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To maintain Internal Value of the Nations Currency To preserve the External Value Of the Nations currency To Ensure Reasonable Price Stability To Promote Economic Growth To Promote Robust Payment System & financial Structure To Maintain Available Adequate Credit/ Money Supply
Issue & Regulation of Legal Tender Currency Bank & Fiscal Agent for the Govt. Banker For Commercial Banks Lender Of last Resort Management Of Foreign Exchange Reserves Monetary Policy Macro Economic Management Custody Of Cash Reserves Of Commercial Banks Lending & Refinancing Commercial banks Regulation Of Banks
Regulation & Supervision Of Banks Regulation & Supervision Of Financial System Deposit Insurance & Credit Guarantee Schemes Development of Clearing, Payment & Settlement System Regulation Of Foreign Exchange Market
External Financial Relations Agent (WB/IMF) Micro Credit, Preferential Sectoral Credit Micro Economic Research Statistical Correspondent For International Agencies Surveillance Of Banking & financial System
Institution Building (IFCI.UTI) Development of Financial Market Fostering Inter-Central Bank Co-Operation (Basel Accord) Reserve Functions RBI FEDERAL RESERVE SYSTEM USA SOUTH AFRICAN RESERVE BANK RESERVE BANK OF AUSTRALIA .IDBI.
Evolution of RBI Presidency Bank Imperial Bank Of India (1921) Central Banking Enquiry Committee (1931) (1926.1935 (Capital– 5 Crore) Nationalisation of RBI.1934 Constitution Of RBI.1949 .Hiltton Young Commission) Reserve Bank Of India Act. April 1.
Central Banks RBI & Financial Institutions IDBI (Industrial Development Bank Of India) NABARD (National Bank Of Agriculture & Rural Development) IRBI (Industrial Reconstruction Bank Of India) UTI (Unit Trust Of India) DFHI (Discount & Finance House Of India .
” .RBI (Core Functions) Preamble “To Regulate the issue of Bank Notes & the keeping of reserve with a view of securing monetary stability in India & generally to operate the currency & credit system of the country to its advantage.
Maintaining Price Stability 2.Financial Resources For Development Promotion Of An Efficient Financial System Meeting of the Currency Requirement of the Public . Operating Monetary Policy 1.
RBI FUNCTIONS 1.Monetary Functions Bank Of Issue Banker to the Government Banker‟s Bank Lender of Last Resort Controller of Credit Custodian of Foreign Reserves Clearing House Payment System Management .
2. Reports & Statistics Managing Associate Institutions Implementing Financial Sector Reforms Licensing of Banks Branch Expansion .RBI Peripheral Functions Clearing House Regulation & Supervision over Commercial Banks Promotional Activity Publication of Statements.
Organisation Of RBI CENTRAL BOARD GOVERNOR 4 DEPUTY GOVERNORS 4 DIRECTORS (ONE FROM EACH LOCAL BOARD) 10 NOMINATED DIRECTORS ONE NOMINATED GOVT. OFFICIAL .
ORGANISATION OF RBI CENTRAL BOARD COMMITTEE OF THE CENTRAL BOARD 4 LOCAL BOARD + 18 BRANCHES INTERNAL ORGANISATION & MANAGEMENT + TRAINING COLLEGES .
Abridged Balance Sheet of the RBI Liabilities Paid up Capital Reserves Currency Bank Deposits Government Deposits Other Liabilities Assets Loans & Advances of Which to Government Banks Others Investments of Which Govt. Securities Foreign Assets Gold Other Assets Total Assets Total Liabilities .
INSTRUMENTS OF CENTRAL BANK POLICY MONETARY POLICY A programme of action undertaken by the monetary authorities. to control & regulate the supply of money with the public and the flow of credit with a view of achieving predetermined macroeconomic goals. .generally the Central Bank.
Objectives of Monetary Policy Growth Employment Stability of price & Foreign Exchange Balance of payment Equilibrium Regulation & Monetary Growth Credit Expansion Reserve Bank Of India (RBI) .
Annual Policy Statement .Features Of RBI Monetary Policy Heart of Central Bank Function Announced twice a year Till 1992.Monetary & Credit Policy Since 2004-05.Credit Policy Post 1992.
” Weapons Of Monetary Policy .Instruments of Monetary Policy “Instruments are economic variables that the Central Bank can change at its discretion with a view to controlling & regulating the money supply and availability of credit.
Secondary market Securities Foreign Exchange Swaps . Primary market sale 2.INSTRUMENTS Direct Instruments Indirect Instruments Interest Rate Control Credit Ceilings Rediscounts Quotas SLR Selective Credit Control Moral Suasion Reserve Requirement Rediscount Window Open Market Operations 1.
1935 defines „the standard rate at which the RBI is prepared to buy or rediscount bills of exchange or other commercial papers eligible for purchase under this Act‟. Common method of borrowings by common Banks Rate subject to expansion or reduction of credit Increase in Credit Creation.Bank Rate Policy/ Discount Rates RBI Act.Increase Bank Rate .Decrease in Bank Rate Decrease in Credit Creation.
Bonds Reduces Capacity to Borrow Difficult to maintain High Cash Reserve Reduces Credit Creation .Working of BRP 1 Increase in Discount Rate Reduces Net Worth of Govt.
Working of BRP 2. Increase in Discount Rate Increase in Discount Rate by Commercial Banks Discourages Discount of B/E Demand for Fund Decreases .
Increase in Deposit Rate Savings Flow into the banks. .Working of BRP 3. Deposit Mobilisation effect. Money with public decreases.
Affects Multiple Credit Creation. K=1/r . CRR slashed for monetary expansion. CB sole deciding authority. Imposed to avoid liquidity crunch.CASH RESERVE RATIO (CRR) „It is the percentage of total deposits which commercial banks are required to maintain in the form of cash reserve with the central bank‟ CRR a legal requirement.
STATUTORY LIQUIDITY RATIO (SLR) „ It is the proportion of the total deposits which commercial banks are Statutorily required to maintain in the form of liquid assets. in addition to CRR. IN INDIA THE TASK IS EASIER . Prevents Banks from Liquidating assets. when CRR is raised Same Impact of CRR.
. Treasury Bills.Open Market Operation Most Important Tool of Monetary Control Creates More Liquidity OR WITH DRAWS EXCESS LIQUIDITY Sale or Purchase of Government Securities. Government Bills.
General Public Purchase of Govt. Reduces Deposits with Commercial Banks. Purchase by cheques drawn on Commercial Banks.WORKING OF OPEN MARKET OPERATIONS 1. . Credit Creation by Commercial Banks decreases. Bonds & Securities.
Fall in Reserves reduces credit creation. Fall in flow of credit to the public. COMMERCIAL BANKS Cash Reserve goes down. .WORKING OF OPEN MARKET OPERATIONS 2.
.WORKING OF OPEN MARKET OPERATIONS Interest Rate goes up. Supply & demand of credit are affected. Pushes overall interest rate. Reduces demand for credit.
SELECTIVE CREDIT CONTROLS Sec 21 of Banking Regulation Act. Maximum Guarantees. . Margins to be maintained in respect of secured advances. Rate of Interest. Maximum Advances to a borrower.1949 DIRECTIVES Purchase for advances may or may not be made.
.SELECTIVE CREDIT CONTROLS Sec 21 & RBI Minimum margins for lending against specific securities Ceiling on amount of credit for certain purpose. Discriminating rate of interest.
SELECTIVE CREDIT CONTROLS PRECAUTION Bank Credit for Production and Transportation of Commodities & Exporters NOT AFFECTED FOCUS ON – Credit to Traders for financing inventories. .
. No element of Compulsion.‟ Letters to Commercial Banks‟. Meetings with Bankers.MORAL SUASION „It is the method of persuading and convincing the commercial banks to advance credit in accordance with the directives of the central bank in the overall economic interest of the country. Veiled threats.
Net Foreign Exchange Assets. .Working of Monetary Instruments in India BROAD MONEY EXPANSION (M3) PRE.SUPPOSES Expected Rate of Growth of GDP Tolerable Level of Inflation Existence of a Stable demand for money SOURCES Net RBI credit to Govt.
.Working of Monetary Instruments in India PRE-REFORM Administered Interest Rate Regime Budget estimated Real Growth (GDP) Inflation Consistency check Estimated movements in the sources of money supply.
paper.market related. Prominence for Market Related Interest Rates. Interest Rate on Govt. borrowing programme conducted through auctions. Since 1992. REFORMS & POST REFORM PERIOD. RBI.5% to 25% from Oct 97 CRR cut to 5% from Oct 05 Bank Rate linked to all other rates.task of LAF . Open Market Operations (OMO) Shift to indirect instruments of policy Use of OMO and Repos Efforts to widen and deepen money market SLR brought down from 38.
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