RBI Roles and Functions

By-:
Minisha Gupta
Lecturer (Finance)
The Reserve Bank of India was established on April 1, 1935 in
accordance with the provisions of theReserve
Bank of India Act, 1934.

The Central Office of the Reserve Bank was initially established in

Calcutta but was permanently moved to Mumbai in 1937. The
Central Office is where the Governor sits and where policies are
formulated.

Though originally privately owned, since nationalisation in 1949,

the Reserve Bank is fully owned by the Government of India.
Central Board
The Reserve Bank's affairs are governed by a
central board of directors. The board is appointed
by the Government of India in keeping with the
Reserve Bank of India Act.
Appointed/nominated for a period of four years
Constitution:

Official Directors
Full-time : Governor and not more than four
Deputy Governors

Non-Official Directors
Nominated by Government: ten Directors from
various fields and one government Official
Others: four Directors - one each from four
local boards
 RBI SET UP

Central Board Local Board

Eastern, Western, Northern

Governor
Southern (Zones)

Chairman of
Deputy Governor
Each region

Executive Chairman

Central Department/ Training

Establishment
 Reserve Bank of India
 Roles
 Regulatory
 Developmental
 Moral suasion
 Functions
 Bank of Issue
 Banker of Government
 Bankers’ Bank and Lender of the Last Resort
 Controller of Credit
 Custodian of Foreign Reserves
 Supervisory Functions
 Promotional Functions
 RBI – Control Of Credit
Credit Control
Techniques

Quantitative Qualitative

Bank Rate Margin Requirement

Open Market Operations Publicly and Direct Action

Variable Reserve Requirements Moral Suasion

Regulation of Consumer’s Credit

Rationing of Credit

Control through Directives

Objectives of Credit Control
Establishment of
Establishment of
Money Market
General price
Level

Promoting
Economic
Growth
 Monetary Policy
RBI and Monetary Policy in
India
 Monetary Magnitudes

 M1 = Currency with public+

Demand deposits with banks+
Other Deposits with RBI
 M2 = M1+ Post Office Deposits
 M3 = M1+ Time Deposits with Banks
 M4 = M3+ Total Post Office Deposits
 What is Monetary Policy?
 The term monetary policy refers to actions taken
by central banks to affect monetary magnitudes or
other financial conditions.

 Monetary Policy operates on monetary

magnitudes or variables such as money supply,
interest rates and availability of credit.

 Monetary Policy ultimately operates through its

influence on expenditure flows in the economy.

 In other words affects liquidity and by affecting

liquidity, and thus credit, it affects total demand in
the economy.
 Credit Policy
 Central Bank may directly affect the money supply to control
its growth.

 Or it might act indirectly to affect cost and availability of

credit in the economy.

 In modern times the bulk of money in developed economies

consists of bank deposits rather than currencies and coins.

 So central banks today guide monetary developments with

instruments that control over deposit creation and influence
general financial conditions.

 Credit policy is concerned with changes in the supply of credit.

 Central Bank administers both the Credit and Monetary policy

 Aims of Monetary policy
 MP is a part of general economic policy of the
govt.

 Thus MP contributes to the achievement of

the goals of economic policy.

 Objective of MP may be:

•Full employment
•Stable exchange rate
•Healthy Balance of Payment
•Economic growth
•Reasonable Price Stability
•Greater equality in distribution of income & wealth
•Financial stability
 Price Stability: The Dominant
 Objective
There is convergence of views in developed and developing economies, that
price stability is the dominant objective of monetary policy.
 Price stability does not mean complete year-to-year price stability which is
difficult to attain.
 Price stability refers to the long run average stability of prices.
 Price stability involves avoidance of both inflationary and deflationary
pressures.
 Price Stability contributes improvements in the standard of living of people.
 It promotes saving in the economy while discouraging unproductive
investment.
 Stable prices enable exports to compete in international markets and contribute
to the strengthening of BoP.
 Price stability leads to interest rate stability, and exchange rate stability (via
export import stability).
 It contributes to the overall financial stability of the economy.
struments Operation of Monetary
Discount Rate
(Bank Rate)
Policy
Reserve Ratios Operating
Target
Open Market
Operations
• Monetary Base
• Bank Credit Intermediate
• Interest Rates Target
•Monetary
Aggregates(M3)
Ultimate
•Long term Goals
interest rates
•Total Spending
• Price Stability
Etc.
 Fiscal Policy
The word “FISC” means state treasury
and fiscal policy refers to policy
concerning the use of “state treasury” or
the govt. finances to achieve the
macroeconomic goals.

Any decision to change the level,

composition or timing of govt.
expenditure or to vary the burden, the
structure or frequency of the tax
payment is Fiscal Policy
 OBJECTIVES OF FISCAL
POLICY
1. General-: aimed at achieving macro
economic goals.
2. Specific-: relating to any typical
problem of economy
 Fiscal policy
And
Macro Economic
Goals

Economic Economic Price

Employment Stabilization
Growth Equality Stability

Instruments of Fiscal Policy

Budgetary Surplus and Deficit
Government Expenditure
Taxation Direct and Indirect
Public Debt
Deficit Financing
Thanks