TOPIC

FUNCTION OF RESERVE BANK OF INDIA

 ACKNOWLEDGEMENT
I would like to extend my gratitude and thankfulness to my Economics teachers for
assigning me the project and guiding and teaching me the least may fore the
completion of the project. Also I would like to extend my whole wanted gratitude and
thankfulness as well as respect to my parents, siblings and my friends who helped me
a lot for making the project.
Moreover, any further suggestion and recommendation for making this project perfect
and to improve its quality would be expected.
 INDEX
SL NO. CONTENT SLIDE
NO.
1. Introduction 5
2. Preamble 6
3. History 7
4. Structure of RBI 8
5. Organization 9
6. Governor of RBI 10
7. Function of RBI 11 - 19
8. Quantitative Measure of Credit Control 20 - 28
9. Conclusion 29 - 30
10. Bibliography 31
11. Webliography 32
 INTRODUCTION
The Reserve Bank of India is the central basis of India. It was established
on April 1, 1935 in accordance with the provision of the Reserve Bank of
India Act, 1934.

RBI was originally constituted with the capital of Rs. 5 crores. The entire
share capital was constituted privately with the exception of the nominal
value of Rs. 2.2 lakhs subscribed by the central bank.

After Independence, the Reserve Bank of India was nationalized.

 PREAMBLE
This Preamble of RBI describes its basic functions to regulate the issue of
bank notes, keep reserves of secure monetary stability in India and
generally to operate the currency and credit system in the best interest of
the country.
 HISTORY
The Reserve Bank of India was set up on the basis of the recommendation of the Hilton
Young Commission. It began its operation by taking over from the government the
functions so far being performed by the controller of the currency and from the imperial
bank of India, the management of government accounts and public debt.

Initially, RBI was the central bank of two other countries apart from India – Pakistan (till
June 1948) and Myanmar (till April 1947)

RBI was formed on April 1, 1935 as a private entity, but after its nationalization on Jan 1,
1949 it became a government body.

The original headquarter of RBI was in Kolkata, but in 1937 it was shifted to Shahid
Bhagat Singh Marg in Mumbai.
STRUCTURE OF RBI
Central Board of Director
Governor
Deputy Governor
Executive Governor
Principal Chief General Manager
Chief General Manager
Deputy General Manager
Assistant General Manager
Manager
Assistant Manager
Support Staff
 ORGANIZATION
The Reserve Bank: Affairs are governed by a central board of
directors. The board is appointed the government of India in
keeping with the Reserve Bank of India Act.
The Central Board of Directors consist of 20 members. It is
constituted as follows:-
● One Governor
● Four Deputy Governors
●Fifteen Directors
LOCAL BODIES
● One each for the four regions of the country in Mumbai, Kolkata,
Chennai and Delhi.
● Consist of five members and appointed by the central
government for the term of four years.
EMBLEM OF RBI
 GOVERNOR OF RBI

The Governor of RBI is the CEO of this highly critical organization.

Appointed for a turn of 5 years or less, the RBI Governor is
nominated by the Central government under section 8 of the
Central Reserve Bank of India Act. Usually, leading economists are
selected for this position. The Governor of the RBI is supported by
tour Deputy Governor.

The first Governor of RBI was Sir Osleorse Smith while CD

Deshmukh was the first Indian RBI Governor.

Shaktikanta Das (12th December 2018 onwards) is the present

Governor of RBI.
THE GOVERNOR OF RBI
FUNCTIONS OF RBI
1. Central Bank prints Currency
Notes and Coins:

Central Bank has the monopoly power to issue currency notes and
coins which are legal tender, fiat and token money. In India, Central
Bank follows Minimum Reserve system in order to print currency
notes. In this system, a balance of foreign exchange and gold is to
be maintained in order to print currencies. Those currencies printed
by Reserve Bank have uniformity, and distinctive prestige in the
country and outside as well. Moreover, Central Bank can have a
control or money supply and printing of the currencies with this
responsibility
RBI , THE ISSUER OF CURRENCY NOTES
2. Central Bank acts as a Banker,
Fiscal Agent and Financial
Advisor to the Government:
As a banker to the Government, Central Bank performs the same
functions as done by the commercial bank with their customers.
Central Bank receives payment to tax, revenue (cash money),
cheques, drafts etc. and make payment to the Government for
paying salary, wags and money for other payments.
As a fiscal agent Central Bank maintains foreign exchange
reserves, manages public debts, calculates interest on rates and
determines methods of repayment of debts.
As an advisor to the Government Central Bank formulates various
Economic Policies in order to control inflation, generation of
employment, development of economy etc.
3. Central Bank acts as a banker
to the Commercial Banks:

Central Bank acts a guardian to the Commercial Banks and

performs various functions in order to improve banking network in
the economy. The Central Bank provide different types of loans
and advances to support financial needs of Commercial Banks. At
the same time, by providing guidance and direction, Central Bank
regulates functions of Commercial Bank.
4. Lender of the Last Resort:

We know, Commercial Banks extend loans in order to earn profit

by using deposited money of their customers. In this method, if
Commercial banks suddenly need currency notes after exhausting
their balance of money, they approach to the Central Bank for
financial assistance. This function of the Central Bank are called
“Lender of the Last Resort”. Central Bank actually provides such
loans in exchange of collateral securities, other documents, bills of
exchange etc.
5. Custodian of Nation’s Foreign
Exchange Reserve:
As the custodian of Foreign Exchange Reserve the Central Bank
performs several functions:-

i. All the foreign exchange transactions of a country are routed

through the Central Bank. The Central Bank controls both the
receipts and payment of foreign exchanges.
ii. It tries to maintain stability of the exchange rate. For this
purpose, it buys or sells foreign currencies to minimize
fluctuations in the foreign exchange rates.
iii. It enforces exchange control regulations prescribed by the
Government from time to time.
6. Publication of Economic and
Statistical Information:

The Central bank collects economic and statistical information

relating to different aspects of the economy and publishes
periodical reports. This provides valuable information regarding the
functioning of the economy. This also evaluates the Government to
formulate appropriate economic policies to promote economic
development.
7. Promotional and Development
Functions:
The Central Bank performs various promotional and development
functions:-
i. Central Bank is entrusted with the responsibility of developing
and promoting a strong banking system. For this purpose, it
provides liberal and cheap rediscounting facilities to
commercial banks and gives various types of concessions.
ii. Central Bank discharges various functions so as to promote
economic development of the country. It assists in the
development of financial institutions like “development banks”
to provide investable funds for the development of agriculture,
industry and other sectors of the economy. It helps in the
country. It also peruses appropriate monetary policy to promote
economic development.
8. Controller of Credit:
The most important function of the Central Bank is the control the
credit by the Commercial Banks. As explained earlier, credit money
or bank money is the major component of money supply in a
country. Therefore, it is essential that the supply of credit must be
regulated so as to ensure the smooth functioning of the economy.
For this purpose the Central Bank adopts various quantitative and
qualitative method of credit control. Qualitative methods aim at
controlling the cost and availability of credit. While the qualitative
method influence the use and discretion of credit.
The Central Bank basically follows two types of credit control
measures:-
i. Quantitative measures which control the volume of money
supply.
ii. Qualitative measures which determine direction of money
supply.
Quantitative Measure
of Credit Control:-
Quantitative instrument influence the availability
of credit indiscriminatily. The main instruments
are:-
1. REPO RATE:
Repo Rate refers to interest at which RBI lends to the commercial
banks for short period against government bonds.

DURING INFLATION DURING DEFLATION

● RBI raises the Repo Rate
●Borrowing Income expensive
●Banks are less interested to borrow
money which could reduce their
liquidity and ability to generate credit
●RBI decreases the Repo rate
●Borrowing become less expensive
●Banks are more interested to borrow
money which could increase their
liquidity and ability to generate credit
 YEAR REPO RATE

JANUARY, 2014 8.00%

SEPTEMBER, 2015 6.75%

APRIL, 2016 6.50%

OCTOBER, 2017 6.00%

AUGUST, 2018 6.50%

APRIL, 2019 6.00%

DECEMBER, 2020 4.00%

9%
REPO RATE
8.00%
8%

7% 6.75%
6.50% 6.50%
6.00% 6.00%
6%

5%
4.00%
4%

3%

2%

1%

0%
4 5 6 7 8 9 0
201 201 201 201 201 201 202
, , , R, , , ,
RY ER IL ST IL ER
A B R BE U R B YEAR
NU EM AP O G AP EM
JA P CT AU C
SE O DE
 Cash Reserve Ratio (CRR):
It is the minimum percentage of the total deposit within the
commercial banks which they are required to maintain in the form
of cash reserves with the Central Bank.

DURING INFLATION DURING DEFLATION

●RBI raises the CRR
●The excess reserves with the
Commercial Banks are reduced
●Reduces credit flow in the economic
system
●RBI decreases the CRR
●The excess reserves with the
Commercial Banks are increased
●Increases credit flow in the system
 YEAR CASH RESERVE RATIO (CRR)

JANUARY, 2014 4.00%

SEPTEMBER, 2015 4.00%

APRIL 2016 4.00%

OCTOBER, 2017 4.00%

AUGUST, 2018 4.00%

APRIL, 2019 4.00%

DECEMBER, 2020 3.00%

4.50%
CASH RESERVE RATIO (CRR)
4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
4.00%

3.50%
3.00%
3.00%

2.50%

2.00%

1.50%

1.00%

0.50%

0.00%
4 5 6 7 8 9 0
201 201 201 201 201 201 202
Y, R, , R, T, , R,
R E RIL E S RIL E YEAR
NUA EM
B
AP O
B GU AP EM
B
JA P CT AU C
SE O DE
 2.REVERSE REPO RATE:

It is the rate of interest at which the RBI borrows fund from the
commercial bank for short period.

DURING INFLATION DURING DEFLATION

●RBI raises Reverse Repo Rate ●RBI decreases Reverse Repo Rate
● Commercial Bank are induced to ●Commercial Banks are less inducted
give more loans to RBI to give loans to RBI
 YEAR REVERSE REPO RATE

JANUARY 2014 7.00%

SEPTEMBER 2015 5.75%

APRIL 2016 6.00%

OCTOBER 2017 5.75%

AUGUST 2018 6.50%

APRIL 2019 5.75%

DECEMBER 2020 3.35%

8%
REVERSE REPO RATE
7.00%
7%
6.50%
6.00%
6% 5.75% 5.75% 5.75%

5%

4%
3.35%
3%

2%

1%

0%
4 5 6 7 8 9 0
201 201 201 201 201 201 202
, , , R, , , ,
RY ER IL ST IL ER
A B R BE U R B YEAR
NU EM AP O G AP EM
JA P CT AU C
SE O DE
 STATUTORY LIQUIDITY RATIO (SLR)
It is that proportion of the total deposit of a commercial bank which
it has to keep with itself in the form of cash reserve gold and
government securities

DURING INFLATION DURING DEFLATION

●RBI raises SLR
●Cash reserves of commercial bank
decreases
●Rate of interest and price for credit
increases
●Demand for credit decreases
●Credit flow decreases in the
economic system
●RBI decreases SLR
●Cash reserves of commercial bank
increases
●Rate of interest and price of credit
decreases
●Demand of credit increases
●Credit flow increases in the
economic system
 YEAR STATUTARY LIQUIDITY RATIO (SLR)

JANUARY, 2014 22.00%

SEPTEMBER, 2015 21.50%

APRIL, 2016 20.25%

OCTOBER, 2017 19.50%

AUGUST, 2018 19.50%

APRIL, 2019 19.50%

DECEMBER, 2020 18.50%

23%
STATUTORY LIQUIDY RATIO (SLR)
22.00%
22%
21.50%

21%
20.25%
20%
19.50% 19.50% 19.50%

19%
18.50%

18%

17%

16%
4 5 6 7 8 9 ..
201 201 201 201 201 201 R,
.
, , , R, , , E
RY ER IL ST IL B
A B R BE U R
EM
YEAR
NU EM AP O G AP
CT AU EC
JA SE
P
O D
 CONCLUSION
In this project, the structure and functions of RBI have been duly
explained followed by an analysis of the key rates under monetary
policy.
●ANALYSIS
The reports of the last five years of CRR, SLR, REPO RATE and
REVERSE REPO RATE reveal the following observation:-
i. The CRR has remained uniform through the last five years.
ii. The SLR was highest in the year 2014 and the lowest in 2017
and 2018
iii. The REPO RATE was highest in 2014 and lowest in 2017
iv. The REVERSE REPO RATE was highest in 2014 and lowest in
2017
It can be concluded the year 2014 was period of Inflation
●DEMONETISATION:-
The last course adopted by RBI in India is “Demonetization”. It is
the act of stripping currency units of their status as legal sender. It
occurs whenever there is a currency change in the nation like in
2016 when Rs. 500 and Rs. 1000 notes were demonetized
●MERITS OF DEMONETISATION:-
i. Check on circulation of fake currency ( mainly Rs. 500 and Rs.
1000 notes)
ii. Opening of Jan Dhan accounts for transaction from where
money could be channelized for development activities.
●DEMERITS OF DEMONETISATION:-
iii. Inconvenience to individual exchange, deposit and withdrawal.
iv. Deeply affected business and caused the economy to a stand
still.
 BIBLIOGRAPHY
I have taken the help of the following books:-
●Frank ISC Economics Class XII by DK Sethi and U Andrews
 WEBLIOGRAPHY
I have taken help from the following websites:-

● www.wikipedia.org//reservebankofindiainfo
●www.hrblock.in
●www.rbi.org.in
●www.slideshare.net