)and
• CPI for Urban Non-Manual Employees(UNME).

While the Ministry of Statistics and Program Implementation collects CPI

(UNME) data and compiles it, the remaining three are collected by the
Labour Bureau in the Ministry of Labour.

The CPI is calculated with reference to a base year, which is used as a

benchmark. The price change pertains to that year. Remember, when you
calculate the CPI, note that the price of the basket in 1 year has to be first
divided by the price of the market basket of the base year. Then, it is
multiplied by 100.
Consumer Price Index formula:
CPI = (Cost of basket divided by Cost of basket in the base year)
multiplied by 100
CPI’s annual percentage change is also used to assess inflation. In India,
the base years of the current series of CPI(IW), CPI(AL) and CPI(RL), are
1982, 1986-87 and 1984-85, respectively.

THE RESERVE BANK’S ACCOUNTS FOR 2017-18

The balance sheet size of the Reserve Bank increased by 9.49 per cent for
the year ended June 30, 2018. While income for the year 2017-18
increased by 26.63 per cent, the expenditure decreased by 9.24 per cent.
The year ended with an overall surplus of `500 billion as against `306.59
billion in the previous The balance sheet of the Reserve Bank plays a
criticalroleinthefunctioningofthecountry’seconomylargelyreflecting the
activities carried out in pursuance of its currency issue function as well as
monetary policy and reserve management objectives. The key financial
results of the Reserve Bank’s operations during the year 2017- 18 (July -
June) are set out in the following paragraphs. XII.2 There was an increase
in the size of the Bank’s balance sheet during 2017-18. The
balancesheetincreasedby`3,135.00billion,i.e.9.49percentfrom
`33,040.94 billion as on June 30, 2017

The increase on the asset side was mainly due to increase in foreign
investments and loans and advances by 11.25 per cent and 849.55 per
cent, respectively. On the liability side, the increase was due to increase in
NotesissuedandOtherLiabilitiesandProvisionsby26.93percentand
16.95 per cent, respectively. Domestic assets constituted 23.18 per cent
while the foreign currency assets and gold (including gold held in India)
constituted76.82percentoftotalassetsasonJune30,2018asagainst
24.32 per cent and 75.68 per cent, respectively as on June 30, 2017. XII.3
Provision of `141.90 billion was made and transferred to Contingency
Fund (CF). No transfer was made to Asset Development Fund

RESOURCE MANAGEMENT DISCUSSIONS

The Reserve Bank holds Resource Management

Discussions (RMD) meetings with select banks about one and a
half months prior to the announcement of the Monetary Policy
and the Second Quarter Review. These discussions are chaired
by the Deputy Governor in-charge of monetary policy
formulation.
These meetings mainly focus on perception and outlook
of bankers on the economy, liquidity conditions, credit
outflows, developments in different market segments and the
direction of interest rates. Bankers offer their suggestions for
the policy.
The feedback received from these meetings is analysed
and taken as inputs while formulatingmonetary policy.
CURRENCY MANAGEMENT
The Reserve Bank carries out the currency management
function through its Department of Currency Management
located at its Central Office in Mumbai, 19 Issue Offices located
across the country and a currency chest at its Kochi branch .
To facilitate the distribution of notes and rupee coins
across the country, the Reserve Bank has authorised selected
branches of banks to establish currency chests.
There is a network of 4,281 Currency Chests and 4,044
Small Coin Depots with other banks.
Currency chests are storehouses where bank notes and
rupee coins are stocked on behalf of theReserve Bank.
The currency chests have been established with State Bank
of India, six associate banks, nationalised banks, private sector
banks, a foreign bank, a state cooperative bank and a regional
ruralbank.
Deposits into the currency chest are treated as
reserves with the Reserve Bank and are included in the
CRR. The reverse is applicable for withdrawals from chests.
Like currency chests, there are also small coin depots
which have been established by the authorised bank branches
to stock small coins. The small coin depots distribute small
coins to otherbank branches in their area of operation.
The Department of Currency Management makes
recommendations on design of bank notes to the Central
Government, forecasts the demand for notes and ensures
smooth distribution of notes and coins throughout the country.
It arranges to withdraw unfit notes, administers the
provisions of the RBI (Note Refund) Rules, 2009 (these rules
deal with the payment of value of the soiled or mutilated
notes) and reviews/rationalises the work systems and
procedures at the issue offices on an ongoing basis.
The RBI Act requires that the Reserve Bank’s affairs
relating to note issue and its general banking business be
conducted through two separate departments – the Issue
Department and theBanking Department.
All transactions relating to the issue of currency notes are
separately conducted, for accounting purposes, in the Issue
Department.
The Issue Department is liable for the aggregate value of
the currency notes of the Government of India (currency notes
issued by the Government of India prior to the issue of bank
notes by the Reserve Bank ) and bank notes of the Reserve
Bank in circulation from time to time and it maintains
eligible assets for equivalentvalue.
The assets which form the backing for note issue are kept
wholly distinct from those of the Banking Department. The
Issue Department is permitted to issue notes only in
exchange for notes of other denominations or against
prescribed assets.
This Department is also responsible for getting its
periodical requirements of notes/coins from the currency
printing presses/mints, distribution of notes and coins
among the public as well as withdrawal of unserviceable
notes and coins from circulation.
The mechanism for putting currency into circulation and
its withdrawal from circulation (that is, expansion and
contraction of currency , respectively ) is effected through the
Banking Department.
CURRENCY DISTRIBUTION
The Government of India on the advice of the Reserve
Bank decides on the various denominations of the notes to
be printed. The Reserve Bank coordinates with the
Government in designing the banknotes, including their
security features.
For printing of notes, the Security Printing and Minting
Corporation of India Limited (SPMCIL), a wholly owned
company of the Government of India, has set up printing
presses at Nashik, Maharashtra and Dewas, MadhyaPradesh.
The Bharatiya Reserve Bank Note Mudran Pvt. Ltd.
(BRBNMPL), a wholly owned subsidiary of the Reserve Bank,
also has set up printing presses at Mysore in Karnataka and
Salboni in West Bengal.
The Reserve Bank estimates the quantity of notes
(denomination-wise) that is likely to be required and places
indents with the various presses.
The notes received from the presses are then issued for
circulation both through remittancesto banks as also across the
Reserve Bank counters.
Currency chests, which are maintained by Currency
Distribution 30 banks, store soiled and re-issuable notes, as
also fresh banknotes. The banks send notes, which in their
opinion are unfit forcirculation, back to the Reserve Bank.
The Reserve Bank examines these notes and re-issuesthose
that are found fit forcirculation.
The soiled notes are destroyed, through shredding, so as
to maintain the quality of notes incirculation.
COIN DISTRIBUTION

The Indian Coinage Act, 1906 governs the minting of

rupee coins, including small coins of the value of less than one
rupee. One rupee notes (no longer issued now) and coins are
legal tender in India for unlimited amounts.
Fifty paisa coins are legal tender for any sum not
exceeding ten rupees and smaller coins for any sum not
exceeding one rupee. The Reserve Bank acts as an agent of the
Central Government for distribution, issue and handling of the
coins (including one rupee note) and for withdrawing and
remitting them back to Government as may be necessary.
SPMCIL has four mints at Mumbai, Noida (UP), Kolkata
and Hyderabad for coin production. Similar to distribution of
banknotes, coins are distributed through various channels
such as Reserve Bank counters, banks, post offices, regional
rural banks and urban cooperative banks.

The Reserve Bank offices also sometimes organise

special coin melas for exchanging notes into coins through
retail distribution. Just as unfit banknotes are destroyed, unfit
coins are also withdrawn from circulation and sent to the mint
formelting.
SPECIAL TYPE OF NOTES

A special Star series of notes in three denominations of rupees ten,

twenty and fifty have been issued since August 2006 to replace
defectively printed notes at the printing presses. The Star series
banknotes are exactly like the existing Mahatma Gandhi Seriesbanknotes,
but have an additional character—
(star) in the number panel in the space between the prefix
andthenumber
The packets containing these banknotes will not, therefore, have
sequential serial numbers,but contain 100 banknotes, as usual.
This facility has been further extended to Rs. 100 notes
with effect from June 2009. The bands on such packets
indicate the presence of such notes.

EXCHANGE OF NOTES

Basically there are two categories of notes which are

exchanged between banks and the Reserve Bank – soiled
notes and mutilated notes.
While soiled notes are notes which have become dirty
and limp due to excessive use or a two-piece note, mutilated
note means a note of which a portion is missing or which is
composed ofmore than two pieces.
While soiled notes can be Coin Distribution Special
Type of Notes Exchange of Notes 31 tendered and
exchanged at all bank branches.
Mutilated notes are exchanged at designated bank
branches and such notes can be exchanged for value
through an adjudication process which is governed by
Reserve Bank of India(Note Refund) Rules,2009.
Under current provisions, either full or no value for
notes of denomination up to Rs.20 is paid, while notes of Rs.50
and above would get full, half, or novalue.
Depending on the area of the single largest undivided
portion of the note.
Special adjudication procedures exist at the Reserve Bank Issue
offices for notes which have turned extremely brittle or badly
burnt.
Charred or inseparably stuck together and, therefore,
cannot withstand normal handling.
COMBATING COUNTERFEITING

To combat the incidence of forged notes, the Reserve

Bank has taken certain measures like publicity campaigns on
security features of bank notes and display of “Know Your
Banknote”posteratbankbranchesincludingatoffsiteATMs.
The Reserve Bank, in consultation with the Government of
India, periodically reviews and upgrades the security features of
the bank notes to deter counterfeiting.

It also shares information with various law enforcement

agencies to address the issue ofcounterfeiting.
It has also issued detailed guidelines to banks and
government treasury offices on how to detect and impound
counterfeit notes.
ROLE IN FURTHER DEVELOPMENT

The Reserve Bank is one of the few central banks that has
taken an active and direct role in supporting developmental
activitiesintheircountry.TheReserveBank’sdevelopmental
role includes ensuring credit to productive sectors of the
economy, creating institutions to build financial infrastructure,
and expanding access to affordable financialservices.

Over the years, its developmental role has extended to

institution building for facilitating the availability of diversified
financial services within the country. The Reserve Bank today
also plays an active role in encouraging efficient customer
service throughout the banking industry, as well as extension of
banking service to all, through the thrust on financial inclusion.

Towards this goal, which has evolved over many years, the
Reserve Bank has taken variousinitiatives.
RURAL CREDIT

Given the predominantly agrarian character of the

Indianeconomy,theReserveBank’srolehasbeentoensure
timely and adequate credit to the The Reserve Bank is one of
the few central banks that has taken an active and direct role in
supporting developmental activities in theircountry.
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. Over the years, its
developmental role has extended to institution building for
facilitating the availability of diversified financial services
within the country.

The Reserve Bank today also plays an active role in

encouraging efficient customer service throughout the banking
industry, as well as extension of banking service to all, through
the thrust on financial inclusion. Towards this goal, which has
evolved over many years, the Reserve Bank has taken various
initiatives. 12 Developmental Role Rural Credit 68 agricultural
sector at affordable cost.
 Section 54 of the RBI Act, 1934 states that the Bank may
maintain expert staff to study various aspects of rural credit
and development and in particular, it may tender expert
guidance and assistance to the National Bank (NABARD) and
conduct special studies in such areas as it may consider
necessary to do so for promoting integrated rural development.

PRIORITY SECTOR LENDIG

The focus on priority sectors can be traced to the Reserve

Bank’screditpolicyfortheyear1967-68,andinstitutionofa
scheme of ‘social control’ over commercial banks in 1967by
the Government of India to remove certain deficiencies
observed in the functioning of the banking system, such as,
bulk of bank advances directed to large and medium-scale
industries and establishedbusinesshouses.

In order to provide access to credit to the neglected

sectors, a target based priority sector lending was introduced
from the year 1974, initially with public sector banks. The
scheme was gradually extended to all commercial banks by
1992. The scope and extent of priority sectors have undergone
several changes since the formalisation of description of the
priority sectors in 1972.

The guidelines on lending to priority sector were revised

with effect from April 30, 2007. The guiding principle of the
revised guidelines on lending to priority sector has been to
ensure adequate flow of bank credit to those sectors of the
society/ economy that impact large segments of the population
and weaker sections, and to the sectors which are employment-
intensive, such as, agriculture and small enterprises.

The broad categories of advances under priority sector

now include agriculture, micro and small enterprises sector,
microcredit, education and housing
The domestic scheduled commercial banks, both in the
public and private sector, having shortfall in lending to priority
sector and/or agricultural lending and/or weaker section
lending targets, are required to deposit in Rural Infrastructure
Development Fund (RIDF) established with NABARD or other
Funds set up with other financial institutions. RIDF was
established with NABARD in April 1995 to assist State
Governments / State-owned corporations in quick completion
of projects relating to irrigation, soil conservation, watershed
management and other forms of rural infrastructure (such as,
rural roads and bridges, market yards, etc.).

Since then, the RIDF has been extended on a year-to-year

basis to presently RIDF XV through announcements in the
Union Budgets. The interest rates charged from State
Governments and payable to banks under the Rural
Infrastructure Development Fund (RIDF) have been brought
down over the years in accordance with the reduction of
market interest rates.

As a measure of disincentive for non-achievement of

agricultural lending target, effective RIDF-VII, the rate of
interest on RIDF deposits has been linked to the banks’
performance in lending to
agriculture. Accordingly, while the State Governments are
required to pay interest at Bank Rate plus
0.5 percentage points, the rates of interest on deposits vary
between Bank Rate and Bank Rate minus 3 percentage points
dependingontheindividualbank’sshortfallinlendingto
agriculture target of 18percent.
LEAD BANK

The Reserve Bank introduced the Lead Bank Scheme in 1969. Here
designated banks were made key instruments for local development and
were entrusted with the responsibility of identifying growth centres,
assessing deposit potential and credit gaps and evolving a coordinated
approach for credit deployment in each district, in concert with other
banks and other agencies.

The Reserve Bank has assigned a Lead District Manager

for each district who acts as a catalytic force for promoting
financial inclusion and smooth working between government
and banks.

SPECIAL AGRICULTURAL CREDIT PLAN

With a view to augmenting the flow of credit to agriculture,

Special Agricultural Credit Plan (SACP) was instituted and has
been in operation for quite some time now.
Under the SACP, banks are required to fix self-set
targets showing an increase of about 30 per cent over
previous year’s disbursements on yearly basis (April –
March). The public sector banks have been formulating SACP
since 1994. The scheme has been extended to Private Sector
banks as well from the year2005-06.
KISAAN CREDIT CARDS

The Kisaan Credit Card (KCC) Scheme was introduced in

the year 1998-99 to enable the farmers to purchase
agricultural inputs and draw cash for their production needs.
On revision of the KCC Scheme by NABARD in 2004, the
scheme now covers term credit as well as working capital for
agriculture and allied activities and a reasonable component
for consumption needs.

Under the scheme, the limits are fixed on the basis of

operational land holding, cropping pattern and scales of
finance. Seasonal sub-limits may be fixed at the discretion ofthe
banks.
Limits may be fixed taking into account the entire
production credit needs along with ancillary activities relating
to crop production, allied activities and also non-farm short
term credit needs (consumption needs). Limits are valid for
three years subject to annual review. Security, margin and rate
of interest are as per RBI guidelines issued from time to time.

CASH MANAGEMENT AND WAYS AND MEANS ADVANCES

First, the states recognized the importance of cash

management as a medium-term objective, but noted that there
is limited scope for cash management on the expenditure side.
However, each state would make a standard analysis for
monthly requirements so that even at the margin, the scope for
its management would improve.

In the light of such an exercise, it would be possible for

each State Government to work out the seasonality in the
expenditure and their borrowing requirements could, if
possible, be appropriately adjusted. This information would
be used by the Reserve Bank as an input in deciding the
timings of floating tranches of the borrowing programme for
the State Governments in conjunction with other factors, such
as, conditions of liquidity in the market, interest rate
determination and synchronization with Central Government
borrowings, etc.
 On Ways and Means Advances (WMA), the Reserve Bank
agreed to consider changes such as dual limits and advance
warning system. Finance Secretaries wanted the Reserve Bank
to continue to manage the investment of their surpluses, but
change the mechanism in such a way that they get a return
close to what they pay for their withdrawals from the RBI, say,
under WMA.

The Reserve Bank has agreed to continue to invest the

surpluses of the State Governments, introduce 28-Days
Treasury Bills as an additional instrument and to review the
present systems to enable the State Governments to obtain a
better return than now on investment of their surpluses.

PUBLIC DEBT

Second, while some States favoured the establishment of

a formal ceiling on public debt by law, others felt that the more
important requirement is greater transparency in the matter of
public debt and awareness of itsimplications.

Further, the States unanimously felt that the focus should

also be on revenue deficit. It was decided that State
Governments should be encouraged by the RBI to consider both
greater transparency and a legal ceiling on public debt.

The Reserve Bank was requested to actively pursue with

the Government of India the consensus of the State Finance
Secretaries for permitting freedom in the range of 5 to 35 per
cent to access the market outside the consolidated tranches of
borrowing.

While there was a general agreement that Consolidated

Sinking Fund is a good idea, many felt that it would not be
desirable to consider this at a stage when revenue deficits
 persist and when scope for return on investments made in CSF
is not very clear. Some State Governments, however,
requested the Reserve Bank to detail the modalities of such a
CSF for immediateconsideration.

GUARANTEES

Third, recognizing the importance of guarantees and

their implications on the finances, it was decided to include the
following in terms of a Working Group on StateGuarantees:

a. Hidden liabilities, including especially the letters of

comfort, which have the consequence ofaguarantee.
b. The level of guaranteefee.
c. The implications of linkage with the value of any foreign
currency, where it exists in regard to such contingent
obligation, especially in the guarantees offered in the power
sector.
d. The possibility of prescribing a legal ceiling on all guarantees and
criteria for fixing aceiling.
e. The importance of attaching weights to risks and arriving at risk
weighted guaranteelimits.
f. Discouraging the public sector entities from insisting on
guarantees;and
g. Prohibition on seeking or giving of guarantees for working
capital needs ofenterprises.

*A concern was expressed about the guarantees at State level

for various projects from international investors in foreign
currencies. While, at present, the magnitude of such exposures
to foreign currency obligations may not be large, its assessment
and some mechanism to gauge effects of such dollarisation
would be necessary to mount hedging mechanisms.
It was agreed that the study on this subject should be encouraged by
the RBI, particularly, in the context of power sector, where the
power tariff may be linked partly to the domestic value of theforeign
currency
 NATIONAL HOUSING BANK

National Housing Bank (NHB), a Government of

Indiaowned entity,[3][4]was set up on 9 July 1988 under the
National Housing Bank Act, 1987. NHB is the apex financial
institution for housing. NHB has been established with an
objective to operate as a principal agency to promote housing
finance institutions both at local and regional levels and to
provide financial and other support incidental to such
institutions and for matters connected therewith.
The Finance Act, 2019 has amended the National
Housing Bank Act, 1987. The amendment confers the powers
of regulation of Housing Finance Companies (HFCs) to the
Reserve Bank of India.

GENESIS
The Sub-Group on Housing Finance for the Seventh
Five Year Plan (1985–90) identified the non-availability of
long-term finance to individual households on any
significant scale as a major lacuna impeding progress of the
housing sector and recommended the setting up of a national
levelinstitution.
The Committee of Secretaries considered' the
recommendation and set up the High Level Group under the
Chairmanship of Dr. C. Rangarajan, the then Deputy
Governor, RBI to examine the proposal and recommended
the setting up of National Housing Bank as an autonomous
housing finance institution. The recommendations of the
High Level Group were accepted by the Government of
India.
The Hon’ble Prime Minister of India, while
presenting the Union Budget for 1987–88 on 28 February
1987 announced the decision to establish the National
Housing Bank (NHB) as an apex level institution for
housing finance.
Following that, the National Housing Bank Bill (53
of 1987) providing the legislative framework for the
establishment of NHB was passed by Parliament in the
wintersessionof1987andwiththeassentoftheHon’ble
President of India on 23 December 1987, became an Act of
Parliament.
The National Housing Policy, 1988 envisaged the
setting up of NHB as the Apex level institution for
housing.
In pursuance of the above, NHB was set up on 9
July1988 under the National Housing Bank Act, 1987.
NHB is wholly owned by Govt. of India as after 24 April
2019 notification of RBI, which contributed the entire
paid-up capital.
The general superintendence, direction and
management of the affairs and business of NHB vest,
under the Act, in a Board of Directors. The Head office of
NHB is atNew Delhi.
 RURAL INNOVATION

NABARD role in rural development in India is

phenomenal. National Bank For Agriculture & Rural
Development (NABARD) is set up as an apex
Development Bank by
the Government of Indiawith a mandate for facilitating
credit flow for promotion and development of agriculture,
cottage and village industries.
The credit flow to agriculture activities sanctioned
by NABARD reached Rs 1,57,480crore in 2005–2006.
The overall GDP is estimated to grow at 8.4 per
cent. The Indian economy as a whole is poised for higher
growth in the coming years. Role of NABARD in overall
development of India in general and rural & agricultural
in specific is highlypivotal.
Through assistance of Swiss Agency for Development
and Cooperation, NABARD set up the Rural Innovation
Fund. Rural Infrastructure Development Fund (RIDF) is
another noted scheme for the bank for rural development.
Under the RIDF scheme Rs. 51,283 crore have been
sanctioned for 2,44,651 projects covering irrigation, rural
roads and bridges, health and education, soil conservation,
water schemes etc. Rural Innovation Fund is a fund
designed to support innovative, risk friendly,
unconventional experiments in these sectors that would
have the potential to promote livelihood opportunities
and employment in ruralareas
CONCLUSION
Every authority concerned with Co-operative sector will have to
play its part in ensuring that the aspirations of the Urban Co-
operative Banking sector are nurtured in a manner that depositor
interest and the public interest at large is protected. The role of RBI
could, thus, be to frame a regulatory and supervisory regime that is
multi-layered to capture the heterogeneity of the sector and
implement policies that would provide adequate elbowroom for the
sector to grow in a non-disruptive manner. The State and Central
Governments could recognize that the UCBs are not just co-
operative societies but they are essentially banking entities whose
management structure is that of a co-operative. They should
recognize the systemic impact that inefficient functioning of the
entities in the sector could have. Consequently, it would be in the
interest of the sector if they support, facilitate and empower the RBI
to put in place mechanisms and systems that would enable these
UCBs to perform their banking functions in a manner that is in the
overall interest of the depositor and the public atlarge.