RBI History

1921 7 Presidency banks Bombay Madrasand Kolkata were combined to

the of imperial Bank of India

form

Functioned as central bank till RBI was set up in 1935

1935 7 RBI setup underthe RBI act 1934 1949 7 RBI nationali

Formed on the basis of Hillary Young Commission

1955 8131 Nationalized

RBI Functions 2

Bank of issue monopoly on the issue of bank notesunder see22 of RBI

act except 2I l coins

issued

by Finance ministry
Financesecyo

Distributing agency currency coins sign of

it

Banker of 401 acts agent of centrefstate

Raise loans state centre

recieve and make payments on behalf of hort

Wma

banker1 agent adviser Govt

Banker's bank

Bank's maintain ale with RBI it facilates them to dovarious oblign

like maintainCRR interbank oblign

Lender of last resort

Controller of credit Monetary policy tools

foreign exchange and gold reserves

Manages

Regin and supervision of banking sector

promotional tune setting up

infincontrol

currency printing tune of RBI

How much To any extent The only requirement is that RBIshould

maintain a foreign exchange reserve of Rs 200er out

Reser

of which Rs 150 er should be in gold Minimum

Sys Mks
Followed
since 1957


Agent and adviserof the govt

accepts loans and manages public debt on behalfof govt centre state

y
issues govt bonds treasury bills etc

advise economic and financial matters

Functions

Supervisory

on commercial banks and cooperative banks

this powers are given

by RBI act 1934 and Banking ReginAct1949

Funen

license

granting

implementof deposit insurance scheme

control non banking finance corporations

issue directions 10 banks to initiate insolvency resolution process to recore

bad loans under Banking Regulation Amendment Act 2017

Deposit insurance recenttopic

insurance against the deposits held by an individual in a bank

In case of insolvency the bank the individual will

of get

the said insured amount

Deposits with all commercial banks and cooperative banks

are insured under Deposit insurance and creditguarantee

corporation Dlc9

Primary cooperative society not covered

Max insured amt for a person having diff ale Ca sa 111

in same or diff branch of the same bank is Rs Ilkh

This he will get in case

of bank failure

Recent budget announcement insurance cover for deposits held in SCBs

Red to 5 lakhs

Done because
of recent episode of

Punjab and Maharashtra Bank

Cooperative

Pmc

PMC crisis PMC allegedly colluded with promoter of financially i

stressed
Housing Development And infrastructure CADID to give loans
it I 731 of thebank's advances

to
non
the tune
bank
of 2 6500Crcdint classify them as

Despite payment officials

NPAs All these lead to the insolvency of the bank

imp topic from exam point of view

DICGC CRB subsidary

p
set up under RBI to protect depositors if a bankfails
covers all SCBs and Coop banks except in Mehalaya
Chandigarh Dadar Nagar Haveli

primary cooperative societies are not covered

Not covered

Govt deposits stateand central

Foreign gorts deposit

Deposits
of state land development banks with the
state cooperative banks

Promotional Ferne

To promote banking habit extend banking facilities to unbanked areas and

eastablish and promote new specialised agencies to promote
savings and provide general and agrifinance
In order to perform various developmentaland promotional tune it
set up instis like SIDBI 112131 NABARD NHBetc

PublicDebt Management Agency PDMA

As of now RBI manages market borrowing programmes of central and stategovt

Govt manages external borrowing

Policies and DEA14011 RBI 1 Finance Ministry

guidelines Wrt ECB

Recently NITI proposed creation of an independent Debt Management Agency

solepurpose to manage Debt

 g
Reasons need
for
Fragmented jurisdiction in public debt management

Market Borrowing RBI Ext borrowing 7 401

PDMA consolidn
ofthe fun
Conflict of interest betn setting int rate and raising loans forthe govt

control infin 1201 A conflict When it wants to borrow for the govt
at low Roi

autonomous PDMA wider institutional reforms Development of securities market

Most advanced economies have dedicated debt

management agency

Another conflict of int As aregulator it mandates bank to buy

govt securities SLRrequirement It induces bank to buy govt
bonds thereby impeding
gthof bond market

Jahangir Aziz committeereport 2008

Commitees formed

fan ofthemfavoured RaghuramRajan chaired commiteeon financial sector reforms zoog

PDMa Justice 13N SriKrishna chaired FSLRC 2013

Tarapore's committee on fuller capital account convertibility in 2006

RBI autonomy

imp issue it came up when ex governor Urjit Patel testified before

parliament's standing commitee on finance

Tussle betn uol and RBI over various issues pertaining to autonomy

x
RBIwantsto penalize
a company by treating
a issue on dividend
it as a defaulter even
if it misses paymentfor
a single day govt objects
it saying it will hurt
enterprennership
its under these contentious issues that govt
mulled invoking see 7
ofRBIact
which was never used
 Under it govt may give direction fromtimeto time to RBI withconsent
of
governor in public interest

Subject to supritendenceand direction

any such direction the of the affairs
of the banks shall be entrusted to a central board of directors
which will carry over RBI's duty

Though govt has not directly invoked it but indirectlyit has given
several
directions to RBI as perThe power

Dividenddistribution
ceasing ofPCA framework
Providing more creditstosmallerunits

RBI Assets Liabilities Dividend

Assets Liabilities

currencynotes issued currency incirculat

Foreign currencyasset Highest ion notesheldin
bank
Gold coin Bullion 2 r andcoins
Govt securities Deposits cash balance
state and centralgovt
loans and advances 2nd
Banks
Bill purchases 2
discounted
International inslis

Other liabilities
2,54919
contingencyfunds

eon64,1 currency andgoldrevaluation

Bond and derivative rerain
aims

Currency andgold revaluation ale CaRAI

g
All unrealised gains losses due to movement of foreign currency kept in this ale

contingency Fund funds for unforeseen circumstances

Income sources
ofRBI
Return earned on its foreign currency assets bands T bills
of other
central banks
Major
OMO

invest in top rated securities around theworld

Management commission on handling govt borrowings

Forward currency market binding contract in foreign exchange
that market
locks in exch rate for
sale purchase ofcurrency on a future date

Expenditures of RBI Csmall fractionofits income

Printing ofcurrency notes
Gives commission to banks
for the operationof all of govt
int paid reverse repo operation

As per sec 47 RBI act 1934 RBI needs to Xr a part of its surplus
to of dividends and keep the rest as
govt as capital
Over the last few years RBI Xr to the tune of 2 50,000 er

Now as per Jalanwhich is

commitee reccomendation
pay out a one
time transfer huge in no

2017 2 10,000 or 2018 2 28,000cr

RBI panel on Economic Capital Framework ECF

commitee headed by Ex RBI gov BimalJalan

to address issue
of RBI reserves
issue 7 govt was insisting RBI to hand over its surplus due to
shortfall in revenue coin It will help govt to infuse

capital in PSB IxFD and fund welfare programme

Economic capital Framework Amt
of capital that a central bank requires to hold
to counter against unforeseen circumstances losses event

is holding on too much cash surplus under

According to govt RBI
existing ECF So panel formed to revise it

Panel's reccomendation

Realised
equitycould be used to meet all risks losses as they were

as they were primarily built up for retained earnings

Entire net income can be Xr only if realised equity is
above its requirement

Revaluation Balances not transferrable

Framework may be reviewed after every b yrs

Allign central bank's accounting yr of July June

with the financial year April March

Contingency fund to be maintained within a range of

G bit b bit of RBI's balance sheet
Aim of keeping reserves by RBI its objectives

CURA currency and gold revaluation ale is meant

to cover a situation where 2 appreciates or depreciates

against one or more currencies in the basket

it coveres total currency reserves of

RBI
a
f in of

It serves as risk management tech for the RBI

Continengency reserve

cover depreciation in the value

of RBI's holding of
govt's bonds domestic and foreign it yields
vise and their prices fave

events that
corers expenses for extraordinary
lead to insufficient income
might

supports lender of last resort role

cover
for deposit insurance fund