JETIR1903C18

© 2019 JETIR March 2019, Volume 6, Issue 3 www.jetir.
org (ISSN-2349-5162)
Role of RBI
Richa Rani
Abstract
RBI, the Central Bank of our India is the apex monetary institution which supervises, regulates, controls and
develops the monetary and financial system of the country. It is the sole agency of note issuing and controls
the supply of money in the economy. It serves as a banker to the government and manages forex (foreign
exchange) reserves of the country. The role of RBI has undergone through a rigorous change over the period
of time. Earlier, it was a common perception that the role of RBI is confined to credit control depending on
the economic environment of the national as well as international level. Credit control measures are Policy
Rates (Bank Rate and Repo Rate) and Policy Ratios (CRR and SLR). RBI raises the different key rates such
as Cash Reserve Ratio, Statutory Liquidity Ratio, REPO Rate which curb the credit creating capacity of the
banks and reduces the money circulation in the economy. The bank has to simultaneously ensure three
functions - liquidity, profitability as well as the safety of the fund collected from the depositors. RBI plays
developmental role, promotional role, supervisory role as well as regulatory role. The objective of the
research paper is to identify the role of RBI, to focus on various initiatives taken by RBI. The proposed
research paper will incorporate the secondary data. The study will also include the five pillars of financial
sector policies. The paper will be concluded by the various achievements of RBI.
Keywords: RBI (Reserve Bank of India), CRR (Cash Reserve Ratio), SLR, Forex etc.
INTRODUCTION
The Reserve Bank of India is India’s Central Bank. It is the apex monetary institution which supervises,
regulates controls and develops the monetary and financial system of the country. The Reserve bank was
established on April1, 1935 under the Reserve Bank of India Act, 1934. Initially, it was constituted as a
private shareholders ‘bank with a fully paid up capital of Rs. 5 crores. Following India's independence on 15
August 1947, the RBI was nationalized on 1 January 1949. Irrespective of the name and the nation,
previously the roles and responsibilities of the central banks were confined to certain stereotype activities
such as controller of credit in the economy, lending the fund to the commercial banks as the lender of the
last resort, providing the loan and advances to the Government of the nation in the form of deficit financing,
controller of the foreign exchanges by devaluating and revaluating the home currency to ensure that the
value of the currency remains within a particular predefined range as a policy resolution. In this respect,
RBI’s role in banking supervision has changed significantly from 1992 which should be considered as
milestone year in the history of Indian banking sector.
JETIR1903C18 Journal of Emerging Technologies and Innovative Research (JETIR) www.jetir.org 121
© 2019 JETIR March 2019, Volume 6, Issue 3 www.jetir.org (ISSN-2349-5162)
OBJECTIVE OF STUDY
 To identify the various roles played by RBI.

 To focus on various initiatives taken by RBI
 To study recent achievements of RBI
RESEARCH METHODOLOGY
The study is exploratory in nature and secondary data has been collected from various sources.
BRIEF HISTORY
The Reserve Bank of India was set up on the basis of the recommendations of the Hilton Young
Commission .The Bank began its operations by taking over from the Government the functions so far being
performed by the Controller of Currency and from the Imperial Bank of India, the management of
Government accounts and public debt. The existing currency offices at Calcutta, Bombay, Madras,
Rangoon, Karachi, Lahore and Cawnpore (Kanpur) became branches of the Issue Department.
Burma (Myanmar) seceded from the Indian Union in 1937 but the Reserve Bank continued to act as the
Central Bank for Burma till Japanese Occupation of Burma and later up to April, 1947. After the partition of
India, the Reserve Bank served as the central bank of Pakistan up to June 1948 when the State Bank of
Pakistan commenced operations. Though set up as a shareholders’ bank, the RBI has been fully owned by
the government of India since its nationalization in 1949.
PREAMBLE
“To regulate the issue of Bank notes and the 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”
OBJECTIVES OF RBI
 To manage the monetary and credit system of the country.

 To promote an efficient financial system.
 To establish monetary relations with other countries of the world and international financial institutions.
 To stabilizes internal and external value of rupee.
 To maintain balance between the demand and supply of currency.
 To manage foreign exchange reserve.
 To meet the currency requirement of the public.
 To manage the conduct of banking and financial operations of the government.

 To operate monetary policy with the aim of maintaining economic and financial stability.
 To focus on balanced and systematic development of banking in the country.
 To develop the organized money market in the country.
 To make proper arrangement of agriculture finance.
 To make proper arrangement of industrial finance.
 To manage public debts efficiently.
 To centralize the cash reserves of commercial banks.
STRUCTURE OF RBI
The Central Board of Directors is the main committee of the Central Bank. The Government of India
appoints the directors for a 4-year term. The Board consists of a Governor and not more than 4 Deputy
Governors, 4 Directors to represent the regional boards, 2 from the Ministry of Finance and 10 other
directors from various fields. The bank is headed by the Governor and the post is currently held by
economist Raghuram Rajan. There are 4 Deputy Governors H R Khan, Dr. Urjit Patel, R Gandhi and S S
Mundra. An Indian Administrative Service officer can also be appointed as Deputy Governor of RBI and
later as the Governor of RBI as with the case of Y. Venu Gopal Reddy.
BRANCHES AND SUPPORT BODIES
The Reserve Bank of India has four zonal offices at Chennai, Delhi, Kolkata and Mumbai. It has 19 regional
offices and 10 sub-offices. The Reserve Bank of India has four regional representations: North in New
Delhi, South in Chennai, East in Kolkata and West in Mumbai.
The representations are formed by five members, appointed for four years by the central government and
serve—beside the advice of the Central Board of Directors—as a forum for regional banks and to deal with
delegated tasks from the central board.
The bank has also two training colleges for its officers, viz. Reserve Bank Staff College, Chennai and
College of Agricultural Banking, Pune. There are three autonomous institutions run by RBI namely National
Institute of Bank Management (NIBM), Indira Gandhi Institute for Development Research (IGIDR),
Institute for Development and Research in Banking Technology (IDRBT). There are also Four Zonal
Training Centre at Mumbai, Chennai, Kolkata, and New Delhi. On 1 July 2007, in an attempt to enhance the
quality of customer service and strengthen the grievance redressal mechanism, the Reserve Bank of India
created a new Customer service department.
ORGANISATION
The Reserve Bank operates through various departments. They are:
1. Issue Department
2. Banking Department
3. Department of Banking Development
4. Department of banking Operations
5. Agricultural Credit Department
6. Industrial Finance Department
7. Non-Banking Companies Department
8. Exchange Control Department
9. Legal Department
10. Department of Research and Statistics
11. Department of Planning and Reorganization
12. Economic Department
13. Inspection Department
14. Department of Accounts and Expenditure
15. Department of Supervision
16. RBI Services Board
ROLE OF RBI
Reserve Bank of India was seen as playing a special role in the context of development, especially
Agriculture. The Bank was also instrumental in institutional development and helped set up institutions like
the Deposit Insurance and Credit Guarantee Corporation of India, the Unit Trust of India (UTI), the
Industrial Development Bank of India (IDBI), the National Bank of Agriculture and Rural Development
(NABARD) , the Discount and Finance House of India etc. to build the financial infrastructure of the
country.
With liberalization, the Bank's focus has shifted back to core central banking functions like Monetary
Policy, Bank Supervision and Regulation, and Overseeing the Payments System and developing the
financial markets. Various roles played by RBI are as under:
1. TRADITIONAL ROLE
In Traditional role, RBI Perform those functions which are in line with the objective with which the bank is
set up. It includes fundamental functions of central bank.
2. GENERAL BANKING ROLE
RBI is not a commercial bank yet it performs certain general functions which are:
 To accept deposits of central and state governments.

 To lend money to central and state governments.
 To deal in bills and promissory notes.
 To deal in agriculture bills.
 To deals in foreign securities.
 To deal in costly metals.
 To deal with banks of other countries.
3. CENTRAL BANKING ROLE
As a central bank, RBI performs various roles which are as follows:
 RBI AS NOTE ISSUING AUTHORITY
RBI has the exclusive right of issuing notes. It has the sole right to issue currency notes of all
denominations except one rupee notes, which are issued by the Ministry of Finance of the Government of
India. The Reserve Bank has adopted a minimum reserve system of note issue. Since 1957, it maintains gold
and foreign exchange reserves of Rs. 200 crores, of which at least Rs. 115 crores should be in gold.
 RBI AS BANKER TO THE GOVERNMENT
RBI is a banker, agent and financial advisor to the government. As a banker to the government, it manages
accounts of the government. As an agent to the government, it buys and sells securities on behalf of the
government. As an advisor to the government, it frames policies to regulate the money market. The central
bank also offers loans to the government against government securities or treasury bills. In a situation when
its revenue falls short of its expenditures, the government often seeks loans from the central bank (RBI).
This is called “Deficit Financing through borrowing from the RBI”.
 RBI AS BANKERS’ BANK
As a Bankers’ Bank, it has almost the same relation with other banks in the country as a commercial bank
has with its customers. It accepts deposits from commercial banks and offers them loans. The rate at which
the Central bank offers (Short Period) loans to the commercial banks is called ‘Repo Rate’. The rate at
which commercial banks are allowed to park their surplus funds with the RBI is called ‘Reverse Repo Rate’.
The standard practice is to keep ‘Reverse Repo Rate’ lower than the ‘Repo Rate’ by 1%.
 RBI AS LENDER OF LAST RESORT
Sometimes there may be occasions when a bank suffers the crisis of confidence. It occurs when the
depositors start fearing that the bank may run out its cash reserves. They start withdrawing their deposits
beyond what the bank can afford at a time. It is in such a situation that the central bank acts as a lender of
last resort. It offers loans to the bank to cope with the crises of confidence.
 RBI AS CLEARING HOUSE
RBI Performs the function of a clearing house. Inter banking obligations are conveniently settled through
this house. It avoids the transfer of cash between the banks and reduce requirement of cash.
 RBI AS CUSTODIAN OF FOREIGN EXCHANGE
RBI is the custodian of nation’s foreign exchange reserves. It also exercises ‘managed floating' to ensure
stability of exchange rate in the international money market. Managed floating refers to the sale and
purchase of foreign exchange with a view to achieve stability of exchange rate for the domestic currency.
4. SUPERVISORY ROLE
In its supervisory role, RBI insures that the commercial bank show compliance to its directives, particularly
relating to CRR and SLR. RBI changes CRR and SLR as and when required. It insures that commercial
banks show compliance to these changes so that the desired targets are achieved.
5. REGULATORY ROLE
Regulation aimed at protecting depositors’ interests, orderly development and conduct of banking
operations and fostering of the overall health of the banking system and financial stability.
 REGULATING COMMERCIAL BANKING:
Banks are fundamental to the nation’s financial system. The central bank has a critical role to play in
ensuring the safety and soundness of the banking system and in maintaining financial stability and public
confidence in this system.
POLICY FRAMEWORK
Focal points for providing framework for regulation:
1. Issuance of ‘licences’ for opening of banks

2. ‘Authorization’ for opening of branches by banks in India,
3. governing foreign banks entry and expansion and approval of Indian banks to operate overseas,
4. policy formulation, review and implementation on Prudential Norms, Basel – II and III frameworks,
5. Monitoring maintenance of SLR and CRR by banks,
6. approving appointments of chief executive officers (private sector and foreign banks) and their
compensation packages,
7. overseeing the amalgamation, reconstruction and liquidation of banking companies,
8. policy issues relating to customer service,
9. Regulation of financial institutions.
 MONETARY POLICY/ CREDIT CONTROL POLICY
It refers to the policy of the central bank of a country to regulate and control the volume, cost and allocation
of money and credit with the aim of achieving the objectives of optimum levels of output and employment,
price stability, balance of payment equilibrium, or any other goal set by the government. The key aim of
monetary regulation is to achieve the objective of growth with stability. RBI adopts various measures to
control the supply of money in the economy. Largely, these measures relates to credit supply by the
commercial banks. This is why monetary policy of the RBI is often known as credit control policy and these
measures are called instruments of monetary policy which are:
QUANTITATIVE INSTRUMENTS: These include two policy rates (Bank Rate and Repo Rate), two
policy ratios (CRR and SLR) and open market operations.
(a) Bank Rate
It relates to the loans offered by RBI to the commercial bank without any collateral security.
(b) Repo Rate
It relates to loans offered by RBI to the commercial bank not without collateral. The securities are pledged
as security for the loan.
Both bank rate and repo rate are the rates at which commercial banks can borrow money from RBI to tackle
the shortage of liquidity. With the rise in bank rate/ repo rate supply of money by the commercial bank is
reduced and vice-versa.
(c) CRR (Cash Reserve Ratio)
This refers to the proportion of total deposits of the commercial bank which they must keep as cash reserves
with the RBI. Increase in CRR causes a multiple times decrease in credit creation capacity of commercial
banks and vice versa. Following this principle, the RBI raises CRR to correct inflation and lowers it to
correct deflation. This is a very effective and often use policy instrument of the RBI to manage the supply of
money in the economy.
(d) SLR (Statutory Liquidity Ratio)
It is the ratio of liquid assets which all commercial banks have to keep in the form of cash, gold and
unencumbered approved securities. When SLR is raised credit creation capacity of banks is reduced and
vice-versa.
(e) Open Market Operations
It means that the bank controls the flow of credit through the sale and purchase of government securities in
the open market. By selling the securities, RBI soaks liquidity (cash) from the economy. And, by buying the
securities, the RBI releases liquidity.
QUALITATIVE OR SELECTIVE INSTRUMENTS
These instruments focus on increasing or decreasing the flow of credit to the specified areas of economic
activities. Broadly these are placed in three categories, as under:
(a) Margin requirement: It refers to difference between current value of security offered for loan (called
collateral) and the value of loan granted. Suppose a person mortgages his house worth Rs.1crores with
the bank for a loan of Rs.80 lakh. Margin requirement in this case would be Rs. 20 lakh. It is lowered
when supply of credit is to be increased and vice-versa.
(b) Rationing of credit: It refers to fixation of credit quotas for different business activities. The
commercial bank cannot exceed the quota limit while granting loans.
(c) Moral suasion: Sometimes RBI makes the member banks agree through persuasion or pressure to
follow its directives. The banks are advised to restrict loans during inflation and be liberal in lending
during deflation.
6. PROMOTIONAL ROLE
 RBI AND RURAL FINANCE : Various contributors of the reserve bank in promoting rural finance
are as under:
(a) Agriculture credit department: For expanding and coordinating credit facilities to the rural sector,
RBI has set up a separate agriculture department in April 1935. The main functions are:
I. To coordinate the operations of the bank in connection with agricultural credit & its relations with
other institutions and the state cooperative banks engaged in the business of agricultural credit;
II. To maintain an expert staff to study all questions of agricultural credit and be available for
consultation by the central and State government, state cooperative banks and other banking
organization.
(b) Setting up of Funds:
RBI set up long term operations funds in1956. The purposes of this fund are:
I. To make long term loans to state government to enable them to subscribe the share capital of
cooperative credit institutions;
II. To make medium term loans to state cooperative banks for agricultural purposes;
III. To purchase debentures of central land mortgage banks against the guarantee of the state
government;
IV. To make long term loans to the central land mortgage banks against the guarantee of the state
government.
(c) Establishment of Financial Institutions: Certain special financial institutions have been
established for promoting agricultural and rural credit such as NABARD, IDBI etc.
(d) Other contributions: RBI provides useful advice to the central and state governments on matters
relating to rural finance. It has developed a voluntary system of inspection of cooperative banks. It
also provides training to the personnel of cooperative banks.
 RBI AND INDUSTRIAL FINANCE: RBI has made a number of contributions for promoting
industrial finance which are as under:
(a) Setting up of Institutions: RBI does not directly participate in industrial finance. It has been
instrument in the establishment of a number of industrial development banks, Such as Industrial
Development Bank of India (IDBI), The Industrial Finance corporation of India (IFCI), The State
Finance Corporations (SFCs), The State Industrial Development Corporation (SIDCs) in the public
sector and the Industrial Credit and Investment Corporation of India (ICICI) in a private sector.
(b) Small scale Industries as priority sector: Commercial banks and other institutions like National
Small Industries Corporations (NSIC), State Finance Corporations (SFCs), State Industrial
Development Corporations (SIDCs) give special treatment to these industries by extending financial
assistance liberally and on concessional basis.
(c) Industrial Finance Department: RBI set up a separate department called the Industrial Finance
Department in 1957 to deal with various matters relating to industrial finance.
7. DEVELOPMENTAL ROLE
 This role includes the development of the quality of banking system in India and ensuring that credit is
available to the productive sector of the economy.
 RBI performs a wide range of promotional functions to support National objectives.
 For development of agriculture, RBI has an Agricultural Credit Department for conducting research
regarding various problems of agricultural credit.
 It also includes establishing institutions designed to build the country’s financial infrastructure. E.g.
NABARD, IDBI etc.
 Expanding access to affordable financial services and promoting financial education and literacy.
Five pillars of RBI's developmental measure
1. Clarifying and strengthening the monetary policy framework.

2. Strengthening banking structure through new entry, branch expansion, encouraging new varieties of
banks, and moving foreign banks into better regulated organizational forms.
3. Broadening and deepening financial markets and increasing their liquidity and resilience so that they can
help allocate and absorb the risks entailed in financing India's growth.
4. Expanding access to finance to small and medium enterprises, the unorganized sector, the poor, and
remote and underserved areas of the country through technology, new business practices, and new
organizational structures; that is, we need financial inclusion.
5. Improving the system's ability to deal with corporate distress and financial institution distress by
strengthening real and financial restructuring as well as debt recovery.
FEW RECENT INITIATIVES BY RBI
1. Building a heterogeneous banking system
The Reserve Bank is striving towards a more competitive, efficient and heterogeneous banking structure. It
believes that a heterogeneous banking system can meet varied customer needs in a more efficient manner.
As different banks would operate differently based on their reach, liquidity, capitalization and market power
considerations, they will be able to offer a wider range of customer service enhancing consumer welfare.
Universal bank licensing policy and guidelines for small finance and payment banks are a step in the
direction of building a heterogeneous baking system.
2. Universal bank licensing policy
In-principle approvals were given to two new applicants, namely, IDFC Limited and Bandhan Financial
Services Private Limited, on April 2, 2014 to set up banks under the Guidelines on Licensing of New Banks
in the Private Sector issued on February 22, 2013. The Reserve Bank intends to use the learning from this
licensing exercise to revise the guidelines appropriately and move to give licenses more regularly, that is,
virtually “on tap”. The Reserve Bank is working on the guidelines for continuous authorization of universal
banks.
3. Differentiated licensing of banks
The final guidelines on licensing of payments banks and small finance banks as differentiated or restricted
banks in the private sector were placed on the RBI website on November 27, 2014. The last date for receipt
of applications was February 02, 2015. When set up, these banks will be “niche” or “differentiated” banks,
with the common objective of furthering financial inclusion.
4. Capital for banks
Basel III Capital Regulations for Indian banks will be fully phased in as on March 31, 2019, closer to the
internationally agreed date of January 1, 2019, instead of March 31, 2018 as was announced earlier.
5. Management of Stressed Assets
To ensure effective stressed asset management, guidelines were issued to banks which among other things
covered the need to ensure that the banking system recognizes financial distress early and takes prompt
steps to resolve it.
6. Reviewing Governance of Boards of Banks in India
The Reserve Bank is currently reviewing the governance of boards of banks. Suggestions made by a
committee to improve governance in public sector banks are being discussed with the Government of India
and for the private sector banks; the Reserve Bank is taking action on those recommendations with which it
is in agreement.
ACHIEVEMENTS OF RBI:
1. Flexible Monetary Policy:
The Reserve Bank has adopted a flexible monetary policy. It has introduced changes in monetary
regulations keeping in view the seasonal character of Indian money market. The pressure of seasonal
demand has been adequately met. On account of it the seasonal fluctuations in money rates have been
negligible.
2. Stable Structure of Interest Rates:
The interest rate policy of the Reserve Bank has resulted into a relatively stable structure of interest rates in
the economy. The bank initially adopted cheap money policy from its beginning. The bank rate remained
unchanged at the low level of 3 percent up to 1951. Some upward changes have been made in subsequent
years to combat inflationary pressure. The Bank rate has remained substantially lower than the market rate
of interest. The bank rate has remained more or less stable.
3. Modern Banking and Credit structure:
The Reserve Bank has succeeded in building up a sound modern banking and credit structure. The Bank
enjoyed vast supervisory powers which enabled it to guide the development of banking on sound lines.
Training of bank personnel has improved their efficiency. The geographical and fundamental coverage of
the banking has also increased substantially.
4. Exchange Stability:
The Reserve Bank has succeeded in maintaining the exchange stability to a large extent. The Bank has
maintained the exchange value of the rupee at a relatively higher rate than would have prevailed in the
market. It has made judicious use of exchange control measures to keep the demand for foreign exchange
within the limits of the available supplies.
5. Enhanced Public Confidence in Banking Sector:
The Reserve Bank has taken appropriate measures to enhance public confidence in the banking systems.
Bank strictly supervises the working of the Commercial banks so as to avoid their failures. The Deposits
Insurance System has also been introduced to protect the interests of the depositors. It has proved an
important factor in promoting depositors’ confidence in banks.
6. Central Authority of Indian Money Market:
The Reserve Bank has functioned as the central authority in the Indian money market. It has supervised and
controlled commercial banks, cooperative banks and non-banking finance companies accepting deposits
from the public.
7. Development of Bill Market:
The Reserve Bank has made serious efforts to develop a sound bill market in India. It has imparted a
substantial degree of elasticity to the credit structure of the country by introducing the several Bill Market
Schemes.
8. Rational Allocation of Credit:
The Reserve Bank has adopted measures to distribute credit to all productive sectors in accordance with
social objectives and priorities. The scheme of Differential Interest Rates was introduced to grant loans at
concessional rates to weaker sections of the society. The priority sector including agriculture, small scale
industries, exports, trades etc., get credit at low rate of interest.
9. Monetary Stability:
The Bank has made a rational use of quantitative and qualitative measures of credit control to maintain
monetary stability. These controls were generally employed in the direction of greater restraint in the
context of persistent imbalances in the economy. It has tried to control the pace of monetary expansion.
10. Contribution to Economic Development:
The Reserve Bank has played an active role in promoting economic development of the Indian economy. It
has helped in setting up a sound structure of Development Banking. Several Industrial, Agricultural, Export
and other specialized financial institutions have been established. The Reserve Bank has helped in building
up a well-differential structure of financial institutions to cater to the requirements of the different sectors of
the economy.
11. Successful Management of Public Debt:
The Reserve Bank has successfully managed the public debt. It has floated loans for the Government at low
rates of interest. It has helped in raising funds for the expansion of public sector in the economy. It has also
provided short term advances to the Government.
12. Cheap Remittance Facilities:The Reserve Bank has introduced very cheap remittance facilities.
These have been widely used by the commercial banks, the Government and cooperative banks.
CURRENT RATES DETERMINED BY RBI
 Bank Rate 7.75%
 Repo Rate 6.75%
 Reverse Repo Rate 5.75%
 Cash Reserve Ratio (CRR) 4%
 Statutory Liquidity Ratio (SLR) 21.50%
 Base Rate 9.30% –9.70%
 Savings Deposit Rate 4%
 Term Deposit Rate 7.00%–7.90%
 Marginal Standard Facility Rate 7.75%
CONCLUSION
To conclude, it can be said that RBI has functioned with great success since its inception in 1935, not only
as apex financial institution in the country but also as the promoter of economic development. But there are
certain areas in which performance of RBI has not been up to the market which are:
 It cannot function as commercial bank, cannot give loans against the fixed assets and cannot give
unsecured loans.
 RBI could not exercise its effective control over the expansion of black money and other unproductive
activities in the economy
 Inspite of several credit control measures taken by RBI, it has failed to fully check inflationary pressures
in India
Despite these shortcomings and limitations under which RBI is working, its overall performance is quite
satisfactory. It has efficiently operated the credit and currency system and achieved fair degree of monetary
stability. It has been able to develop financial structure of country on sound footing consistent with the
national socio-economic objectives and priorities.
REFERENCES
 Dr. RR Paul, Kalyani Publication, Monetary Economics

 Rohit Singh and Rakesh Kumar,Arihant Publication(India) Limited, Banking Awareness
 www. rbi.org.in
 www.bis.org
 www.yourarticlelibrary.com
 www.ilola.in
 www.shareyouressays.com
 www.allbankingsolution.com

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© 2019 JETIR March 2019, Volume 6, Issue 3 www.jetir.

 To identify the various roles played by RBI.

 To manage the monetary and credit system of the country.

 To manage the conduct of banking and financial operations of the government.

BRANCHES AND SUPPORT BODIES

The Reserve Bank operates through various departments. They are:

2. GENERAL BANKING ROLE

 To accept deposits of central and state governments.

3. CENTRAL BANKING ROLE

As a central bank, RBI performs various roles which are as follows:

 RBI AS NOTE ISSUING AUTHORITY

 RBI AS BANKER TO THE GOVERNMENT

 RBI AS BANKERS’ BANK

 RBI AS LENDER OF LAST RESORT

 RBI AS CLEARING HOUSE

 RBI AS CUSTODIAN OF FOREIGN EXCHANGE

 REGULATING COMMERCIAL BANKING:

Focal points for providing framework for regulation:

1. Issuance of ‘licences’ for opening of banks

 MONETARY POLICY/ CREDIT CONTROL POLICY

(a) Bank Rate

(b) Repo Rate

(c) CRR (Cash Reserve Ratio)

(d) SLR (Statutory Liquidity Ratio)

(e) Open Market Operations

QUALITATIVE OR SELECTIVE INSTRUMENTS

(b) Setting up of Funds:

Five pillars of RBI's developmental measure

1. Clarifying and strengthening the monetary policy framework.

FEW RECENT INITIATIVES BY RBI

1. Building a heterogeneous banking system

2. Universal bank licensing policy

3. Differentiated licensing of banks

4. Capital for banks

5. Management of Stressed Assets

6. Reviewing Governance of Boards of Banks in India

1. Flexible Monetary Policy:

2. Stable Structure of Interest Rates:

3. Modern Banking and Credit structure:

5. Enhanced Public Confidence in Banking Sector:

6. Central Authority of Indian Money Market:

7. Development of Bill Market:

8. Rational Allocation of Credit:

10. Contribution to Economic Development:

11. Successful Management of Public Debt:

CURRENT RATES DETERMINED BY RBI

 Bank Rate 7.75%

 Repo Rate 6.75%

 Reverse Repo Rate 5.75%

 Cash Reserve Ratio (CRR) 4%

 Statutory Liquidity Ratio (SLR) 21.50%

 Base Rate 9.30% –9.70%

 Savings Deposit Rate 4%

 Term Deposit Rate 7.00%–7.90%

 Marginal Standard Facility Rate 7.75%

 Dr. RR Paul, Kalyani Publication, Monetary Economics

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