INTRODUCTION OF RBI

The Reserve Bank of India (RBI) is India's central banking institution, which controls the monetary policy of the Indian rupee. It was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of India Act, 1934 [2]. The share capital was divided into shares of 100 each fully paid which was entirely owned by private shareholders in the beginning.[3] Following India's independence in 1947, the RBI was nationalised in the year 1949. The RBI plays an important part in the development strategy of the Government of India. It is a member bank of the Asian Clearing Union. The general superintendence and direction of the RBI is entrusted with the 20-member-strong Central Board of Directors the Governor(currently Duvvuri Subbarao), four Deputy Governors, one Finance Ministry representative, ten Government-nominated Directors to represent important elements from India's economy, and four Directors to represent Local Boards headquartered at Mumbai, Kolkata, Chennai and New Delhi. Each of these Local Boards consist of five members who represent regional interests, as well as the interests of cooperative and indigenous banks. History 19351960 The Reserve Bank of India was founded on 1 April 1935 to respond to economic troubles after the First World War. It came into picture according to the guidelines laid down by Dr. Ambedkar. RBI was conceptualized as per the guidelines, working style and outlook presented by Dr Ambedkar in front of the Hilton Young Commission. When this commission came to India under the name of Royal Commission on Indian Currency & Finance, each and every member of this commission were holding Dr Ambedkars book named The Problem of the Rupee Its origin and its solution. The Bank was set up based on the recommendations of the 1926 Royal Commission on Indian Currency and Finance, also known as the HiltonYoung Commission. The original choice for the seal of RBI was The East India Company Double Mohur, with the sketch of the Lion and Palm Tree. However it was decided to replace the lion with the tiger, the national animal of India. The Preamble of the RBI describes its basic functions to regulate the issue of bank notes, keep reserves to secure monetary stability in India, and generally to operate the currency and credit system in the best interests of the country. The Central Office of the RBI was initially established in Calcutta (now Kolkata), but was permanently moved to Bombay (now Mumbai) in 1937. The RBI also acted as Burma's central bank, except during the years of the Japanese occupation of Burma (194245), until April 1947, even though Burma seceded from the Indian Union in 1937. After the Partition of India in 1947, the Bank served as the central bank for Pakistan until June 1948 when the State Bank of Pakistan commenced operations. Though originally set up as a shareholders bank, the RBI has been fully owned by the Government of India since its nationalization in 1949.

19501960 In the 1950s, the Indian government, under its first Prime Minister Jawaharlal Nehru, developed a centrally planned economic policy that focused on the agricultural sector. The administration nationalized commercial banks and established, based on the Banking Companies Act of 1949 (later called the Banking Regulation Act), a central bank regulation as part of the RBI. Furthermore, the central bank was ordered to support the economic plan with loans. 19601969 As a result of bank crashes, the RBI was requested to establish and monitor a deposit insurance system. It should restore the trust in the national bank system and was initialized on 7 December 1961. The Indian government founded funds to promote the economy and used the slogan Developing Banking. The Government of India restructured the national bank market and nationalized a lot of institutes. As a result, the RBI had to play the central part of control and support of this public banking sector. 19691985 In 1969, the Indira Gandhi-headed government nationalized 14 major commercial banks. Upon Gandhi's return to power in 1980, a further six banks were nationalized. The regulation of the economy and especially the financial sector was reinforced by the Government of India in the 1970s and 1980s. The central bank became the central player and increased its policies for a lot of tasks like interests, reserve ratio and visible deposits. These measures aimed at better economic development and had a huge effect on the company policy of the institutes. The banks lent money in selected sectors, like agri-business and small trade companies. The branch was forced to establish two new offices in the country for every newly established office in a town. The oil crises in 1973 resulted in increasing inflation, and the RBI restricted monetary policy to reduce the effects. 19851991 A lot of committees analysed the Indian economy between 1985 and 1991. Their results had an effect on the RBI. The Board for Industrial and Financial Reconstruction, the Indira Gandhi Institute of Development Research and the Security & Exchange Board of India investigated the national economy as a whole, and the security and exchange board proposed better methods for more effective markets and the protection of investor interests. The Indian financial market was a leading example for so-called "financial repression" (Mackinnon and Shaw). The Discount and Finance House of India began its operations on the monetary market in April 1988; the National Housing Bank, founded in July 1988, was forced to invest

in the property market and a new financial law improved the versatility of direct deposit by more security measures and liberalisation. 19912000 The national economy came down in July 1991 and the Indian rupee was devalued. The currency lost 18% relative to the US dollar, and the Narsimahmam Committee advised restructuring the financial sector by a temporal reduced reserve ratio as well as the statutory liquidity ratio. New guidelines were published in 1993 to establish a private banking sector. This turning point should reinforce the market and was often called neoliberal. The central bank deregulated bank interests and some sectors of the financial market like the trust and property markets. This first phase was a success and the central government forced a diversity liberalisation to diversify owner structures in 1998. The National Stock Exchange of India took the trade on in June 1994 and the RBI allowed nationalized banks in July to interact with the capital market to reinforce their capital base. The central bank founded a subsidiary companythe Bharatiya Reserve Bank Note Mudran Limitedin February 1995 to produce banknotes. [edit]Since 2000 The Foreign Exchange Management Act from 1999 came into force in June 2000. It should improve the foreign exchange market, international investments in India and transactions. The RBI promoted the development of the financial market in the last years, allowed online banking in 2001 and established a new payment system in 20042005 (National Electronic Fund Transfer). The Security Printing & Minting Corporation of India Ltd., a merger of nine institutions, was founded in 2006 and produces banknotes and coins. The national economy's growth rate came down to 5.8% in the last quarter of 20082009 and the central bank promotes the economic development.

Role of Reserve Bank of India

Bank of Issue Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the Government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the Banking Department. Originally, the assets of the Issue Department were to consist of not less than two-fifths of gold coin, gold bullion or sterling securities provided the amount of gold was not less than Rs. 40 crores in value. The remaining three-fifths of the assets might

be held in rupee coins, Government of India rupee securities, eligible bills of exchange and promissory notes payable in India. Due to the exigencies of the Second World War and the post-was period, these provisions were considerably modified. Since 1957, the Reserve Bank of India is required to maintain gold and foreign exchange reserves of Ra. 200 crores, of which at least Rs. 115 crores should be in gold. The system as it exists today is known as the minimum reserve system. Banker to Government The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser. The Reserve Bank is agent of Central Government and of all State Governments in India excepting that of Jammu and Kashmir. The Reserve Bank has the obligation to transact Government business, via. to keep the cash balances as deposits free of interest, to receive and to make payments on behalf of the Government and to carry out their exchange remittances and other banking operations. The Reserve Bank of India helps the Government - both the Union and the States to float new loans and to manage public debt. The Bank makes ways and means advances to the Governments for 90 days. It makes loans and advances to the States and local authorities. It acts as adviser to the Government on all monetary and banking matters. Bankers' Bank and Lender of the Last Resort The Reserve Bank of India acts as the bankers' bank. According to the provisions of the Banking Companies Act of 1949, every scheduled bank was required to maintain with the Reserve Bank a cash balance equivalent to 5% of its demand liabilites and 2 per cent of its time liabilities in India. By an amendment of 1962, the distinction between demand and time liabilities was abolished and banks have been asked to keep cash reserves equal to 3 per cent of their aggregate deposit liabilities. The minimum cash requirements can be changed by the Reserve Bank of India. The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible securities or get financial accommodation in times of need or stringency by rediscounting bills of exchange. Since commercial banks can always expect the Reserve Bank of India to come to their help in times of banking crisis the Reserve Bank becomes not only the banker's bank but also the lender of the last resort. Controller of Credit The Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume of credit created by banks in India. It can do so through changing the Bank rate or through open market operations. According to the Banking Regulation Act of 1949, the

Reserve Bank of India can ask any particular bank or the whole banking system not to lend to particular groups or persons on the basis of certain types of securities. Since 1956, selective controls of credit are increasingly being used by the Reserve Bank. The Reserve Bank of India is armed with many more powers to control the Indian money market. Every bank has to get a licence from the Reserve Bank of India to do banking business within India, the licence can be cancelled by the Reserve Bank of certain stipulated conditions are not fulfilled. Every bank will have to get the permission of the Reserve Bank before it can open a new branch. Each scheduled bank must send a weekly return to the Reserve Bank showing, in detail, its assets and liabilities. This power of the Bank to call for information is also intended to give it effective control of the credit system. The Reserve Bank has also the power to inspect the accounts of any commercial bank. As supreme banking authority in the country, the Reserve Bank of India, therefore, has the following powers: (a) It holds the cash reserves of all the scheduled banks. (b) It controls the credit operations of banks through quantitative and qualitative controls. (c) It controls the banking system through the system of licensing, inspection and calling for information. (d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks. Custodian of Foreign Reserves The Reserve Bank of India has the responsibility to maintain the official rate of exchange. According to the Reserve Bank of India Act of 1934, the Bank was required to buy and sell at fixed rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed was Re. 1 = sh. 6d. Since 1935 the Bank was able to maintain the exchange rate fixed at lsh.6d. though there were periods of extreme pressure in favour of or against the rupee. After India became a member of the International Monetary Fund in 1946, the Reserve Bank has the responsibility of maintaining fixed exchange rates with all other member countries of the I.M.F. Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the custodian of India's reserve of international currencies. The vast sterling balances were acquired and managed by the Bank. Further, the RBI has the responsibility of administering the exchange controls of the country.

Supervisory functions In addition to its traditional central banking functions, the Reserve bank has certain nonmonetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction, and liquidation. The RBI is authorised to carry out periodical inspections of the banks and to call for returns and necessary information from them. The nationalisation of 14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realisation of certain desired social objectives. The supervisory functions of the RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation. Promotional functions With economic growth assuming a new urgency since Independence, the range of the Reserve Bank's functions has steadily widened. The Bank now performs a varietyof developmental and promotional functions, which, at one time, were regarded as outside the normal scope of central banking. The Reserve Bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and establish and promote new specialised financing agencies. Accordingly, the Reserve Bank has helped in the setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation in 1962, the Unit Trust of India in 1964, the Industrial Development Bank of India also in 1964, the Agricultural Refinance Corporation of India in 1963 and the Industrial Reconstruction Corporation of India in 1972. These institutions were set up directly or indirectly by the Reserve Bank to promote saving habit and to mobilise savings, and to provide industrial finance as well as agricultural finance. As far back as 1935, the Reserve Bank of India set up the Agricultural Credit Department to provide agricultural credit. But only since 1951 the Bank's role in this field has become extremely important. The Bank has developed the co-operative credit movement to encourage saving, to eliminate moneylenders from the villages and to route its short term credit to agriculture. The RBI has set up the Agricultural Refinance and Development Corporation to provide long-term finance to farmers.

IDBI BANK (Industrial Development Bank Of India)

INTRODUCTION The Industrial Development Bank of India (IDBI) was established on 1 July 1964 under an Act of Parliament as a wholly owned subsidiary of the Reserve Bank of India. In 16 February 1976, the ownership of IDBI was transferred to the Government of India and it was made the principal financial institution for coordinating the activities of institutions engaged in financing, promoting and developing industry in the country. Although Government shareholding in the Bank came down below 100% following IDBIs public issue in July 1995, the former continues to be the major shareholder (current shareholding: 65.14%). IDBI provides financial assistance, both in rupee and foreign currencies, for green-field projects as also for expansion, modernisation and diversification purposes. In the wake of financial sector reforms unveiled by the government since 1992, IDBI also provides indirect financial assistance by way of refinancing of loans extended by State-level financial institutions and banks and by way of rediscounting of bills of exchange arising out of sale of indigenous machinery on deferred payment terms. In September 2003, IDBI diversified its business domain further by acquiring the entire shareholding of Tata Finance Limited in Tata Home finance Ltd., signaling IDBIs foray into the retail finance sector. The fully owned housing finance subsidiary has since been renamed IDBI Home finance Limited. In view of the signal changes in the operating environment, following initiation of reforms since the early 1990s, Government of India has decided to transform IDBI into a commercial bank without eschewing its secular development finance obligations. The migration to the new business model of commercial banking, with its gateway to low-cost current, savings bank deposits, would help overcome most of the limitations of the current business model of development finance while simultaneously enabling it to diversify its client/ asset base. Towards this end, the IDB (Transfer of Undertaking and Repeal) Act 2003 was passed by Parliament in December 2003. The Act provides for repeal of IDBI Act, corporatisation of IDBI (with majority Government holding; current share: 58.47%) and transformation into a commercial bank. The provisions of the Act have come into force from 2 July 2004 in terms of a Government Notification to this effect. The Notification facilitated formation, incorporation and registration of Industrial Development Bank of India Ltd. as a company under the Companies Act, 1956 and a deemed Banking Company under the Banking Regulation Act 1949 and helped in obtaining requisite regulatory and statutory clearances, including those from RBI. IDBI would commence banking business in accordance with the provisions of the new Act in addition to the business being transacted under IDBI Act, 1964 from 1 October 2004, the Appointed Date notified by the Central Government. IDBI Bank, with which the parent IDBI was merged, was a new generation Bank. The Pvt Bank was the fastest growing banking company in India. The bank was pioneer in adapting to policy of first mover in tier 2 cities. The Bank has one of the highest productivity per employee in Indian banking industry.

On 29 July 2004, the Board of Directors of IDBI and IDBI Bank accorded in principle approval to the merger of IDBI Bank with the Industrial Development Bank of India Ltd. to be formed incorporated under the Companies Act, 1956 pursuant to the IDB (Transfer of Undertaking and Repeal) Act, 2003 (53 of 2003), subject to the approval of shareholders and other regulatory and statutory approvals. A mutually gainful proposition with positive implications for all stakeholders and clients, the merger process is expected to be completed during the current financial year ending 31 March 2005. The immediate fall out of the merger of IDBI and IDBI Bank was the exit of employees of IDBI bank. The cultures in the two organizations have taken its toll. The IDBI Bank now is in a growing fold. With its retail banking arm expanding further after the merger of United western Bank. IDBI would continue to provide the extant products and services as part of its development finance role even after its conversion into a banking company. In addition, the new entity would also provide an array of wholesale and retail banking products, designed to suit the specific needs cash flow requirements of corporate and individuals. In particular, IDBI would leverage the strong corporate relationships built up over the years to offer customised and total financial solutions for all corporate business needs, single-window appraisal for term loans and working capital finance, strategic advisory and hand-holding support at the implementation phase of projects, among others. RECENT DEVELOPMENTS To meet emerging challenges and to keep up with reforms in financial sector, IDBI has taken steps to reshape its role from a development finance institution to a commercial institution. With the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003, IDBI attained the status of a limited company viz. "Industrial Development Bank of India Limited" (IDBIL). Subsequently, the Reserve Bank of India (RBI) issued the requisite notification on 30 September 2004 incorporating IDBI as a 'scheduled bank' under the RBI Act, 1934. Consequently, IDBI, formally entered the portals of banking business as IDBIL from 1 October 2004. The commercial banking arm, IDBI BANK, was merged into. In March 2008, IDBI Bank entered into a joint venture with Federal Bank and Fortis Insurance International to form IDBI Fortis Life Insurance, of which IDBI Bank owns 48 percent. The company ended the year with over 300 Cr in premiums as on 31 March 2009.The name of IDBI Fortis Life Insurance is now changed to IDBI Federal Life Insurance Co Ltd. Government of India now owns 70.52% stake in IDBI Bank. Hence IDBI Bank is also referred as 'The New Age Government owned Bank' It has bought 10% stake in upcoming commodity bourse Universal Commodity Exchange (UCX) for Rs 10 crore the bank's top official said. The deal was completed recently. RM

Malla, chairman and MD of IDBI Bank, confirmed that the bank had picked up 10% in what will become the country's sixth commodity futures exchange. "The idea behind acquiring equity is to push agriculture loans through this venture," said Malla. "The other advantage is IDBI will be the only bank among the promoters and therefore all transactions of the exchange will be routed through IDBI. It was the winner in two categories in Dun & Bradstreet's Polaris Software Banking Awards 2011. It has now a network of 977 branches, 661 centres and 1547 ATMs as on April 18, 2012. The 977th branch is located at Kagal near Kolhapur in Maharashtra.

PERFORMANCE OF IDBI Items No. of offices No. of employees Business per employee (in lakh) Profit per employee (in lakh) Capital and Reserves & surplus 2006-07 2007-08 442 509 2008-09 2009-10 2010-11 AGGREGATE 2010-11 520 718 820 45640

7482

8253

10201

12220

13602

475082

1387.16

1809.17

2030.33

2417.42

2346.41

1144.77

8.44

8.86

8.42

8.44

11.93

6.95

8300 Deposits 43354 Investment 25675 Advances 62471 Interest 6345 income Other income 1027

8822 72998 32803 82213 8041

9424 112401 50048 103444 11545

10165 167667 73345 138202 15261

14568 180486 68269 157098 18601

205857 3127122 942837 2311478 256490

1582

1476

2302

2084

28625

Interest expended Operating expenses

5687

7364

10306

13005

14272

164135

778

959

1338

1831

2255

53819

Cost of Fund (CoF) 2.68 Return on advances adjusted to CoF 6.42 Wages as % to total expenses 4.38 Return on Assets CRAR Net NPA ratio

3.97

5.14

5.19

4.90

4.93

5.06

4.62

3.73

4.41

4.27

4.59

4.89

5.10

6.21

16.41

0.67 13.73 1.12

0.67 11.95 1.30

0.62 11.57 0.92

0.53 11.31 1.02

0.73 13.64 1.06

1.03 13.47 0.92

Highlights of Q1 FY 13 financial results vis--vis Q1 FY 12 (June 30, 2011)

Net profit up 28 % to NII grew by 10% to

427 Crore (from 1,271 Crore (from

335 Crore) 1,152 Crore)

NIM at 2.09% (from 2.08%) Business up 8.5% to 3,59,527 Crore (from 3,31,378 Crore) 1,76,282 Crore) 338 Crore)

Deposits increased by 9% to

1,91,747 Crore (from

Fee based income increased by 23% to

417 Crore (from

Mumbai, July 31, 2012: : The Board of Directors of IDBI Bank Ltd. (IDBI) met in Mumbai today to consider the unaudited financial results for the quarter ended June 30, 2012, which are as under: Working results: (Rs. in Crore) Q1 2012-13 Total Income Interest income Non-Interest Income Total Expenses Interest expenses Operating expenses Operating Profit Provisions (net) Net Profit 6787 6270 517 5658 4999 659 1129 702 427 Q1 2011-12 6060 5629 431 5029 4476 553 1031 696 335 FY 2011-12 25489 23370 2119 21433 18825 2607 4056 2025 2032

Evaluation of Performance
Profitability: IDBI reported a net profit of 427 crore for the quarter ended June 30, 2012 as against Rs. 335 crore in the corresponding quarter. This amounts to an increase in net profit by 28% for the quarter compared to corresponding quarter of the previous year. Net Interest Income (NII) for the quarter ended June 30, 2012 stood at 1,271 crore as against 1,152 crore in the corresponding quarter of the previous year, recording a growth of 10%. Business: As of June 30, 2012, IDBIs total business (deposits and advances) stood at 3,59,527 crore as against 3,31,378 crore as of June 30, 2011, registering a growth of 8.5%. Deposits increased to 1,91,747 Crore at end-June 2012 from 30, 2011 with a growth of 9%. 1,76,282 crore at end-June

Aggregate assets as of June 30, 2012, stood at 2,71,899 crore as against as at end- June 30, 2011, registering a growth of 9%. Fee based income for the quarter ended June 30, 2012 increased to against 338 Crore for the quarter ended June 30, 2011.

2,49,683 crore

417 Crore as

CAR: The Bank's CAR stood at 14.36% (Tier I - 8.24%) as of June 30, 2012 as against 13.83% (Tier I 8.11%) as of June 30, 2011. Significant developments during FY 2012-13(April Till date)

IDBI Bank was adjudged winner under Development Finance-Led Poverty Reduction category for its Rural Transformation Fellowship Program (RTFP) in the ADFIAP (Association of Development Financing Institutions in Asia & the Pacific) Awards 2012 in Istanbul, Turkey. The Bank also received the Best Website Award at the ceremony.

IDBI Bank along with the countrys 9 largest PSU lenders has formed a consortium for jointly financing infrastructure projects with project cost of 1000 crore and above. The consortium aims to speed up the sanction process, bring uniformity in the approach and terms of lending and thereby facilitate early financial closure of the infrastructure projects.

IDBI Bank entered into a Memorandum of Understanding (MOU) with the Government of Karnataka (GoK) at the Global Investors Meet (GIM) held at Bangalore. Under this MOU, GoK will furnish to IDBI Bank, the list of MoUs entered with the investors and the Bank will deploy additional funds as required for the proposed investments, subject to due diligence.

IDBI Bank launched Indias first web-based market making portal and dedicated the same exclusively to the Retail Investors of the country. The Portal is available to general public from May 15, 2012.

IDBI Bank Becomes the First Primary Dealer in the Country to Facilitate Transaction on the Recently Launched Web-based Negotiated Dealing System [NDS] Auction of Gilts, conducted by RBI from time to time.

IDBI Bank unveiled a state-of-art Currency Chest (one of the largest in the country) at Bandra-Kurla Complex, Mumbai.

IDBI Bank extended relief in the form of financial assistance to four drought affected villages allotted to the Bank under financial inclusion, in the districts of Satara, Sangli and Solapur in Maharashtra.