RESERVE BANK OF INDIA

AND MONETARY POLICY

PRESENTATION OF BUSINESS ENVIRONMENT

SUBMITTED TO: DR. EKTA NARULA

SUBMITTED BY: BHAVNA
M.COM-I
18127/19
 RESERVE BANK OF INDIA
The Reserve Bank of India is India's central bank, which
controls the issue and supply of the Indian rupee. RBI is the
regulator of entire banking in India. The bank is headed by the
governor, currently Shaktikanta Das.
 India’s central banking institution.
 Controls monetary policy of Indian rupee.
 Commenced operation on 1st April 1935.
 Nationalised on 1st January 1949.
 Head quarter in Mumbai.
 Regional headquarter at Mumbai, Chennai,
Kolkata and New Delhi.
 FUNCTIONS OF RBI
1. Monopoly of currency notes issue
2. Banker to the Government(both the central and state)
3. Agent and advisor to the Government
4. Banker’s Bank
5. Acts as the clearing house of the country
6. Lender of the last resort (B R P)
7. Custodian of the foreign exchange reserves
8. Maintaining the external value of domestic currency
9. Controller of forex and credit (Credit Policy)
10. Ensures the internal value of the currency
11. Publishes the Economic statistical data
12. Fight against economic crisis and ensures stability of
economy
 MONETARY POLICY
The monetary authority, typically the central bank of a country, is
vested with the responsibility of conducting monetary policy.
Monetary policy refers to the use of instruments under the
control of the central bank to regulate the availability, cost and
use of money and credit. Objectives of monetary policy are listed
below:
 Maximum feasible output.
 High rate of growth.
 Fuller employment.
 Price stability.
 Greater equality in the distribution of income and wealth.
 Healthy balance in balance of payments(BOP).
 What is the Composition of the Monetary
Policy Committee?
The composition of the Monetary Policy Committee is as follows:
1. Governor of the Reserve Bank of India – Chairperson, ex officio:
Shri Shaktikanta Das

2. Deputy Governor of the Reserve Bank of India, in charge of

Monetary Policy–Member, ex officio: Dr. Michael Debabrata Patra

3. One officer of the Reserve Bank of India to be nominated by the

Central Board – Member, ex officio: Dr. Janak Raj

4. Dr. Chetan Ghate, Professor, Indian Statistical Institute (ISI):

Member

5. Dr. Pami Dua, Director, Delhi School of Economics: Member

6. Dr. Ravindra H. Dholakia, Professor, Indian Institute of

Management, Ahmedabad: Member.
How a Central Bank Executes Monetary Policy?
Monetary policy involves managing interest rates and credit
conditions, which influences the level of economic activity.
 The discount rate is the interest rate Reserve Banks charge
commercial banks for short-term loans. Federal Reserve
DISCOUNT lending at the discount rate complements open market
operations in achieving the target federal funds rate and serves
RATE as a backup source of liquidity for commercial banks.
Lowering the discount rate is expansionary because the
discount rate influences other interest rates and vice versa.

Reserve requirements are the portions of

deposits that banks must hold in cash, either in
RESERVE their vaults or on deposit at a Reserve Bank. A
REQUIREMENTS decrease in reserve requirements is
expansionary because it increases the funds
available in the banking system and vice versa.
 Open market operations is a tool that the RBI uses
OPEN to smoothen liquidity conditions through the year
and regulate money supply in the economy. Open
MARKET market operations is the sale and purchase of
OPERATIONS government securities and treasury bills by RBI or
the central bank of the country.

It is the newest and most frequently used tool

given to the Fed by Congress after the Financial
INTEREST ON Crisis of 2007-2009. Interest on reserves is paid
RESERVES on excess reserves held at Reserve Banks. The
current policy of paying interest on reserves
allows the Fed to use interest as a monetary policy
tool to influence bank lending.
 RBI’s 7th Bi-monthly Monetary Policy
Statement for 2019-20
In view of the COVID-19 pandemic, the Reserve Bank of India’s
Monetary Policy Committee (MPC) decided to advance the Bi-
monthly Monetary Policy meet. The meeting was advanced to 24th,
26th and 27th March 2020.
During the seventh Bi-monthly Monetary Policy meet, the MPC
analysed the current & evolving macroeconomic and financial
conditions and has decided to take a accommodative stance and
hence reduced the policy repo rate to revive growth as well as to
mitigate the impact of COVID-19. With its decisions, MPC aims to
keep inflation within the target and hence to preserve financial
stability.
The key decisions taken in the 7th Bi-Monthly
Monetary Policy
We are living through an extraordinary and unprecedented situation.
Everything hinges on the depth of the COVID-19 outbreak, its spread
and its duration. In the recent period, the Reserve Bank has been in
action on a daily basis with efforts to alleviate financial stress, build
confidence and keep the financial system sound and functioning. This
decision and its advancement has been warranted by the destructive
force of the corona virus. It is intended to:

Mitigate the negative Revive growth; and Preserve financial

effects of the virus above all stability.
The key decisions taken in the 7th Bi-Monthly Monetary Policy
Committee meeting are:
The repo rate under the liquidity adjustment facility (LAF) has been
reduced by 75 basis points from 5.15% to 4.40%.

The reverse repo rate under the LAF has been reduced by 90 basis
points from 4.90% to 4.00%.

The marginal standing facility (MSF) rate and the Bank Rate have
been reduced from 5.40% to 4.65%.

Apart from above, RBI has also decided to reduce the Cash reserve
Ratio of all banks by 100 basis points from 4% to 3% of Net
Demand and Time Liabilities. This would be effective from 28th
March 2020 for a period of one year. Also, all lending institutions
have been allowed a moratorium period of 3 months for all term loans
outstanding as on March 1, 2020.
 DEVELOPMENTAL AND REGULATORY
POLICIES
The developmental and regulatory policies can be broadly delineated
under four categories:
(1) Measures to expand liquidity in the system sizeably to ensure that financial markets and
institutions are able to function normally in the face of COVID-19 related dislocations.

(2) Steps to reinforce monetary transmission so that bank credit flows on easier terms are
sustained to all those who have been affected by the pandemic.

(3) Efforts to ease financial stress caused by COVID-19 disruptions by relaxing repayment
pressures and improving access to working capital.

(4) Endeavour to improve the functioning of markets in view of the high volatility
experienced with the onset and spread of the pandemic.
I. Liquidity Measures
A multi-pronged approach, comprising both targeted and system-wide
liquidity provision, has been adopted to ensure that COVID-19 related
liquidity constraints are eased.
TARGETED LONG TERM MARGINAL STANDING
REPO OPERATIONS FACILITY
(TLTRO) In view of the exceptionally
To mitigate the adverse high volatility in domestic
effects on economic activity CASH RESERVE RATIO financial markets which
leading to pressures on brings in phases of liquidity
It has been decided to reduce
cash flows across sectors, the stress and to provide comfort
the cash reserve ratio (CRR) of
Reserve Bank will conduct to the banking system, it has
all banks by 100 basis points to
auctions of targeted term been decided to increase the
3.0 per cent of net demand and
repos of up to three years accommodation under the
time liabilities (NDTL).
tenor of appropriate sizes for marginal standing facility
a total amount of up to (MSF) from 2 per cent of the
1,00,000 core at a floating statutory liquidity ratio (SLR)
rate, linked to the policy repo to 3 per cent with immediate
rate. effect.
II. Regulation and Supervision
Alongside liquidity measures, it is important that steps are taken to
mitigate the burden of debt servicing brought about by disruptions on
account of COVID-19 pandemic. The steps are as follows:
MORATORIUM ON TERM DEFERMENT OF INTEREST
LOANS ON WORKING CAPITAL
All commercial banks, co- FACILITIES
operative banks, all-India In respect of working capital
Financial Institutions, and facilities, lending institutions are
NBFCs are being permitted to being permitted to allow a
allow a moratorium of three deferment of three months on
months on payment of payment of interest in respect of all
instalments in respect of all term such facilities outstanding as on
loans outstanding as on March 1, March 1, 2020
2020.
 EASING OF
WORKING DEFERMENT OF
CAPITAL LAST TRANCHE
FINANCING DEFERMENT OF OF CAPITAL
In respect of IMPLEMENTATIO CONSERVATION
working capital N OF NET STABLE BUFFER
facilities, lending FUNDING RATIO It has been decided
institutions are (NSFR) to further defer the
allowed to It has now been implementation of
recalculate drawing decided to defer the the last tranche of
power by reducing implementation of 0.625 per cent of
margins and/or by NSFR by six months the CCB from
reassessing the to October 1, 2020. March 31, 2020 to
working capital September 30,
cycle for the 2020.
borrowers.
III. Financial Markets
The measure for financial markets assumes importance in the
context of the increased volatility of the rupee caused by the
impact of Covid-19 on currency markets.

At present, Indian banks are not

permitted to participate in this
market.
PERMITTING BANKS TO Accordingly, banks in India
DEAL IN OFFSHORE NON- which operate International
DELIVERABLE RUPEE Financial Services Centre
DERIVATIVE MARKETS (IFSC) Banking Units (IBUs)
are being allowed to participate
in the NDF market with effect
from June 1, 2020.
Major Monetary Policy Rates And Reserve
Requirements
INDEX CURRENT RATE

CASH RESERVE RATIO 3%

STATUTORY LIQUIDITY RATIO 18.25%

REPO RATE 4.40%

REVERSE REPO RATE 4%

MARGINAL STANDING FACILITY 4.65%

BANK RATE 4.65%

 A COMPARATIVE STUDY OF KEY
INDICATORS OF MONETARY POLICY OF
PAST TEN YEARS.
The current Repo Rate
is 4.40% and Reverse
Repo Rate is 4.00%.
The Repo Rates last
witnessed a change in
its level on March 27,
2020 when Repo Rate
declined by 0.75%
from its previous level
of 5.15%. and the
Reverse Repo Rate
declined by 0.90%
from its previous level
of 4.90%.
 The current Marginal
Standing Facility (MSF) Rate
is 4.65%. The Marginal
Standing Facility (MSF) Rate
last witnessed a change in its
level on March 27, 2020
when it declined by 0.75%
from its previous level of
5.40%.

The current Bank Rate is

4.65%. The Bank Rate last
witnessed a change in its
level on March 27, 2020
when it declined by 0.75%
from its previous level of
5.40%.
 The current Cash Reserve
Ratio (CRR) is 3.00%. The
Cash Reserve Ratio (CRR)
last witnessed a change in its
level on February 09, 2013
when it declined by 0.25%
from its previous level of
4.25%.

The current Statutory

Liquidity Ratio (SLR) is
18.25%. The Statutory
Liquidity Ratio (SLR) last
witnessed a change in its level
on January 04, 2020 when it
declined by 0.25% from its
previous level of 18.50%.
 REFERENCES
 https://currentaffairs.adda247.com/rbis-7th-bi-monthly-moneta
ry-policy-statement-for-2020-21
/

 https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=3847

 https://
www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=49
581

 https://
www.franklintempletonindia.com/downloadsServlet/pdf/rbi-m
onetary-policy-review-march-27-2020-k4t99ivm