CENTRAL BANK(RBI)

The Reserve Bank Of India (RBI) is the nations Central Bank . Established in 1 April 1935 under the Reserve Bank Of India

Act ,1934. Its head quaters is in Mumbai (Maharshtra). Its present governor is Duvvuri Subbarao. It has 22 regional offices , most of them are in State Capitals. Website : www.rbi.org.in.

 It was set up on the recommendation of the Hilton Young

Commission. It was started as shareholders bank with a paid up capital of 5 crores. Initially it was located in Kolkata and it moved to Mumbai in 1937. Initially it was privately owned. Since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India. The first Indian Governor was Sir Chintaman D.Deshmukh.

 The Preamble of the Reserve Bank of India describes the basic

functions of the Reserve Bank as: "...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage."

Central Board : The Reserve Banks affairs are governed by a central board of directors.The board is appointed by the Government of India as per the RBI Act. Appointed/nominated for a period of four years Constitution: Official Directors Full-time : Governor and not more than four Deputy Governors Non-Official Directors Nominated by Government: Ten Directors from various fields and one government Official Others: Four Directors - one each from four local boards

 Six meetings at a minimum each year. One meeting at a minimum each quarter. Function General superintendence and direction of the banks

affairs.

 Local Board : Local Board members , appointed by the central

Government for four year , represent regional and economic interest . One each for the four regions of the country in Mumbai, Calcutta, Chennai and New Delhi . Membership: consist of five members each . appointed by the Central Government . for a term of four years. Functions : To advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks; to perform such other functions as delegated by Central Board from time to time.

Monetary Authority : Formulate monetary policy Objective Maintain price stability and ensuring adequate flow of credit in the economy. What RBI does It formulates , implement and monitors the monitory policy. - Instruments : Qualitative and Quantitative. Quantitative Measures Bank Rate It is also called as discount rate. It is the rate at which the Reserve Bank is ready to buy or rediscount bill of exchange and other commercial papers. Also known as repo rate.
1)

 Open market operations It involve buying and selling of

Government securities by the Central Bank , from or to the public and banks. Through OMOs RBI can affect the reserve position of banks , volume and cost of bank credit. It can be conducted in T-Bills , State Government securities and Central Government securities. Variable Reserve Ratio It includes CRR and SLR. Cash Reserve Ratio : The share of net demand and time liabilities that banks must maintain as cash balance with Reserve Bank. Statutory Ratio : The share of net demand and time liabilities that banks must maintain in safe and liquid assets , such as Government securities , cash and gold.

Quantitative Measures Margin Requirements - A margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of their counterparty (most often their broker or an exchange). Moral Suasion Informal contacts , consultations, meetings, to explain position of central bank on various issues. It implies the central bank exerting pressure on banks by using oral and written appeals to expand or restrict credit in line with its credit policy.

2) Regulate and supervise the financial system :

Objective - To maintain public confidence in the system , protect depositors interest and provide cost effective banking services to the public. What RBI does - Prescribes broad parameters of banking operations within which the countrys banking and financial system functions. - The RBI perform this function under the guidance of the board for financial supervision (BFS).

3) Manager of Foreign Exchange :

Objective To facilitate external trade and payment and

promote orderly development and maintenance of foreign exchange market in India. What RBI does It acts as a custodian and manages the foreign exchange management act,1999. - RBI buys and sells foreign currency to maintain the exchange rate of Indian Rupee Vs foreign currencies like US dollars, euro,pound etc.

4) Issue of Currency :
Objective To ensure adequate quantity of supplies of currency

notes and coins of good quantity. What RBI does Issues new currency and destroys currency and coins not fit for circulation. - It has to keep in forms of gold and foreign securities as per statutory rules against notes and coins issued. 5) Developmental Role : Objective To develop the quantity of banking system in India. What RBI does Performs a wide range of promotional functions to support national objectives. - To establish financial institutions of national importance , for e.g. NABARD , IDBI etc.

 Note issuing authority : It is responsible for the design, production

and overall management of the nations currency , with the goal of ensuring an adequate supply of clean and genuine notes. Government Banker : Provides Government all banking services, like acceptance of deposits , with drawal of funds, transfer of funds etc. Bankers Bank : RBI determines credit creating ability of banks . In times of need , banks borrow funds from RBI. Exchange Control Authority : Administers Foreign Exchange control. Manage exchange rate between Rupee and Other currencies. Manage exchange reserves. Regulator of money and credit : Formulates and conducts monetary policy.

BY : NIDA ZAIDI A - 026