8. Functions and Structure of RESERVE BANK of INDIA

7/25/2019 8. Functions and Structure of RESERVE BANK of INDIA

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RESERVE BANK OF INDIA


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INTRODUCTION

The Reserve Bank of India is the CentralBank of the contr!" entrsted #ith theres$onsi%ilit! of &onetar! sta%ilit!" the

&ana'e&ent of crrenc! and thes$ervision of (nancial as #ell as the$a!&ents s!ste&)

The Reserve Bank of India #as esta%lished

on A$ril *" *+,-" in accordance #ith the$rovisions of the Reserve Bank of IndiaAct" *+,.)


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C/RONO0O1ICA0 ORDER OFEVENTS

*+23 Birth of instittion

/ilton 4on' Co&&issionreco&&ends settin' $ of the

reserve %ank of india


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1935 The Reserve Bank of India is

esta%lished on A$ril *" and startsfnctionin')

1947 The Reserve Bank of India 'oes

national" as India 'ains inde$endence)

1949

The Reserve Bank of India isnationali5ed)


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2004-2005

RBI $ts in a &odern $a!&ent and

settle&ent s!ste&" strives to frtherstren'then the (nancial sector)

The Future

Drea& a%ot the instittion !o #ork for"drea& a%ot chan'es !o cold &ake tothe Indian econo&! and strive to trn!or drea&s into realit!)


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ISSUER OF CURRENCY

It isses notes in the follo#in'deno&inations6 Rs)2" Rs)-" Rs)*7"Rs)27" and Rs)-7" Rs)*77" Rs)-77"

Rs)*777)

It acts as the sole crrenc! athorit!or the &ono$ol! athorit! in issin'

crrenc! in the contr!


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BANKER TO GOVERNMENT

The Reserve Bank acts as a %ankernot onl! to the central 'overn&ent

%t also to the state 'overn&ents)


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BANKER TO BANK

The Reserve Bank &aintains the%ankin' acconts of all co&&ercialand schedled %anks)

It has $o#ers to re'late credit of%ankin' co&$anies)

The Reserve %ank can a$$oint an!

%ank as its a'ent)


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CONTROLLER OF CREDIT

RBI is e8$ected to correct in9ationar! orde9ationar! sitation #henever the!arise and achieve reasona%le econo&icsta%ilit! in the contr!)

For econo&ic sta%ilit!" RBI has tocontrol the credit created %!co&&ercial %anks #ith a vie# to

&a8i&i5e their $ro(ts)


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MONETORY POLICY OF RBI

:onetar! $olic! is the one e&$lo!ed %! theState thro'h its Central Bank" to controlthe s$$l! of &one! as an instr&ent ofachievin' the o%;ectives of the 'eneralecono&ic $olic!) Sch a $olic! strives at

&ini&i5in' the disadvanta'e of increasin'&one! s$$l! and to &a8i&i5in' the%ene(ts resltin' fro& the e8istence ando$erations of the &onetar! s!ste&)


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Formulate monetary ol!"y

:aintain $rice #ta$!l!tyand ensrin' a%e&uate'o(of credit in the econo&!)

It for&lates i&$le&ents and &onitors themonetary ol!"y)

Instr&ents6


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)uant!tat!*e Mea#ure#

>antitative :easres ?BANK RATE+ also called?D!#"ount Rate+)It also incldes ?Reo Rate+),Oen Mar-et Oerat!on#+ %!in' and sellin' of

'overn&ent secrities),Var!a$le Re#er*e Rat!o+ it incldes C.R.RandS.L.R

)ual!tat!*e Mea#ure#

/. Rat!on!n01. Mar0!n Re&u!rement#2. Le0!#lat!on3. Pu$l!"!ty


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BANK RATE

Its the interest rate that is char'ed %! a"ountry4# "entral $an- on loans and advances tocontrol &one! s$$l! in the econo&! and the%ankin' sector)

This is t!$icall! done on a


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REPO RATEBank sells the secrit! to RBI to raise &one!)hen %anks sell secrit! " %anks $ro&ise to %!

%ack the sa&e secrit! fro& RBI at a$redeter&ined date #ith an interest at the rate ofREO ) It is actall! a re$rchase a'ree&ent)henever the %anks have an! shorta'e of fnds the!

can %orro# it fro& the central %ank) Re$o rate is the rateat #hich or $an-# $orro( fro& the central %ank)

A redction in the re$o rate #ill hel$ %anks to 'et:one! at a "6eaer rate)

hen the re$o rate increases %orro#in' fro& the central%ank %eco&es more e5en#!*e)In order to increase the li


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REVERSE REO RATE

Its the rate at #hich the %anks $ark #urlu#7un%# #ith reserve %ank)

hile the Re$o rate is the rate at #hich the %anks$orro( fro& the central %ank)

It is &ostl! done " #hen there is sr$ls li


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OEN :ARKET OERATIONS

O$en &arket o$erations refer %roadl! to the$rchase and sale %! the central %ank of avariet! of assets sch as forei'n e8chan'e"'old" 'overn&ent secrities and even

co&$an! share) In $ractice" ho#ever" theseare con(ned to the $rchase and sale of1overn&ent secrities) The $ri&ar! o%;ective of these

o$en &arket o$erations is to a%sor% or$rovide li


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Varia%le Reserve RatioC)R)R HCash Reserve Ratio J Ca#6 Re#er*e

Rat!oHCRR is a s$eci(ed &ini&& fractionof the total de$osits of csto&ers" #hichco&&ercial %anks have to holdas re#er*e#either in "a#6or as de$osits

#ith the central %ank) CRRis set accordin' tothe 'idelines of the central %ank of acontr!)

S)0)R HStattor! 0i


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)ual!tat!*e Mea#ure#

*) Rationin' 6 The Reserve Bank of India sesrationin' of credit to channeli5e 9o# of creditinto desired areas) Under rationin'


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2. Le0!#lat!on8

The central %ank &a! also ado$t necessar!le'islation for e8$andin' or contractin' credit&one! in the &arket)

3. Pu$l!"!ty8

The central %ank &a! resort to &assive advertisin'ca&$ai'n in the ne#s $a$ers" &a'a5ines and;ornals de$ictin' the $oor econo&ic conditions of

the contr! s''estin' co&&ercial %anks and other(nancial instittions to control credit either %!e8$ansion or %! contraction)


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Mana0er o7 Fore!0n E5"6an0e

To facilitate e8ternal trade and $a!&ent and$ro&ote orderl! develo$&ent and &aintenance offorei'n e8chan'e &arket in India)

It acts as a cstodian and :ana'es the Fore!0nE5"6an0e Mana0ement A"t9:FEMA; /


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Mana0ement8Section *7 of the Bankin' Re'lation Act

e&$o#ered the Reserve Bank to chan'e &ana'eror director of an! %ank if it considers it necessar!

or desira%le) Bran"6 E5an#!on8

Section 2, re

8. Functions and Structure of RESERVE BANK of INDIA

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