BANKING AND FINANCIAL INSTITUTIONSRESERVE BANK OF INDIA
RBI is the central bank of the country i.e. an apex institution of Indian monetary system. It wasestablished on 1st April 1935 under the RBI Act 1934. RBI was set up as the private shareholders bank withpaid up capital of Rs. 5 crore. It was nationalized on 1st January 1949. The Reserve Bank follows anaccounting year from 1
July to 30
June, which enables it to take into account the performance of banks,which follow an April-March financial year. The executive head of the Bank is called the governor, who isassisted by deputy governors and other executive officers. For general direction the Bank has a central boardof directors, supplemented by four local boards at Delhi, Calcutta, Madras and Bombay. The head office of theBank is at Mumbai.
Functions of RBI
Bank of Issue
: RBI has the sole right to issue bank notes of all denominations. The issuing and distributionof rupee one notes and coins and small coins all over the country is undertaken by the RBI as an agent of theGovernment.2.
Banker to Governments
: The RBI acts as an agent of Central Government for all states in India exceptJammu and Kashmir. The RBI has the obligation to transact government business. Central government andall state governments maintain account with the RBI. It helps the centre and state governments to float newloans and to manage public debt.3
. Banker's Bank
: All commercial banks maintain current accounts with the RBI. The RBI providescentral clearing house facility to the banks in order to settle their mutual claims on each other. It also providesfinancial assistance to the banks in the time of need so it is also called as the lender of the last resort.4.
Controller of money and Credit
: The RBI regulates the supply of money and credit in the
economythrough various instruments of monetary policy like CRR, SLR, Bank rate etc. It controls thefinancial institutions through the system of licensing, inspection and by providing guidelines.
5 Exchange management and control
: RBI manages foreign exchange rate of rupee throughregulating norms of convertibility in respect of various foreign exchange transactions.
6. Custodian of Foreign Exchange Reserves
RBI maintains the reserve of foreign exchange.It acts as an agent of government in respect of Indian membership in the IMF.
: The RBI Act 1934 and the Banking Regulation Act 1949 have givenRBI wide powers of supervision and control of commercial and cooperative banks.
8. Promotional Functions
: RBI promotes banking habits, extend banking facilities to ruraland semi-urban areas. Thus RBI has helped in setting up of various development financeinstitutions like IDBI, ICICI, IFCI etc.
9. Publication of Monetary Data
: RBI collects a variety of statistical information and publishesthe same periodically. Its important publications
'Report on currency and finance',
publication and the '
', a monthly magazine.
Monetary Policy is an instrument of economic policy which acts by influencing the cost andavailability of money and credit in economy to various sectors. To achieve balance between economicgrowth and control over inflation. RBI has followed the policy of 'Controlled monetary expansion'.
Instruments of Monetary Policy
There are two broad instruments of the monetary policy of the RBI i.e. quantitativemethods and qualitative methods as follows:I.
Quantitative Methods or General Methods
Such-measures regulate the volume of moneyand credit in the economy as a whole. Such measures include CRR, SLR, Bank Rate and openmarket operation as follows:
Cash Reserve Ratio (CRR) or Variable Reserve Ratio (VRR)
As per RBI Act 1934, banks have to keep a certain proportion or percentage of their totaldeposits (time and demand liabilities) with RBI.(b)
Statutory Liquidity Ratio (SLR)
It is the ratio of total deposits of banks which they have tokeep or maintain in the form of specified liquid assets with themselves. It can be varied in the rangeof 0 to 40%.