CENTRAL BANKING

4. POLICY
FRAMEWORK FOR RBI
 INTRODUCTION
THE RESERVE BANK OF INDIA CAME TO EXISTENCE IN 1935. IT’S ORIGIN CAN BE
TRACED BACK TO THE RECOMMENDATION OF THE ROYAL COMMISSION ON THE INDIAN
CURRENCY AND FIND FINANCE POPULARLY CALLED AS THE HILTON YOUNG
COMMISSION. RBI STARTED IN 1927,THE BILL TO ESTABLISH RBI WAS PASTED FINALLY IN
1934.
1ST APRIL 1935 THE RBI STARTED OPERATIONS IN SHAREHOLDERS BANK. IT WAS
NATIONALISED IN 1949. THE RBI HAS PLAYED AN IMPORTANT ROLE IN INDIA’S
DEVELOPMENT. PRIMARY FUNCTION WERE ISSUE OF CURRENCY NOTES, BANKER TO THE
GOVERNMENT AND BANKER TO THE BANKS. THE LPG ( LIBERALISATION, PRIVATISATION,
GLOBALIZATION) INTRODUCED IN 1991.
 ORGANISATIONAL AND OPERATIONAL
FRAMEWORK
• THE RESERVE BANK OF INDIA ACT 1934, AND ESTABLISHMENT OF THE RBI IN 1934.
AND IT’S FUNCTIONING IN 1935.
• IT WAS STARTED AS A PRIVATE SHAREHOLDER’S BANK WITH CONTROL IN THE
HANDS OF THE CENTRAL GOVERNMENT.
• THE CENTRAL BANK WAS NATIONALISED IN 1949 UNDER THE RBI. TRANSFER TO
PUBLIC OWNERSHIP ACT 1948.
• THE CENTRAL BANK WAS INITIALLY THE HEADQUARTERS WAS AT CALCUTTA. IN
1937 IT WAS MOVED TO BOMBAY.
FEATURES OF ORGANISATIONAL (20 MEMBERS)

One governor Four directors

one from each Ten directors One
and four deputy
local board appointed by the government
governor
government nominee

Governor Deputy governor

Chairman of the Vice chairman of

board the board
THE RBI DISCHARGE 33 DEPARTMENTS .IT HAS 19 REGIONAL
OFFICES AND 9 SUB OFFICES.

SOME OF THE IMPORTANT DEPARTMENT ARE :

1. ISSUE DEPARTMENT :
2. BANKING OPERATIONS AND DEVELOPMENT
3. EXCHANGE CONTROL DEPARTMENT
4. BANKING DEPARTMENT
5. RESEARCH AND STATISTICS DEPARTMENT
6. LEGAL DEPARTMENT
7. INDUSTRIAL FINANCE DEPARTMENT
8. DEPARTMENT OF ADMINISTRATION
1. ISSUE DEPARTMENT : THE MONOPOLY NOTE ISSUE MANAGED BY CENTRAL BANK . IT
ISSUES ALL CURRENCIES NOTE, ONE RUPEE AND ALL COINS WHICH ISSUE BY THE CENTRAL
GOVERNMENT.
2. BANKING OPERATIONS & DEVELOPMENT BANK : THIS DEPARTMENT SUPERVISES AND
REGULATE OF THE COMMERCIAL BANK. IN THIS BANK DEVELOPED BANKING FACILITIES IN
THE RURAL AND SEMI URBAN AREAS.
3. EXCHANGE CONTROL DEPARTMENT : CONTROL AND REGULATE THE FOREIGN EXCHANGE
TRANSACTIONS IS THE FUCTION OF THIS DEPARTMENT. THIS FUNCTION WAS GOVERNED BY
FERA EARLIER. AT PRESENT IT IS GOVERNED BY FEMA . THIS HELP CENTRAL BANK TO
DISCHARGE THE CUSTODIAN OF FOREIGN EXCHANGE RESERVES.
4. BANKING DEPARTMENT : THE DAY TO DAY FUCTION OF RBI CARRIED OUT BY THIS
DEPARTMENT. ITS OFFICES ARE LOCATED IN VARIOUS CITIES AND MANAGED BY MANAGER IN
EACH OFFICE.
5. RESEARCH & STATISTICS DEPARTMENT : THIS DEPARTMENT IS CONCERNED WITH THE
COLLECTION OF DATA, PUBLICATION OF REPORTS AND BULLETINS RELATED BANKING,
FINANCE AND CURRENCY. THE REPORT AND PUBLICATION ARE VERY USEFUL TO THE
GOVERNMENT, CORPORATE AND ACADEMIA.
6. LEGAL DEPARTMENT : THIS DEPARTMENT IS AN ADVISORY BODY. IT PROVIDES LEGAL
ADVICE TO THE VARIOUS DEPARTMENTS RELATED TO VARIOUS ACTS RELATED TO BANKING.
7. INDUSTRIAL FINANCE DEPARTMENT : IT IS CONCERNED WITH PROVISION OF FINANCE TO
INDUSTRIES, INSPECTION AND DEALING WITH STATE FINANCE CORPORATIONS.
8. DEPARTMENT OF ADMINISTRATION : GENERAL ADMINISTRATION, RECRUITMENT AND
TRAINING OF STAFF IS THE RESPONSIBILITY OF THIS DEPARTMENT.
 MONETARY POLICY COMMITTEE (MPC)

THE MONETARY POLICY COMMITTEE CAME INTO EXISTENCE ON 27TH JUNE 2016. IT WAS
ESTABLISHED DUE TO THE RECOMMENDATION OF THE EXPERT COMMITTEE UNDER DR. URJIT
PATEL . THE RBI MONETARY POLICY WAS BASED ON MULTIPLE INDICATOR APPROACH IN 2016.
THE MULTIPLE INDICATORS CONSISTED OF RATE OF INFLATION, GROWTH RATE, EXCHANGE
RATE, LEVEL OF EMPLOYMENT AND STABILITY OF THE BANKING SYSTEM. THE GOVERNMENT
ACCEPTED THIS THIS RECOMMENDATION AND AMENDED THE RBI ACT ACCORDINGLY.
THE MPC CONSISTS OF SIX MEMBERS, THREE FROM THE RBI AND THREE EXTERNAL
MEMBERS APPOINTED BY THE GOVERNMENT. THE COMMITTEE MEETING IS FOUR TIMES IN
THE YEAR. THE MAINTAIN REPO RATE AT 4%, REVERSE REPO RATE AT 3.35% AND BANK RATE AT
4.25% THE MPC TARGETED INFLATION RATE AT 4%( WITH RANGE OF + 2% ). IT TARGETED IS NOT
ACHIEVE THE MPC IS ANSWERABLE TO THE GOVERNMENT.
 ROLE AS A CENTRAL BANKER
Traditional Function
1. Issuer of currency
2. Banker to the government
3. Bankers to the banks
4. Custody an of foreign
exchange reserve
5. Control of a credit
6. Clearing house
Promotion Functional
RBI Play these functions
through the Institute like
IDBI, NABARD, EXIM Bank, State
Finance Corporation
SIDBI, UTI, National Housing Bank,
Industrial Finance Corporation of
India.
1. NABARD ensure credit
requirement for agriculture &
slide activity to improve their
efficiency.
2. SIDBI ensure adequate credit
to the small scale.
3. EXIM bank develop credit &
Insurance facility to the
Regulatory Function
1. Bank Rate (5.4%)
(landing rate of RBI)
During inflation bank
rate.
2. Open Market
operation: It refers to
buying and selling
government securities
by RBI. ( Inflation sec.
Sold and recession/
depression in sec.
Purchase.
3. Variable Reserve
Requirement: CRR is
4% and SLR is 7.15%
Promotion Functional
4. Develop free and fair
competition among private
sector & foreign bank.
5. RBI try to socio economic
objective like resumption of
poverty, financial inclusion,
Industrial Development,
Balance Regional
Development.
Regulatory Function
4. Repo Rate & Reverse Repo Rate:
means repurchase options. Sell the
security to RBI with Re-purchase
agreement it’s called as Repo and
purchase the security from RBI it’s called
as Reverse Repo Rate refers to rate at
Which Commercial Bank Park their
surplus fund with RBI for short run period
Repo is Inject liquidity & Reverse is
observe liquidity Repo rate is 5.15% &
Reverse rate 4.9%.
5. Liquidity Adjustment facility: when
RBI adjust the liquidity through Repo &
Reverse repo rate at just time is called
liquidity Adjustment facility.
6. Market Stabilization scheme: Under
this Scheme RBI stabilize foreign
exchange mkt. Through buying &selling
foreign currency.
 TRADITIONAL FUNCTION
1. ISSUER OF CURRENCY: THE RBI HAS SOLE AUTHORITY TO ISSUE CURRENCY NOTES. THE CENTRAL GOVERNMENT
ISSUE ONE RUPEE & COINS. ISSUE OF CURRENCY NOTES ARE BASED ON THE MONETARY BASE CONSISTING OF
GOLD, FOREIGN SECURITIES, GOVERNMENT SECURITIES AND BILLS OF EXCHANGE.

2. BANKER TO THE GOVERNMENT: THE RBI IS THE BANKER TO THE CENTRAL & STATE GOVERNMENTS. IT ACCEPTS
RECEIPTS AND MAKES PAYMENTS ON BEHALF OF THE GOVERNMENT. THE GOVT. HAS SPECIAL FUNDS LIKE
CONSOLIDATED SINKING FUND, CALAMITY RELIEF FUND ETC. THE CENTRAL GOVT. HAS ADVANCES ARE SHORT TERM
LOANS WHICH HAVE A MATURITY PERIOD OF THREE MONTHS. OVERDRAFT FACILITY IS ALSO PROVIDED BY THE
CENTRAL BANK.

3. BANKERS TO THE BANKS: ALL COMMERCIAL BANK OPERATE AS PAS THE RULES AND REGULATIONS OF THE RBI.
BANKS ARE REQUIRED TO MAINTAIN CERTAIN AMOUNT OF RESERVES WITH THE CENTRAL BANK. AS THE APEX
BODY, THE RBI SUPERVISES, INSPECT AND REGULATES THE WORKING OF THE COMMERCIAL BANK. BRANCH
EXPANSION, APPOINTMENT OF HIGHER OFFICIALS, CREDIT ALLOCATION ETC.
4. CUSTODIAN OF FOREIGN EXCHANGE RESERVES: THE FOREIGN EXCHANGE MARKET IS DEVELOPED
AND REGULATED BY THE RBI. IT ENSURES THE SMOOTH WORKING OF THE MARKET, AVAILABILITY OF
FOREIGN EXCHANGE, MAINTAINING THE STABLE EXCHANGE RATES AND INVEST THE FOREIGN EXCHANGE
IN A PROFITABLE MANNER. THE RBI BUYS ANS SELLS FOREIGN EXCHANGE TO PREVENT VOLATILITY IN THE
MARKET AND SPECULATION.

5. CONTROL OF CREDIT: THE RBI CONTROLS AND REGULATE THE QUANTUM AND FLOW OF CREDIT BY
COMMERCIAL BANK. IT USES BOTH QUANTITATIVE AND QUALITATIVE METHODS. QUANTITATIVE WEAPONS
CONSIST OF BANK RATE OPEN MKT. OPERATION AND RESERVE REQUIREMENTS. QUALITATIVE CONTROL
MEASURES INCLUDE CONSUMER CREDIT REGULATION, VARIATION N MARGIN REQUIREMENTS, DIRECT
ACTION, MORAL SUASION ETC.

6. CLEARING HOUSE: ALL BANKING TRANSACTIONS ARE CLEARED BY THE CENTRAL BANK AS THE CENTRAL
CLEARING HOUSE. DUE TO THE INTERBANK CLAIMS ARE CLEARED EASILY AND QUICKLY. COMUTERISATION
OF THE CLEARING OPERATION ENABLES THE CENTRAL BANK TO DISCHARGE THIS FUCTION EFFECTIVELY.