“ROLE OF RBI IN FINANCIAL MARKET’’

A PROJECT SUBMITTED TO
“UNIVERSITY OF MUMBAI FOR PARTIAL
COMPLETION OF THE DEGREE OF BACHELOR IN
COMMERCE (BANKING AND INSURANCE)”

UNDER THE FACULTY OF COMMERCE

BY
AKANKSHA ARVIND KASHYAP
ROLL NO-54 (A)

UNDER THE GUIDANCE OF

ASST.PROF. MR. NITIN UPADHYE

VPM’S
K.G.JOSHI COLLEGE OF ARTS &
N.G. BEDEKAR COLLEGE OF COMMERCE
THANE
YEAR
MARCH, 2023-24
 VIDYA PRASARAK MANDAL’S K. G. JOSHI COLLEGE OF ARTS &
N.G. BEDEKAR COLLEGE OF COMMERCE

Certificate

This is to certify that Ms. AKANKSHA ARVIND KASHYAP has worked and
fully completed her Project Work for the degree of Bachelor in Commerce
(Banking and Insurance) under the Faculty of Commerce in the subject of
__________________________ and her project is entitled, “ROLE OF RBI IN
FINANCIAL MARKET” under my supervision. I further certify that the entire work

has been done by the learner under my guidance and that no party of it has been
submitted previously for any Degree or Diploma of and University. It is her own
work and facts reported by her personal findings and Investigations.

(Asst. Prof. NITIN UPADHYE)

Date of submission
 DECLARATION

I the undersigned MISS AKANKSHA ARVIND KASHYAP hereby, declare that the
work embodied this project work titled “ROLE OF RBI IN FINANCIAL MARKET”
form my own contribution the research work carried out under the guidance of
ASST.PROF. MR. NITIN UPADHYE is a result of my own research work and has not
been previously submitted to any other university for any other Degree to his or any other
university.

Wherever references have been made to the previous works of others, it is clearly
indicated as such and included in the bibliography.

I, here by further declare that all information of these documents has been obtained and
presented in accordance with academic rules and ethical conduct.

Name and signature of the learner

AKANKSHA ARVIND KASHYAP

Certified by

Name and signature of the guiding teacher

ASST.PROF.MR.NITIN UPADHYE
 ACKNOWLEDGEMENT

To list who all have helped me in difficult because they are so numerous and the depth
is so enormous.

I would like to acknowledge the following has been idealistic channels and fresh
dimension in the completion of the project.

I take this opportunity to thank the University of Mumbai for giving me chance to do
this project.

I would like to thanks my Principal, MRS. Dr. SUCHITRA NAIK for

providing the necessary facilities required for completion of this project.

I take this opportunity to thank our Coordinator MRS. Dr. MRUNMAYEE

THATTE, for her moral support and guidance.

I would also like to express my sincere gratitude towards my project guide Asst.
PROF. MR.NITIN UPADHYE whose guidance and care made the project
successful.

I would like to thank my college library for having provided various reference books
and magazine related to my project

Lastly I would like to thank each and every person who directly or indirectly helped
me in completion of project especially my parents and peers who supported me
throughout my project.
 CHAPTER 1:

INTRODUCTION
INTRODUCTION:

Modern banking in India originated in the mid of 18th century. Among the first banks were
the Bank of Hindustan, which was established in 1770 and liquidated in 1829–32; and
the General Bank of India, established in 1786 but failed in 1791.

The largest and the oldest bank which is still in existence is the State Bank of India (SBI). It
originated and started working as the Bank of Calcutta in mid-June 1806. In 1809, it was
renamed as the Bank of Bengal. This was one of the three banks founded by a presidency
government; the other two were the Bank of Bombay in 1840 and the Bank of Madras in 1843.
The three banks were merged in 1921 to form the Imperial Bank of India, which upon India's
independence, became the State Bank of India in 1955. For many years, the presidency banks
had acted as quasi-central banks, as did their successors, until the Reserve Bank of India was
established in 1935, under the Reserve Bank of India Act, 1934.

In 1960, the State Banks of India was given control of eight state-associated banks under the
State Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate banks. In
1969, the Government of India nationalized 14 major private banks; one of the big banks
was Bank of India. In 1980, 6 more private banks were nationalized. These nationalized banks
are the majority of lenders in the Indian economy. They dominate the banking sector because of
their large size and widespread networks.

The Indian banking sector is broadly classified into scheduled and non-scheduled banks. The
scheduled banks are those included under the 2nd Schedule of the Reserve Bank of India Act,
1934. The scheduled banks are further classified into: nationalized banks; State Bank of
India and its associates; Regional Rural Banks (RRBs); foreign banks; and other Indian private
sector banks. The SBI has merged its Associate banks into itself to create the largest Bank in
India on 1 April 2017. With this merger SBI has a global ranking of 236 on Fortune 500 index.
The term commercial bank refers to both scheduled and non-scheduled commercial banks
regulated under the Banking Regulation Act, 1949.

Generally the supply, product range and reach of banking in India is fairly mature-even though
reach in rural India and to the poor still remains a challenge. The government has developed
initiatives to address this through the State Bank of India expanding its branch network and
through the National Bank for Agriculture and Rural Development (NABARD) with facilities
like microfinance.

1.1 BANKING INDUSTRY

A bank is a budgetary middle person and Money maker that make Money by loaning cash to a
borrower. Loaning exercises can be performed straightforwardly by giving credit or by
implication through capital market. Capital market is monetary market for the purchasing and
offering of long haul obligation or value supported securities. These business sectors channel the
abundance of savers to the individuals who can put it to long haul beneficial utilize, for example,
organizations or governments influencing bug-to term speculations. Monetary controllers, for
example, the Securities and Exchange Board of India (SEBI) or U.S. Securities and Exchange
Commission (SEC), direct the capital market in their wards to ensure financial specialists against
extortion, among different obligations. Because of the significance in the monetary framework
and impact on national economies, banks are very directed in perch of nations either by National
Government or Central Bank.

Figure1.1 history of Indian banking

 1.2 Pre Independence Period (1786-1947)

The first bank of India was the “Bank of Hindustan”, established in 1770 and located in the then
Indian capital, Calcutta. However, this bank failed to work and ceased operations in 1832.

During the Pre Independence period over 600 banks had been registered in the country, but only
a few managed to survive.

Following the path of Bank of Hindustan, various other banks were established in India. They
were:

 The General Bank of India (1786-1791)

 Oudh Commercial Bank (1881-1958)

 Bank of Bengal (1809)

 Bank of Bombay (1840)

 Bank of Madras (1843)

During the British rule in India, the East India Company had established three banks: Bank of
Bengal, Bank of Bombay and Bank of Madras and called them the Presidential Banks. These
three banks were later merged into one single bank in 1921, which was called the “Imperial
Bank of India.”

The Imperial Bank of India was later nationalized in 1955 and was named The State Bank of
India, which is currently the largest Public sector Bank.

1.3 POST INDIPENDENCE

During 1938–46, bank branch offices trebled to 3,469 and deposits quadrupled to ₹962 crore.
Nevertheless, the partition of India in 1947 adversely impacted the economies
of Punjab and West Bengal, paralyzing banking activities for months.
India's independence marked the end of a regime of the Laissez-faire for the Indian banking.
The Government of India initiated measures to play an active role in the economic life of the
nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged
a mixed economy. This resulted in greater involvement of the state in different segments of the
economy including banking and finance. The major steps to regulate banking included:

 The Reserve Bank of India, India's central banking authority, was established in April 1935,
but was nationalized on 1 January 1949 under the terms of the Reserve Bank of India
(Transfer to Public Ownership) Act, 1948 (RBI, 2005b).
 In 1949, the Banking Regulation Act was enacted, which empowered the Reserve Bank of
India (RBI) to regulate, control, and inspect the banks in India.
 The Banking Regulation Act also provided that no new bank or branch of an existing bank
could be opened without a license from the RBI, and no two banks could have common
directors.

1.4 Nationalization in 1969

Despite the provisions, control and regulations of the Reserve Bank of India, banks in India
except the State Bank of India (SBI), remain owned and operated by private persons. By the
1960s, the Indian banking industry had become an important tool to facilitate the development of
the Indian economy. At the same time, it had emerged as a large employer, and a debate had
ensued about the nationalization of the banking industry. Indira Gandhi, the then Prime Minister
of India, expressed the intention of the Government of India in the annual conference of the All
India Congress Meeting in a paper entitled Stray thoughts on Bank Nationalization.

Thereafter, the Government of India issued the Banking Companies (Acquisition and Transfer of
Undertakings) Ordinance, 1969 and nationalized the 14 largest commercial banks with effect
from the midnight of 19 July 1969. These banks contained 85 percent of bank deposits in the
country. Within two weeks of the issue of the ordinance, the Parliament passed the Banking
Companies (Acquisition and Transfer of Undertaking) Bill, and it received presidential approval
on 9 August 1969.

The following banks were nationalized in 1969:

 Allahabad Bank (now Indian Bank)
 Bank of Baroda
 Bank of India
 Bank of Maharashtra
 Central Bank of India
 Canara Bank
 Dena Bank (now Bank of Baroda)
 Indian Bank
 Indian Overseas Bank
 Punjab National Bank
 Syndicate Bank (now Canara Bank)
 UCO Bank
 Union Bank of India
 United Bank of India( now Punjab National Bank)

1.5 Nationalization in 1980

A second round of nationalizations of six more commercial banks followed in 1980. The stated
reason for the nationalization was to give the government more control of credit delivery. With
the second round of nationalizations, the Government of India controlled around 91% of the
banking business of India.

The following banks were nationalized in 1980:

 Punjab and Sind Bank

 Vijaya Bank (Now Bank of Baroda)
 Oriental Bank of Commerce (now Punjab National Bank)
 Corporation Bank (now Union Bank of India)
 Andhra Bank (now Union Bank of India)
 New Bank of India (now Punjab National Bank)
Later on, in the year 1993, the government merged New Bank of India with Punjab National
Bank.[25] It was the only merger between nationalized banks and resulted in the reduction of the
number of nationalized banks from 20 to 19. Until the 1990s, the nationalized banks grew at a
pace of around 4%, closer to the average growth rate of the Indian economy.

1.6 Impact of Nationalization on Banking System

There were several reasons for nationalism in the banks of India that are:
1. Nationalism led to an increase in funds and thereby increased the economic condition of the
country.
2. It increased efficiency.
3. It helped in boosting the rural and agricultural sector of the country.
4. This opened up a major employment opportunity for the people.
5. The profit gained by Banks was used by the Government for the betterment of the people.
6. The competition was decreased and work efficiency had increased.
The post-independence phase was the one that led to the major development of the banking
sector in India.

1.7 GROWTH OF BANKING INDUSTRY

In the cutting-edge sense, began in the most recent many years of the eighteenth century. Among
the principal banks were the Bank of Hindustan, which was set up in 1770 and sold in 1829– 32;
and the General Bank of India, set up in 1786 however flopped in 1791. The biggest bank, and
the most established still in presence, is the State Bank of India (S.B.I). It began as the Bank of
Calcutta in June 1806. In 1809, it was renamed as the Bank of Bengal. This was one of the three
banks established by an administration government; the other two were the Bank of Bombay in
1840 and the Bank of Madras in 1843. The three banks were converged in 1921 to frame the
Imperial Bank of India, which upon India's autonomy, turned into the State Bank of India in
1955. For a long time, the administration banks had gone about as semi national banks, as did
their successors, until the point when the Reserve Bank of India was built up in 1935, under the
Reserve Bank of India Act, 1934. In 1960, the State Banks of India was given control of eight
state-related banks under the State Bank of India (Subsidiary Banks) Act, 1959. These are
presently called its partner banks. In 1969 the Indian government nationalized 14 noteworthy
private banks; one of the huge banks was Bank of India. In 1980, 6 more private banks were
nationalized. These nationalized banks are the lion's share of moneylenders in the Indian
economy. They rule the saving money division due to their substantial size and across the board
organizes.

Given below is the list of these 14 Banks nationalized in 1969:

1. Allahabad Bank
2. Bank of India
3. Bank of Baroda
4. Bank of Maharashtra
5. Central Bank of India
6. Canara Bank
7. Dena Bank
8. Indian Overseas Bank
9. Indian Bank
10. Punjab National Bank
11. Syndicate Bank
12. Union Bank of India
13. United Bank
14. UCO Bank

In the year 1980, another 6 banks were nationalized, taking the number to 20
banks. These banks included:

1. Andhra Bank
2. Corporation Bank
3. New Bank of India
4. Oriental Bank of Comm.
 5. Punjab & Sind Bank
6. Vijaya Bank

Apart from the above mentioned 20 banks, there were seven subsidiaries of SBI
which were nationalized in 1959:

1. State Bank of Patiala

2. State Bank of Hyderabad
3. State Bank of Bikaner & Jaipur
4. State Bank of Mysore
5. State Bank of Travancore
6. State Bank of Saurashtra
7. State Bank of Indore

All these banks were later merged with the State Bank of India in 2017, except for the State
Bank of Saurashtra, which merged in 2008 and State Bank of Indore, which merged in 2010.

1.8 BANKING SECTOR IN INDIA

As indicated by the Reserve Bank of India (RBI), the managing an account division in India is
sound satisfactorily capitalized and all around controlled. India is one of the main 10 economies
globally, with huge potential for the managing an account segment to develop. With the
possibility to wind up the fifth biggest saving money industry on the planet by 2020 and third
biggest by 2025, as per KPMG-CIN report, India's managing an account and facial segment is
extending quickly. The new standards of Reserve Bank of India's (RBI) will give incentives to
banks to spot potential terrible credits and make remedial strides that will check the acts of
unreliable borrowers.

The Indian Banking industry is at present worth's. 81 trillion (US $ 1.31 trillion) and banks are
presently using the most recent technologies like internet and cell phones to complete exchanges
and communicate with the majority.
 1.9 THE INDIAN BANKING SYSTEM CONSISTS OF:

Figure1.2 Indian banking system

1. Central Bank:

A national bank works as the pinnacle controlling establishment in the managing an

account and money related arrangement of the nation. It works as the controller of credit,
broker's bank and ado appreciates the restraining infrastructure of issuing money for the
benefit of the administration. A national bank is typically control and frequently claimed,
 by the administration of a nation. The Reserve Bank of India (RBI) is such a bank inside
India.

2. Schedule Commercial Bank:

It operates for profit. It accepts deposits from the public and extends loans to the
households, the firms and the government. The essential characteristics of commercial
banking are as follows:

 Acceptance of deposits from public.

 For lending or investment
 Repayable on demand or lending or investment
 Withdrawal by means of an instrument, whether a cheque.

I. Public Sector Banks:

Public Sector Banks (PSBs) are those banks where majority of stakes fi with the
Government. All these PSBs are listed on stock exchanges. Central Government
entered banking industry with the nationalization of Imperial Bank of India in
1955, then in 1969 14 major banks were nationalized and in 1980 4 more bank
were nationalized. To Name a few PSBs: State Bank of India and is subsidiaries,
Bank of India, Bank of Baroda, Bhartiya Mahila Bank, Central Bank of India, etc.
The objectives behind nationalization where:

• To break the ownership and control of banks by a few business

• To prevent the concentration of wealth and economic power,
• To mobilize savings from masses from all parts of the country,
• To cater to the needs of the priority sectors.
II. Private Sector Banks:

Private Sector Banks in India is made up of private and public banks. But the
greater part of stake is in the hand of private shareholders and not with the
Government. Private Banks are categorized as Old and New Private bank

Old Private Banks: These are those banks which were not nationalized during
the process in 1969 and 1980 due to the smaller scale or regional reach only.
Example: thalami Bank, Federal Bank, ING Vysya Bank, Karur Vysya Bank, etc.
New Private Banks: These are the banks which came into operations afire the
liberalization in 1990s. Banking Regulation was amended in 1993 so that new
private banks can enter the Indian Banking industry.

Example: ICICI Bank, AXIS Bank, HDFC Bank, Yes Bank, Development Credit
Bank, Kotak Mahindra Bank, RBL Bank, etc.

But there 300 Cr.were certain criteria for the establishment of new private banks
which are as follow: -

• Bank should have minimum net worth of Rs 200 Cr.

• Proprietors should hold an iminium of 25% of paid-up capital
• Within 3 years of the starting of the operations, the bank should offer
shares to public and their net worth rust increase to 300 Cr.

III. Foreign Banks:

With the globalization hitting the world, the concept of banking has changed
substantially. The concept of Foreign Banks has changed the prevailing banking
scenario in India. Banking is now crore of crore customer-friendly, modern
 technology have been implemented like mobile banking, mobile application of
banks, etc.

Example: HSBC Bank, JP Morgan Chase Bank, Deutsche bank, Standard Charter
Bank, etc.

IV. Regional Rural Banks:

Regional Rural Banks (RRBs) were started in 1970 since even afire the
nationalization, there were cultural issues related to lending to the farmers. The
main purpose of RRBs is to mobilize financial resources from rural-semi-urban
areas and grants loans and advances mostly to small and marginal farmers,
agricultural labors, etc.

Example: Karnataka Vikas Gardena Bank, Maharashtra Garmin Bank, etc.

3. Schedule Co-operative Bank:

Larger visit unions are often called cooperative banks. Like credit unions, cooperative
banks are owned by their customers and follow the cooperative principle of one person,
one vote.
Unlike credit unions, however, cooperative banks are often regulated under both banking
and cooperative legislation. They provide services such as savings and loans to non-
reefers’ swell as to reefers, and some participate in the wholesale market for hands,
Money and even equities.

 Urban Co-operative Banks:

 Urban Co-operative Banks are giving banking facility y to grass root persons. As
Urban Cooperative Banks are mostly working in the rural and semi-urban areas
they understand the genuine commercial needs of the local population in their
area of operation Urban Co-operative Banks help small and medium sized traders,
entrepreneurs, artisans and farmers who are deprived of banking facility as private
sector and commercial banks tap only high profile and successful entrepreneurs.

Example: Ahmadabad Mercantile Co-Op Bank, Kakapo Currier l Coop. Bank,

Burrito Mercantile Co-operative Bank, Saraswat Co-operative Bank, etc.

 Rural Co-operative Banks:

The rural co-operatives are further divided into short-term and long-term
structure. The shortterm cooperative banks are three tired operating in different
states.

I. State Cooperative Banks

II. Cooperative Banks
III. Primary Agricultural Credit Societies

The long-term structures are further divided into-

State Cooperative Agricultural and Rural Development Banks (SCARDS)

Primary Cooperative Agricultural and Rural Development Banks (PCARDBS)

Different Banking activities:

• Retail banking
• Business banking
• Corporate banking
• Private banking
 • Investment banking

1.10 HISTORY OF RBI

• The Reserve Bank of India is the central bank of the country.

Central banks are a relatively recent innovation and most central
banks, as we know them today, were established around the early
twentieth century.
• The Reserve Bank of India was set up on the basis of the
recommendations of the Hilton Young Commission. The Reserve
Bank of India Act, 1934 (II of 1934) provides the statutory basis
of the functioning of the Bank, which commenced operations on
April 1, 1935.
• The Bank was constituted to
* Regulate the issue of banknotes
* Maintain reserves with a view to securing monetary stability
and
* To operate the credit and currency system of the country to its
advantage.
• 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. Offices of the Banking Department were established
in Calcutta, Bombay, Madras, Delhi and Rangoon.
• 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 upto April, 1947. After
the partition of India, the Reserve Bank served as the central bank
of Pakistan upto June 1948 when the State Bank of Pakistan
commenced operations. The Bank, which was originally set up as a
shareholder's bank, was nationalised in 1949.
• An interesting feature of the Reserve Bank of India was that at its
very inception, the Bank was seen as playing a special role in the
context of development, especially Agriculture. When India
commenced its plan endeavours, the development role of the Bank
came into focus, especially in the sixties when the Reserve Bank,
 in many ways, pioneered the concept and practise of using finance
to catalyse development. The Bank was also instrumental in
institutional development and helped set up insitutions like the
Deposit Insurance and Credit Guarantee Corporation of India, the
Unit Trust of India, the Industrial Development Bank of India, the
National Bank of Agriculture and Rural Development, the Discount
and Finance House of India etc. to build the financial infrastructure
of the country.
• With liberalisation, 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 onto
developing the financial markets.

1.11 RBI IN PREMBLE OF INDIA

The Preamble of the Reserve Bank of India mentions the primary functions of the
Reserve Bank. It explains how RBI must regulate the issuing of banknotes in the
country and secure monetary stability in India.

 Types of Banks in India

 Bank Rate
 Small Finance Banks

It is also responsible for operating the currency and credit system of India and having a
modern monetary framework to meet the challenges of a developing economy. RBI
must also maintain price stability along with the objective of economic growth.

1.12 GOVERNER OF RBI

The present RBI Governor is Shaktikanta Das. He is the former Secretary of the
Revenue Department, Ministry of Finance, and Department of Economic Affairs. He
assumed charge as the Governor of RBI on December 12, 2018. Here is the list of 25
Governors of the Reserve Bank of India-

RBI Governors List

Shri Shaktikanta Das A Ghosh P C Bhattacharya

 Dr. Urjit R. Patel Dr. Manmohan Singh H V R Iengar

Dr. Raghuram Rajan Dr. I G Patel K G Ambegaonkar

Dr. D. Subbarao M Narasimham Sir Benegal Rama Rau

Dr. Y V Reddy K R Puri Sir C D Deshmukh

Dr. Bimal Jalan N C Sen Gupta Sir James Taylor

Dr. C Rangarajan S Jagannathan Sir Osborne Smith

S Venkitaramanan B N Adarkar –

R N Malhotra L K Jha –

The tenure of the governor of RBI is 3 years. An individual aiming to become the
Governor of the Reserve Bank of India must fulfill the following criteria-

 He/She must be a graduate of a recognized university.

 He/she must be 35 years of age.
 He/she should not be a member of parliament or state legislature.

1.13 FUNCTIONS OF RBI

The Preamble explains the essential functions of the RBI as “to regulate the issue of
Bank Notes and to keep reserves to secure monetary stability in India and generally to
operate the currency and credit system of the country to its advantage.”

RBI is the central body that works as the Monetary Authority and works for managing
foreign exchange and issuing currency. Along with this, the RBI regulates and
administers the country’s financial system. All the functions of the Reserve Bank of India
are given below.
  Monetary Authority: As the monetary authority of India, the RBI implements and
monitors monetary policies. It ensures price stability in India concerning the
country’s economic growth.
 Managing Foreign Exchange: FOREX Reserve of India is governed by the RBI.
Along with this, the RBI stands responsible for aiding the foreign trade payment
and maintaining the Rupee’s valve outside the country.
 Regulator and Administrator of the Financial System: The RBI defines the
detailed factors of the banking operations. Methods such as branch expansion,
bank mergers, liquidity of assets, issuing of licenses, etc., are responsible for
maintaining and functioning the banking and financial system of the country.
 The Issuer of Currency: RBI is responsible for providing the public with an
adequate amount of currency notes and coins and maintaining their quality. Also,
it is in charge of issuing and exchanging coins and currency.
 Banker to Banks: The settlement of interbank transactions is the sole
responsibility of the RBI. The employment of a clearing house accomplishes it.
Thus, the RBI serves as the bank’s standard banker.
 Developmental Role: The RBI supports and enhances the country’s
developmental efforts.
 Banker and Debt Manager of the Government: The charge of all the banking
transactions of the government is the RBI. The Reserve Bank of India stands
responsible for holding the cash holdings of the Government of India. Also, the
RBI manages the public debts on behalf of the state and federal governments
and offers new loans.
 Oversees Market Operations: The RBI regulates and develops repo markets,
money markets, and other market instruments. It implements money market
operations, foreign exchange, and government securities.
 Lender of last resort: It helps all banks in times of financial crises.

1.14 OBJECTIVES OF RBI

The chief objectives of RBI are to sustain the public’s confidence in the system,
safeguard the depositors’ interests, and facilitate cost-effective banking services like
cooperative banking and commercial banking to the people. As per the RBI Act 1934,
the objective of RBI are as follows-

 To run the nation’s currency and credit system.

 To maintain reserves for securing monetary stability in India.
 To govern the issue of bank notes.
 To maintain financial stability or credit by engaging in effective activities and
keeping itself free from any political impact.
 To perform central banking functions by acting as Banker’s bank, Banker to
government, and note-issuing authority.
  To promote economic growth and support planned advancement of the economy
of the country.

1.15 POWER OF RBI

As per the Reserve Bank of India Act of 1934 and Banking Regulation Act of
1949, the RBI has the following powers over commercial banks-

 Reconstruction and liquidation

 Amalgamation (merger)
 Management and methods of working
 Liquidity of their assets
 Branch expansion
 Licensing and establishment


1.16 NECESSARY ACTS ADMINISTERED BY RBI

The essential acts administered by the Reserve Bank of India are as follows-

 Factoring Regulation Act, 2011

 Payment and Settlement Systems Act, 2007
 Government Securities Regulations, 2007
 Credit Information Companies (Regulation) Act, 2005
 Securitization and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (Chapter II).
 Foreign Exchange Management Act, 1999.
 Banking Regulation Act, 1949.
 Public Debt Act, 1944/Government Securities Act, 2006
 Reserve Bank of India Act, 1934
 1.17 INTRODUCTION TO FINANCIAL MARKETS

A financial market is a market in which

people trade financial securities and derivatives at low transaction costs. Some of the
securities include stocks and bonds, raw materials and precious metals, which are
known in the financial markets as commodities.
The term "market" is sometimes used for what are more strictly exchanges,
organizations that facilitate the trade in financial securities, e.g., a stock
exchange or commodity exchange. This may be a physical location (such as the New
York Stock Exchange (NYSE), London Stock Exchange (LSE), JSE
Limited (JSE), Bombay Stock Exchange (BSE)) or an electronic system such
as NASDAQ. Much trading of stocks takes place on an exchange; still, corporate
actions (merger, spinoff) are outside an exchange, while any two companies or people,
for whatever reason, may agree to sell the stock from the one to the other without using
an exchange.
Trading of currencies and bonds is largely on a bilateral basis, although some bonds
trade on a stock exchange, and people are building electronic systems for these as well,
to stock exchanges. There are also global initiatives such as the United
Nations Sustainable Development Goal 10 which has a target to improve regulation and
monitoring of global financial markets.[

1.18 TYPES OF FINANCIAL MARKETS

There are several different types of markets. Each one focuses on the types and
classes of instruments available on it.

Stock Markets
Perhaps the most ubiquitous of financial markets are stock markets. These are venues
where companies list their shares, which are bought and sold by traders and investors.
Stock markets, or equities markets, are used by companies to raise capital and by
investors to search for returns.

Stocks may be traded on listed exchanges, such as the New York Stock Exchange
(NYSE), Nasdaq, or the over-the-counter (OTC) market. Most stock trading is done via
regulated exchanges, which plays an important economic role because it is another
way for money to flow through the economy.

Typical participants in a stock market include (both retail and institutional)

investors, traders, market makers (MMs), and specialists who maintain
liquidity and provide two-sided markets. Brokers are third parties that facilitate
trades between buyers and sellers but who do not take an actual position in a
stock.

Over-the-Counter Markets
An over-the-counter (OTC) market is a decentralized market—meaning it
does not have physical locations, and trading is conducted electronically—in
which market participants trade securities directly (meaning without a broker).
While OTC markets may handle trading in certain stocks (e.g., smaller or
riskier companies that do not meet the listing criteria of exchanges), most
stock trading is done via exchanges. Certain derivatives markets, however,
are exclusively OTC, making up an essential segment of the financial
markets. Broadly speaking, OTC markets and the transactions that occur in
them are far less regulated, less liquid, and more opaque.

Bond Markets
A bond is a security in which an investor loans money for a defined period at
a pre-established interest rate. You may think of a bond as
an agreement between the lender and borrower containing the loan's details
and its payments. Bonds are issued by corporations as well as by
municipalities, states, and sovereign governments to finance projects and
operations. For example, the bond market sells securities such as notes and
bills issued by the United States Treasury. The bond market is also called the
debt, credit, or fixed-income market.

Money Markets
Typically, the money markets trade in products with highly liquid short-term
maturities (less than one year) and are characterized by a high degree of
safety and a relatively lower interest return than other markets.

At the wholesale level, the money markets involve large-volume trades

between institutions and traders. At the retail level, they include money
market mutual funds bought by individual investors and money market
accounts opened by bank customers. Individuals may also invest in the
money markets by purchasing short-term certificates of deposit
(CDs), municipal notes, or U.S. Treasury bills, among other examples.
Derivatives Markets
A derivative is a contract between two or more parties whose value is based
on an agreed-upon underlying financial asset (like a security) or set of assets
(like an index). Rather than trading stocks directly, a derivatives market
trades in futures and options contracts and other advanced financial products
that derive their value from underlying instruments like bonds, commodities,
currencies, interest rates, market indexes, and stocks.

Futures markets are where futures contracts are listed and traded. Unlike
forwards, which trade OTC, futures markets utilize standardized contract
specifications, are well-regulated, and use clearinghouses to settle and
confirm trades. Options markets, such as the Chicago Board Options
Exchange (Cboe), similarly list and regulate options contracts. Both futures
and options exchanges may list contracts on various asset classes, such as
equities, fixed-income securities, commodities, and so on.

Forex Market
The forex (foreign exchange) market is where participants can buy, sell,
hedge, and speculate on the exchange rates between currency pairs. The
forex market is the most liquid market in the world, as cash is the most liquid
of assets. The currency market handles more than $7.5 trillion in daily
transactions, more than the futures and equity markets combined.1

Compare Forex Brokers. "Forex Trading Statistics ."

As with the OTC markets, the forex market is also decentralized and consists
of a global network of computers and brokers worldwide. The forex market is
made up of banks, commercial companies, central banks, investment
management firms, hedge funds, and retail forex brokers and investors.

Commodities Markets
Commodities markets are venues where producers and consumers meet to
exchange physical commodities such as agricultural products (e.g., corn,
livestock, soybeans), energy products (oil, gas, carbon credits), precious
metals (gold, silver, platinum), or "soft" commodities (such as cotton, coffee,
and sugar). These are known as spot commodity markets, where physical
goods are exchanged for money.

However, the bulk of trading in these commodities takes place on derivatives

markets that utilize spot commodities as the underlying assets. Forwards,
futures, and options on commodities are exchanged both OTC and on
listed exchanges around the world, such as the Chicago Mercantile
Exchange (CME) and the Intercontinental Exchange (ICE).
Cryptocurrency Markets
Thousands of cryptocurrency tokens are available and traded globally across
a patchwork of independent online crypto exchanges. These exchanges host
digital wallets for traders to swap one cryptocurrency for another or for fiat
monies such as dollars or euros.

Because most crypto exchanges are centralized platforms, users are

susceptible to hacks or fraudulent activity. Decentralized exchanges are also
available that operate without any central authority. These exchanges allow
direct peer-to-peer (P2P) trading without an actual exchange authority to
facilitate the transactions. Futures and options trading are also available on
major cryptocurrencies.

1.19 FUNCTIONS OF FINANCIAL MARKETS

Mentioned below are the important functions of the financial market.

 It mobilises savings by trading it in the most productive methods.

 It assists in deciding the securities price by interaction with the investors and depending on
the demand and supply in the market.
 It gives liquidity to bartered assets.
 Less time-consuming and cost-effective as parties don’t have to spend extra time and money
to find potential clients to deal with securities. It also decreases cost by giving valuable
information about the securities traded in the financial market.

1.20 EXAMPLES OF FINANCIAL MARKEGTS

The above sections make clear that the "financial markets" are broad in
scope and scale. To give two more concrete examples, we will consider the
role of stock markets in bringing a company to IPO and the role of the OTC
derivatives market in the 2008-09 financial crisis.

Stock Markets and IPOs

As a company establishes itself over time and grows, it needs access to
additional capital. It will often find itself in need of much larger amounts of
capital than it can get from ongoing operations, traditional bank loans, or
venture and angel funding. Firms can raise the amount of capital they need
by selling shares of itself to the public through an initial public
offering (IPO). This changes the company's status from a "private" firm whose
shares are held by a few shareholders to a publicly traded company whose
shares will be subsequently held by public investors.

The IPO also offers early investors in the company an opportunity to cash out
part of their stake, often reaping very handsome rewards in the process.
Initially, the underwriters usually set the IPO price through their pre-marketing
process.

Once the company's shares are listed on a stock exchange, and trading
commences, the price of these shares will fluctuate as investors and traders
assess and reassess their intrinsic value and the supply and demand for
those shares at any given moment.

OTC Derivatives and the 2008 Financial Crisis: MBS and CDOs
While the 2008-09 financial crisis was caused and made worse by several
factors, one factor that has been widely identified is the market for mortgage-
backed securities (MBS).2 These are OTC derivatives where cash flows from
individual mortgages are bundled, sliced up, and sold to investors. The crisis
resulted from a sequence of events, each with its own trigger—these events
culminated in the banking system's near-collapse. It has been argued that the
seeds of the crisis were sown as far back as the 1970s with the Community
Development Act, which required banks to loosen their credit requirements
for lower-income consumers, creating a market for subprime mortgages.

The amount of subprime mortgage debt guaranteed by Freddie

Mac and Fannie Mae continued to expand into the early 2000s when the
Federal Reserve Board began to cut interest rates drastically to avoid a
recession.3 The combination of loose credit requirements and cheap money
spurred a housing boom, which drove speculation, pushing up housing prices
and creating a real estate bubble. In the meantime, the investment banks,
looking for easy profits in the wake of the dotcom bust and the 2001
recession, created a type of MBS called collateralized debt
obligations (CDOs) from the mortgages purchased on the secondary market.

Because subprime mortgages were bundled with prime mortgages, there was
no way for investors to understand the risks associated with the product.
When the market for CDOs began to heat up, the housing bubble that had
been building for several years finally burst. As housing prices fell, subprime
borrowers began to default on loans that were worth more than their homes,
accelerating the decline in prices.
When investors realized the MBS and CDOs were worthless due to the toxic
debt they represented, they attempted to unload the obligations. However,
there was no market for the CDOs. The subsequent cascade of subprime
lender failures created liquidity contagion that reached the upper tiers of the
banking system. Two major investment banks, Lehman Brothers and Bear
Stearns, collapsed under the weight of their exposure to subprime debt, and
more than 450 banks failed over the next five years.4 Several major banks
were on the brink of failure and were rescued by a taxpayer-funded bailout.
 CHAPTER:2
RESEARCH METHDOLOGY
 RESEARCH METHODOLOGY

A research methodology involves specific techniques that are adopted in research process to
collect, assemble and evaluate data. It defines tools which are useful to gather relevant
information in research studies. Various types of surveys, questionnaires and studies are
common tools of any research. Research methodology is to be studied in order to check the
relevance or any theory along with its applications. Research methodology helps identify the
research activity in a meaningful manner and thereby analyze it.

2.1 OBJECTIVES OF STUDY

 To Analyze Policy Effectiveness

 To Understand Market Dynamics
 To Evaluate Regulatory Framework
 To Assess Financial Inclusion Efforts
 To Study Crisis Management
 To Explore Communication Strategies
 To Examine Market Infrastructure
 To Identify Policy Recommendations

2.2 RESEARCH METHODOLOGY STUDY

Regarding research methodology in the context of studying the RBI's role in financial markets,
one might employ a mixed-method approach. This could involve both qualitative methods, such
as interviews with RBI officials and market participants, and quantitative methods, such as data
analysis of market trends and RBI policy actions. The research design would need to carefully
consider the objectives of the study, the availability of data, and the appropriate analytical
techniques to address the research questions effectively. Sampling techniques would be crucial in
selecting representative data or participants, ensuring the study's validity and reliability. Overall,
a comprehensive research methodology would be essential to understand and analyze the
intricate dynamics of the RBI's involvement in financial markets.
 2.3 HYPOTHESIS OF THE STUDY

 H1: The RBI's monetary policy interventions significantly impact key financial market
variables such as interest rates, inflation, and exchange rates.
 H2: Stringent regulatory measures implemented by the RBI contribute to enhanced stability
and resilience in the financial markets.
 H3: RBI's liquidity management operations positively influence market liquidity and
contribute to improved market efficiency.
 H4: Clear and transparent communication of RBI policies enhances market predictability and
reduces uncertainty, leading to smoother market operations.
 H5: RBI's initiatives aimed at promoting financial inclusion and development have a positive
impact on market access and participation, especially for underserved segments of the
population.
 H6: The RBI's crisis management measures are effective in mitigating systemic risks and
restoring confidence during periods of financial distress.
 H7: RBI's efforts in developing and regulating the government securities market contribute to
increased investor participation and deepening of the bond market.

2.4 IMPORTANCE AND SIGNIFICANCE OF STUDY

The Reserve Bank of India (RBI) plays a pivotal role in financial markets by regulating and
supervising them. Its significance lies in maintaining monetary stability, controlling inflation,
managing exchange rates, and ensuring the smooth functioning of the banking system. RBI's
policies influence interest rates, liquidity, and credit availability, impacting the overall economy's
health and stability.

2.5 SELECTION OF THE PROBLEM

The problem at hand revolves around the need for a comprehensive analysis of the Reserve Bank
of India's (RBI) interventions and policies in the financial market. Despite its pivotal role, there's
a lack of in-depth research on the effectiveness and implications of RBI actions, hindering efforts
to optimize regulatory frameworks and enhance market efficiency. Therefore, the study aims to
address this gap by examining the RBI's multifaceted role in shaping economic stability, market
functioning, and financial sector development.

2.6 SCOPE OF STUDY

 Setting Monetary Policy: RBI conducts research to formulate and implement monetary
policies that influence interest rates, inflation, and overall economic stability.
 Market Analysis: It conducts market analysis to understand trends, risks, and
opportunities in various financial markets, including money, capital, and foreign
exchange markets.
 Regulatory Framework: RBI develops and updates regulatory frameworks based on
research findings to ensure the stability, integrity, and efficiency of financial markets.
 Data Collection and Analysis: RBI collects and analyzes data on various economic
indicators, financial instruments, and market participants to assess market conditions and
inform policymaking.
 Risk Management: It conducts research on financial market risks such as credit risk,
liquidity risk, and systemic risk to develop strategies for risk management and crisis
prevention.
 Policy Advocacy: RBI engages in research to advocate for policies that promote financial
inclusion, market development, and sustainable economic growth

2.7 DATA COLLECTION METHODE

 Secondary data : The methodology for collecting data with reference to the secondary
data was taken from the following: - 1) Reference books 2) Internet
 2.8 STATICAL ANALYSIS

In the context of financial markets and research methodology, RBI (Reserve Bank
of India) typically utilizes various statistical analyses to assess and regulate market
dynamics. Common statistical analyses employed include time series analysis,
regression analysis, econometric modeling, and stress testing. These methods help
the RBI in understanding market trends, forecasting economic indicators,
evaluating policy interventions, and assessing systemic risks.
 CHAPTER: 3
REVIEW OF LITRATURE

LITERATURE REVIEW
 These chapter reviews of literature related to the banking industry and financial markets. The
objectives of this chapter are to the Literature used for purpose of present research work. The chapter
deals with various books, magazine, newspapers, reports and journals which are viewed to gain
background knowledge of the research topic.

1 Roy, S. (2018). Financial Sector Reforms in India and The Role

of RBI. ZENITH International Journal of Business Economics &
Management Research, 8(5), 53-63.

The Reserve Bank of India had warned the Government that any delay in reform of the Banking system
in the country would lead to greater risk in the economy. For a country as big and populous as India
reforms cannot be shots in the dark, subjecting the economy to great uncertainty and risk. The most
appropriate institutions will prevail when the competitive arena is level, so we have to remove
regulatory privileges as well as impediments wherever possible Some of the initiatives announced
where thematically in continuation of the post liberalization banking reforms.. We also saw the central
bank shifting to an inflation targeting framework with the mandate to keep inflation below six percent
by January, 2016. A new pro business government at the centre also ensuring the long pending
proposal of higher Foreign Direct Investment (FDI) in the insurance section getting lawmakers’
approval till date

https://www.indianjournals.com/ijor.aspx?
target=ijor:zijbemr&volume=8&issue=5&article=006

2 Goel, A., Kaur, A., & Sharma, M. N. (2014). A Study on Role of

 RBI in Overcoming Recession in India. JIM QUEST, 10(1), 59.

The sub-prime crisis and its consequent effects on the global

economy saw some of the established financial institutions
getting consumed in the turmoil that ensured; many others have
been pushed to the brink. The crisis itself is a manifestation of
aggressive lending with inadequate appraisals, tax regulatory
supervision and questionable credit ratings of complex
instruments. Nationalization of institutions - a thought
inconceivable a couple years back - is turning out to be an
attractive option for institutions grappling for survival. The crisis
originating in the US has now spread across the integrated
financial world engulfing countries and sectors that have little to
do with the root causes. Though in the beginning Indian official
denied the impact of US meltdown affecting the Indian economy
but later the government had to acknowledge the fact that US
financial crisis will have some impact on the Indian economy. But
the impact on India was little because of India’s strong
fundamental and less exposure of Indian financial sector with the
global financial market. Perhaps this has saved Indian economy
from being swayed over instantly. Unlike in US where capitalism
rules, in India, market is closely regulated by the SEBI, RBI and
government. This paper talks about global financial crisis and
monetary policy response in India. As the crisis intensified, the
Reserve Bank of India, like most central banks, took a number of
conventional and unconventional measures to augment domestic
and foreign exchange liquidity, and sharply reduced the policy
rates.

https://www.researchgate.net/profile/Anil-Goyal-4/
publication/
338829557_A_Study_on_Role_of_RBI_in_Overcoming_Reces
sion_in_India/links/5e2d60d7299bf152167e7147/A-Study-on-
Role-of-RBI-in-Overcoming-Recession-in-India.pdf
 3 Iqbal, B. A., & Sami, S. (2017). Role of banks in financial
inclusion in India. Contaduría y administración, 62(2), 644-656.

Financial inclusion is emerging as a new paradigm of economic

growth that plays major role in driving away the poverty from the
country. It refers to delivery of banking services to masses
including privileged and disadvantaged people at an affordable
terms and conditions. Financial inclusion is important priority of
the country in terms of economic growth and advanceness of
society. It enables to reduce the gap between rich and poor
population. In the current scenario financial institutions are the
robust pillars of progress, economic growth and development of
the economy. The present study aims to examine the impact of
financial inclusion on growth of the economy over a period of
seven years. Secondary data is used which has been analyzed by
multiple regression model as a main statistical tool. Results of the
study found positive and significant impact of number of bank
branch and Credit deposit ratio on GDP of the country, whereas
an insignificant impact has been observed in case of ATMs growth
on Indian GDP.

https://www.sciencedirect.com/science/article/pii/
S0186104217300104

4 Kapoor, D. ROLE OF RBI IN DEVELOPING INDIAN

ECONOMY BY PROVIDING A GLOBAL FINANCIAL
PATH. INNOVATION IN GLOBAL BUSINESS AND
TECHNOLOGY: TRENDS, GOALS AND STRATEGIES,
43.