RBI structure and its function:

*Reserve bank is the central bank of india established on 1 april 1935 on the basis
of RBI act 1934.
First established in calcutta in 1935 and then in 1935 in bomabay.
Recommendation:
1.Dr. Br ambedkar- The problem of Rupees origin &solution .
2.Hilton young Commission - Officially first time 1926 recommendation for the
central bank.
Preamble of RBI -To regulate issue of notes and keeping reserves,secure monetary
stablity,and to operate currency and credit system.
RBI Structure:
BOARD OF DIRECTORS(21) appointed by central government to ensure the functioning of
RBI and appointed for 4 years.
RBI Governor appointed by central government for 3-4 years and can be reappointed.
1st governor - Sir osborne smith.
1st Indian - CD Deshmukh.
1st PM as well as Governor - Man mohan singh.
Deputy Governor appointed by central government.
Executive director appointed by central governemnt.
Function of RBI:
1.Supervision and regulation of BANKS and NON BANKING FINANCIAL COMPANY.(regulator
and administrator of financial system)
2.Issuer of currency.
3.Regulator and supervisor of payments and settlement system.
4.Bankers to bank.
5.Banker to Government.
6.RBI has the responsiblity of financial inclusion.
7.RBI supposed to manage indias forex(Foreign exhange- Foreign
currency,gold,SDR(special drawing rights),RTP) reserves.
Special drawing rights - when any country join IMF then the country assign some
amount of SDR and it terms as INTERNATIONAL CURRENCY(Dollar,yen,yuan,pound
sterling,euro).
8.Developmental function - For development to be happen there has to be investment
and investment will be happening or not is a function of RBI (by looking at Money
supply).
9.RBI is the monetary authority of India.
What does monetary authority means:
1.To control and manage inflation.
What is monetary policy?
Monetary policy is the central bank of the country through which money supply in
the economy is controlled.
Two types of Monetary policies:
1.Expansionary(increases money supply through its policies)
2.Contractionary(decreses money supply through its policies)
WHO takes decision regrading monetary policy?
Till 2016 Monetary policy decision were taken by just governor of RBI.
Raghuram rajan made Urijit patel committe that suggest Inflation targetting.
That if 4% (+-) .
Use data of Combined CPI and monetary policy descion are taken through Monetary
policy Commitee(Gov RBI,Deputy governor,Exe director,and 2 members from central
government).
Government say:4 members from central govenrment and 3 others from RBI.
2016 - 1.Urjit patel suggestions accpeted and inflation targeting system brought in
india.
2.RBI act was amended to inroduced sec 45ZB to create MPC(meet atleast 4 times in a
year and have 6 members and one vote for each).
MPC has to be submit monetary policy report(why inflation and data related to it)
every six month.
and from 2016 Monetary policy is accountable to government for managing inflation.
6 Members of RBI:
1.RBI GOVERNOR.
2.DEPUTY GOVERNOR (RBI)
3.1 OFFICER NOMINATED BY RBI-currenctly executive director of RBI .
4,5,6 -Nominated by central governemnt.
*MONETARY POLICY TOOLS:
Some are direct tools and some are indirect tools.
*Direct tools:
Net demand and time liablity(NDTL):Money that is remained with the bank after
depositing some amount in another bank.
1.CRR(Cash reserve ratio): certain amount of NDTL is kept with RBI as cash.

2.SLR(Statutory liquidity ratio):Some amount of money invested in safe and liquid

asset(gov securities and gold).
3.Repo rate:The rate at which RBI lends money to banks.
4.Reverse repo rate: The rate at which RBI lends money from bank.
Repo rate is always more than Reverse repo rate.
Repurchase agreement - agreement in which two party get into an arrangement when
party A gives something in collateral and party B gives money ..and in future B has
to give back the collateral with a specified time at the time of agreement and the
ratebis repo rate.
5.Liquidity adjustemnt facility(LAF):short term mai -Non SLR government security
can be pledged to borrower.
6.Marginal standing facility(MSF):when all LAF are exhaust then you can take money
from that is invested in SLR by the banks can be taken as collateral and the rate
is higher then repo rate and known as penal rates.
7.standing deposit facility(SDF):When RBI can borrow money from bank without money
without collateral.
8.Long term repo operations:RBI-BANK-CUSTOMERS -when RBI increase/decrease repo
rate then it is must to be reciprocated by the bank But the bank are not responding
towards its due to long term operations.
9.Open market operations:Financial market are part of money supply and government
security can be brought and sell in the financial market and in short RBI can
intervene in financial market to control money supply.
*Indirect controls:
1.Margin reuirements:That margin of money that costumer has to pay itself for the
loan demanded by him.
2.regulation of consumer credit:Even in consumer loan margin is required and the
amount of margin is consumer credit regulation.
3.Credit rationing:Limits put by RBI on credits by bank.
4.Moral Suasion:To pursue bank to follow RBI policy(by the use of their moral
authority).
5.Control by directives: giving direction in written to come in line with RBI .
6.Direct action:Last resort to RBI (TO penalise,denying loan)