IILM CMS

MANAGEMENT OF BANKING
AND FINANCIAL INSTITUTIONS

VIPUL KUMAR SINGH

Asst. Professor
Finance
Reserve Bank of India
 Establishment
 Established on 1st April 1935 in accordance with
the provisions of the RBI Act 1934 on the basis
of recommendations of the Hilton Young
Commission.
 RBI Central office was in Kolkata, until it was
moved to Mumbai in 1937. RBI has 22 regional
offices.
 Originally privately owned, but after
nationalization in 1949, RBI is fully
owned by GOI.
Why do we need a regulatory body for
Financial System in India?
Financial markets are characterized by various
degree of imperfections
As financial system deals in other people's
money and, therefore , their confidence, trust
and faith in it is crucially important
Financial markets are prone to systematic risk
Dishonest, unfair, fraudulent, and unethical
practices or activities of the market
intermediaries or agencies
 Mission of RBI
RBI formed under the RBI Act, 1934 with the
prime objective of
- Guiding, Monitoring, Regulating, Controlling,
and Promoting the Destiny of IFS

It was a private shareholder institution till January

1949 after which it become state-owned institution
under the Reserve Bank (Transfer to public
ownership) of India act, 1948
 MANAGEMENT

Central board of Directors

Four Local Board of Directors
Committee of Central Board of Directors
Central Board Consist of
Governor
Four Deputy Governors
Fifteen Directors
All are nominated by Central Government
 Governing Body
RBI’s affairs are governed by a Central
Board of Directors appointed by the GOI.
Central Board of Directors

Official Directors Non-Official Directors

Full time directors - 10 Directors from
- Governor various fields
- 4 Deputy Governors - 1 Govt. Official
- 4 Directors from
Local Boards
 DEPARTMENTS

 Banking
 Note Issue
 20 Other Departments
 3 Training Establishments
 Department of Supervision (DOS)- Nov, 1993
 Board of Financial Supervision (BFS)–Nov, 1994
DOS assist the BFS
BFS mainly supervises commercial banks, FIs & NBFCs.
BFS’s main concerns are…

Restructuring the system of bank inspections.

Strengthening the role of statutory auditors.

Legal issues in bank frauds, etc.
 FUNCTIONS OF RBI
 Monetary Stability
 To maintain financial stability
 To maintain stable financial system
 To maintain the Development of Financial
Infrastructure
 To ensure the Credit Allocation
 To regulate the overall volume of money and credit
in the economy with a view to ensure a reasonable
degree of price stability
 FUNCTIONS OF RBI...
 Note issuing authority
- Under section 22 of the RBI Act, the bank has the sole
right to issue bank notes of all denominations.

- Issues & exchanges or destroys currency & coins not

fit for circulation.

- RBI has a separate Issue Dept. which is entrusted with

the issue of currency notes.

- Aims to give the public adequate supply of currency

notes & coins of good quality.
 FUNCTIONS OF RBI...
Government Banker
Fill the temporary gap between receipts and payments
by Ways and Mean Advances
Central Government – issue of ad hoc t-bills
State Government – Ways and mean advances
Limits - Normal or Clean Advances
- Secured Advances
- Special Advances
 Overdrafts – unauthorized way and mean advances
 Banker's Bank – Lender of last resort
 Supervising Authority
 FUNCTIONS OF RBI....
 Supervising Authority – Commercial and Co-
operative Banks
– To issue licensee – New Bank
– To issue license – Bank Branches
– Prescribe minimum requirements
– To the working of banks
– To conduct ad hoc investigations
– To control method of operations
– Control appointments of Chairman and CEO
of Private Sector Banks
– To approve amalgamations
 FUNCTIONS OF RBI....
 Exchange Control Authority
- Manages the foreign exchange of the country in terms of FERA
Act, 1973 (FEMA) and maintains the exchange rate of Rupee
against other currencies.
- RBI also acts as the custodian of India’s reserve of international
currencies.
Aim is to facilitate external trade & payments and promote
orderly development & maintenance of foreign exchange market
in India.
- Custodian of country foreign exchange reserves
- Management of Foreign Exchange Market
- Gold Accounts – Investment of Reserves
Rupee floating exchange rate system and the
rupee convertibility on trade, current and
capital accounts
 FUNCTIONS OF RBI...
 Industrial Finance
 Credit Delivery
 Formulating Prudential Norms
 Regulator of Money and Credit
 Liquidity Management
 Inflation Targeting
 Promotional Functions
- RBI has directly or indirectly set up financial institutions like
Deposit Insurance Corporation, UTI, IDBI, Agricultural
Refinance Corporation of India, Co-operative credit
movements, etc.
- This was with a view of promoting saving habits,
eliminating money lenders, mobilizing savings, providing
industrial & agricultural loans.
 FUNCTIONS OF RBI...
 Monitory Authority

RBI formulates, implements & supervises
the monitory policy of the country to
maintain price stability & ensure adequate
flow of credit.

RBI is the controller of credit i.e. it has the
power to influence the volume of credit
created by banks in India through various
instruments.
 FUNCTIONS OF RBI...
 Monitory Authority: Techniques of Monetary
Control

Open Market Operations (OMO)

Bank Rate

Discretionary Control of Refinance and Rediscounting

Direct Regulation of Interest Rates on Commercial Bank
Deposit and Loans

Cash Reserve Ratio (CRR)

Statutory Liquidity Ratio (SLR)

Direct Credit Allocation and Credit Rationing

Selective Credit Controls (SCC)

Credit Authorization Scheme (CAS)

Fixation of Inventory and Credit Norms

Credit Planning

Liquidity Adjustment Facility (LAF)

Market Stabilization Scheme (MSS)
 Conclusion
 All the functions of RBI, monitory, non
monitory, supervisory or promotional are
equally significant in context of the Indian
economy.
 Under the Banking Regulation Act, RBI has
been given a wide range of powers.
 Under the supervision & inspection of RBI, the
working of banks has greatly improved.
 RBI has been responsible for strong financial
support to industrial & agricultural development
in the country.
THANK YOU!!!