2018

Role of RBI in Indian Banking System

GROUP 2
Shubham & Team
24/06/2018
 A PROJECT BY
Shubham & Team
Leader
Shubham Maddheshiya
Registration no Ero0223498

Contact no. 7980372079

Members
1. Sahil Desai
Wro

2. Mahima Bhatiya
Wro

3. Poonam Gupta
Wro

4. Ruchi
Wro

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 INDEX
No. Topics Pg
No.

01 Brief History 04

02 Functions of Central Bank 11

03 Monetary Policy 14

04 Development Role 18

05 RBI as Custodian of Country’s Foreign 20

Exchange Reserve
06 Banks of All Commercial Banks 22

07 Banking Ombudsman Scheme 25

08 Controller Of Credit 27

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Brief History

T he Reserve Bank of India is the central bank of the country. Central

banks are a relatively recent innovation and most central banks, as
we know them today, were established around the early twentieth
century.

The Reserve Bank of India was set up on the basis of the

recommendations of the Hilton Young Commission. The Reserve Bank of
India Act, 1934 (II of 1934) provides the statutory basis of the
functioning of the Bank, which commenced operations on April 1, 1935.

The Bank was constituted to

* Regulate the issue of banknotes
* Maintain reserves with a view to securing monetary stability and
* To operate the credit and currency system of the country to its
advantage.

The Bank began its operations by taking over from the Government the
functions so far being performed by the Controller of Currency and from
the Imperial Bank of India, the management of Government accounts and
public debt. The existing currency offices at Calcutta, Bombay, Madras,
Rangoon, Karachi, Lahore and Cawnpore (Kanpur) became branches of
the Issue Department. Offices of the Banking Department were
established in Calcutta, Bombay, Madras, Delhi and Rangoon.

Burma (Myanmar) seceded from the Indian Union in 1937 but the
Reserve Bank continued to act as the Central Bank for Burma till Japanese
Occupation of Burma and later up to April, 1947. After the partition of
India, the Reserve Bank served as the central bank of Pakistan upto June
1948 when the State Bank of Pakistan commenced operations. The Bank,
which was originally set up as a shareholder's bank, was nationalised in
1949.

An interesting feature of the Reserve Bank of India was that at its very
inception, the Bank was seen as playing a special role in the context of
development, especially Agriculture. When India commenced its plan
endeavours, the development role of the Bank came into focus, especially
in the sixties when the Reserve Bank, in many ways, pioneered the
concept and practise of using finance to catalyse development. The Bank
was also instrumental in institutional development and helped set up
institutions like the Deposit Insurance and Credit Guarantee Corporation
of India, the Unit Trust of India, the Industrial Development Bank of
India, the National Bank of Agriculture and Rural Development, the

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Discount and Finance House of India etc. to build the financial
infrastructure of the country.

With liberalisation, the Bank's focus has shifted back to core central
banking functions like Monetary Policy, Bank Supervision and Regulation,
and Overseeing the Payments System and onto developing the financial
markets.

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Purpose of RBI:
The main purpose of RBI was to provide financial stability during First World War.
Since then it is performing various function to aid in growth of Indian financial
system. The preamble of RBI best states the functions it carries out:

...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.

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Establishment
The Reserve Bank of India was established on April 1, 1935 in accordance
with the provisions of the Reserve Bank of India Act, 1934.

The Central Office of the Reserve Bank was initially established in Calcutta
but was permanently moved to Mumbai in 1937. The Central Office is
where the Governor sits and where policies are formulated.

Though originally privately owned, since nationalisation in 1949, the

Reserve Bank is fully owned by the Government of India.

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 Central Board
The Reserve Bank's affairs are governed by a central board of directors.
The board is appointed by the Government of India in keeping with the
Reserve Bank of India Act.

 Appointed/nominated for a period of four years

 Constitution:
o Official Directors
 Full-time : Governor and not more than four Deputy Governors
o Non-Official Directors
 Nominated by Government: ten Directors from various fields and two
government Official
 Others: four Directors - one each from four local boards

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 Financial Supervision
The Reserve Bank of India performs this function under the guidance of
the Board for Financial Supervision (BFS). The Board was constituted in
November 1994 as a committee of the Central Board of Directors of the
Reserve Bank of India.

Objective

Primary objective of BFS is to undertake consolidated supervision of the

financial sector comprising commercial banks, financial institutions and
non-banking finance companies.

Constitution

The Board is constituted by co-opting four Directors from the Central

Board as members for a term of two years and is chaired by the
Governor. The Deputy Governors of the Reserve Bank are ex-officio
members. One Deputy Governor, usually, the Deputy Governor in charge
of banking regulation and supervision, is nominated as the Vice-Chairman
of the Board.

BFS meetings

The Board is required to meet normally once every month. It considers

inspection reports and other supervisory issues placed before it by the
supervisory departments.

BFS through the Audit Sub-Committee also aims at upgrading the quality
of the statutory audit and internal audit functions in banks and financial
institutions. The audit sub-committee includes Deputy Governor as the
chairman and two Directors of the Central Board as members.

The BFS oversees the functioning of Department of Banking Supervision

(DBS), Department of Non-Banking Supervision (DNBS) and Financial
Institutions Division (FID) and gives directions on the regulatory and
supervisory issues.

Functions

Some of the initiatives taken by BFS include:

i. restructuring of the system of bank inspections

ii. introduction of off-site surveillance,
iii. strengthening of the role of statutory auditors and
iv. strengthening of the internal defences of supervised institutions.

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 The Audit Sub-committee of BFS has reviewed the current system of
concurrent audit, norms of empanelment and appointment of statutory
auditors, the quality and coverage of statutory audit reports, and the
important issue of greater transparency and disclosure in the published
accounts of supervised institutions.

Current Focus

 supervision of financial institutions

 consolidated accounting
 legal issues in bank frauds
 divergence in assessments of non-performing assets and
 supervisory rating model for banks.

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 Main Functions
Monetary Authority:

 Formulates, implements and monitors the monetary policy.

 Objective: maintaining price stability while keeping in mind the objective
of growth.

Regulator and supervisor of the financial system:

 Prescribes broad parameters of banking operations within which the

country's banking and financial system functions.
 Objective: maintain public confidence in the system, protect depositors'
interest and provide cost-effective banking services to the public.

Manager of Foreign Exchange

 Manages the Foreign Exchange Management Act, 1999.

 Objective: to facilitate external trade and payment and promote orderly
development and maintenance of foreign exchange market in India.

Issuer of currency:

 Issues and exchanges or destroys currency and coins not fit for
circulation.
 Objective: to give the public adequate quantity of supplies of currency
notes and coins and in good quality.

Developmental role

 Performs a wide range of promotional functions to support national

objectives.

Related Functions

 Banker to the Government: performs merchant banking function for the

central and the state governments; also acts as their banker.
 Banker to banks: maintains banking accounts of all scheduled banks.

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Functions of central bank – Banker to the government
Just as commercial banks are people’s banks, the central bank is a
banker to the Government. In the capacity of banker to the
government the central bank, performs the following functions for
the government.

The central bank acts as a banker, advisor and agent of the government.

A] Banker to the Government:

a] The central bank is the custodian of Government funds. It keeps all the
cash balances of the Government, but it does not pay any interest on
such funds.

b] It makes and receives all payments on behalf of the Government such

as salaries to the government servants, payment of interest to people on
public debt, pension to Government servants and so on.

c] Transfers government funds from one place to another place, and from
one account to another account. Thus the Reserve Bank of India has
branches in Mumbai, Delhi, Kolkata, Chennai, Kanpur, etc.

RBI has five zonal offices and 19 regional offices in most state capitals. It
can therefore easily transfer funds from one place to another as needed.
At other places, the branches of the State Bank of India act as agents of
the RBI.

d] It advances short term [temporary] loans to the government known as

“Ways and Means Payment” as and when required. This is usually done by
discounting the Government treasury bills.

e] It makes extraordinary advances to the Government during

emergencies.

f] It also provides foreign exchange to the government to meet its

external debt obligations and to spend money in foreign countries.

g] The Central Bank also helps the government to raise long term loans,
often directly contributing in such loans or by underwriting such loans.

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B] Advisor to the government:

The Central Bank gives useful advices to the Government on all important
monetary and economic matters such as,

a. Deficit financing
b. Devaluation of currency
c. Public debt
d. Price stability
e. Trade policy
f. Foreign exchange policy
g. Commercial policy
h. Monetary policy
i. Planning and budgetary policy, etc.

Since the Central Bank possesses full information about the working of
the economy, it is in a position to offer useful advice to the Government
on economic, financial and monetary matters.

In India RBI advises the government on all banking and financial matters
such as preparation of the financial budgets, resource mobilization,
measures to control inflation etc.

C] Agent of the government:

As an agent of the government,

a] The Central Bank manages public debt of the government.

Raising loans by selling securities and bonds, payment of interest,

repayment of loans on maturity are all undertaken by Central Bank.

b] Central bank maintains exchange rate stability.

c] As a representative of the Government, it manages the country’s

financial relations with international financial institutions.

In India, RBI acts as the agent of the government in respect of India’s

membership of the IMF(International Monetary Fund) and the World Bank
and attends international monetary and financial conferences through
experts.

In short it is a friend, philosopher and guide to the government.

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 MONETARY POLICY
Monetary policy refers to the use of certain regulatory tools under the
control of the RBI in order to regulate the availability, cost and use of
money and credit. It consists of the actions such as modifying the interest
rate, buying or selling government bonds, and changing the amount of
money banks are required to keep in the vault (bank reserves). Thus it
regulates the money supply in order to achieve macroeconomic objectives
like inflation, consumption, growth and liquidity.
In India, monetary policy of the Reserve Bank of India is aimed at
managing the quantity of money in order to meet the requirements of
different sectors of the economy and to increase the pace of economic
growth.

Broadly speaking, there are two types of monetary policy, expansionary

and contractionary. Expansionary monetary policy increases the money
supply in order to lower unemployment, reduce borrowing cost and boost
consumer spending, and stimulate economic growth. On the other hand, a
contractionary monetary policy is focused on decreasing the money
supply in the economy inorder to control inflation.

RBI uses a number of tools to shape monetary policy which include:

1) Quantitative or general measures
2) Qualitative or selective measures.
The quantitative or general measures influence the total volume of the
credit while the qualitative measures influence the selective or particular
use of credit.
Reserve Bank of India has the power to influence the volume of credit
created by banks in India. The banking regulation act 1949 says that the
Reserve Bank of India can ask any particular bank (or even all the banks
i.e. banking system of the country) to not to lend to particular groups/
persons.
Apart from this RBI is armed with weapons to control the money market
in India. For example each bank has to get a license from RBI to do
banking business in India and this license is always subject to cancellation
by RBI provided the bank does not fulfill the requirements stipulated by
RBI. Each scheduled bank needs to send a weekly report to RBI which
shows its assets and liabilities.
The quantitative measures of credit control are :

1. Bank Rate Policy : A bank rate is the official interest rate at which
RBI lends money to domestic banks. Managing the bank rate is a
method by which central banks affect economic activity. Lower bank

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 rates can help to expand the economy by lowering the cost of funds for
borrowers, and higher bank rates help to reign in the economy when
inflation is higher than desired.

2. Cash Reserve Ratio : Cash reserve ratio refers to that portion of total
deposits in commercial Bank which it has to keep with RBI as cash
reserves.
3. Statutory Liquidity Ratio : It refers to that portion of deposits with the
banks which it has to keep with itself as liquid assets such as Gold,
approved govt. securities etc. If RBI wishes to control credit and
discourage credit it would increase CRR & SLR.

4. Liquidity adjustment facility : Liquidity adjustment facilities are used

to aid banks in resolving any short-term cash shortages during periods
of economic instability or from any other form of stress caused by forces
beyond their control. Various banks will use eligible securities as
collateral through a repo agreement and will use the funds to alleviate
their short-term requirements, thus remaining stable.
It includes both repos and reverse repo agreements.

(i) Repo Rate : Banks borrows money from RBI to meet their short
term needs by selling securities to RBI with an agreement to repurchase
the same in future. The rate charged by RBI for this transaction is called
Repo rate. Collateral securities may include Government or treasury
bills, Corporate or Government bonds, mutual funds, stocks,etc.
A higher Repo rate increases the cost of funds with the banks. Besides
liquidity with the banks, the lending rates on loans to public are also a
function of the cost of funds of the banks. This increases the interest
rate charged to the customers. And thereby helps to regulate the credit
in the economy.

(ii) Reverse Repo Rate : Reverse repo rate is the rate at which the
RBI borrows money from commercial banks within the country. An
increase in the reverse repo rate will decrease the money supply and
vice-versa, other things remaining constant. An increase in reverse repo
rate means that commercial banks will get more incentives to park their
funds with the RBI, thereby decreasing the supply of money in the
market.

5. Marginal standing facility : It is the new Liquidity adjustment

facility created by RBI in its credit policy of May 2011. It is the rate at
which the banks are able to borrow overnight funds from RBI against the
approved government securities. In order to curb the problem of volatility
in interbank interest rates in the overnight rate, banks are allowed to

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 borrow more funds against government securities as collateral from the at
the rate decided in the policy.

SECOND BI-MONTHLY MONETARY POLICY STATEMENT

Policy Repo Rate 6.00%

Reverse Repo Rate 5.75%

Marginal Standing
6.25%
Facility Rate

Bank Rate 6.25%

CRR 4%

SLR 9.5%

6. Open Market Operations : The Open market Operations refer to

direct sales and purchase of securities and bills in the open market by
Reserve bank of India. At the time of inflation, RBI sells the Government
securities to public and reduces the money supply in the economy. While
in the case of deflation, it purchases such securities from the public and
increasing the liquidity in the market.

Qualitative measures:

Qualitative credit is used by the RBI for selective purposes. Some of them
are
1. Margin requirements: This refers to the difference between the
securities offered and amount borrowed by the banks. The extent of the
difference helps to control the borrowings from the commercial banks.
2. Consumer Credit Regulation: This refers to issuing rules regarding
down payments and maximum maturities of installment credit for
purchase of goods.
3. Guidelines: RBI issues oral, written statements, appeals, guidelines,
warnings etc. to the banks.

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4. Rationing of credit: The RBI controls the Credit granted / allocated by
commercial banks.
5. Moral Suasion: psychological means and informal means of selective
credit control to seek co-operation from banks.
6. Direct Action: This step is taken by the RBI against banks that don’t
fulfill conditions and requirements. RBI may refuse to rediscount their
papers or may give excess credits or charge a penal rate of interest over
and above the Bank rate, for credit demanded beyong a limit.

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 DEVELOPMENTAL ROLE
Along with the routine traditional functions, central banks especially in the
developing country like India have to perform numerous functions. These
functions are country specific functions and can change according to the
requirements of that country. Some of the major development functions
of the RBI are given below.
1. Development of the Financial System

The financial system comprises the financial institutions, financial markets

and financial instruments. The sound and efficient financial system is a
precondition of the rapid economic development of the nation. The RBI
has encouraged establishment of main banking and non-banking
institutions to cater to the credit requirements of diverse sectors of the
economy.
2. Development of Agriculture

In an agrarian economy like ours, the RBI has to provide special attention
for the credit need of agriculture and allied activities. It has successfully
rendered service in this direction by increasing the flow of credit to this
sector. It has earlier the Agriculture Refinance and Development
Corporation (ARDC) to look after the credit, National Bank for Agriculture
and Rural Development (NABARD) and Regional Rural Banks (RRBs).
3. Provision of Industrial Finance

Rapid industrial growth is the key to faster economic development. In this

regard, the adequate and timely availability of credit to small, medium
and large industry is very significant. In this regard the RBI has always
been instrumental in setting up special financial institutions such as ICICI
Ltd. IDBI, SIDBI and EXIM BANK etc.
4. Provisions of Training

The RBI has always tried to provide essential training to the staff of the
banking industry. The RBI has set up the bankers' training colleges at
several places. National Institute of Bank Management i.e NIBM, Bankers
Staff College i.e BSC and College of Agriculture Banking i.e CAB are few
to mention.
5. Collection of Data

Being the apex monetary authority of the country, the RBI collects
process and disseminates statistical data on several topics. It includes
interest rate, inflation, savings and investments etc. This data proves to
be quite useful for researchers and policy makers.

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6. Publication of the Reports

The Reserve Bank has its separate publication division. This division
collects and publishes data on several sectors of the economy. The
reports and bulletins are regularly published by the RBI. It includes RBI
weekly reports, RBI Annual Report, Report on Trend and Progress of
Commercial Banks India., etc. This information is made available to the
public also at cheaper rates.
7. Promotion of Banking Habits

As an apex organization, the RBI always tries to promote the banking

habits in the country. It institutionalizes savings and takes measures for
an expansion of the banking network. It has set up many institutions such
as the Deposit Insurance Corporation-1962, UTI-1964, IDBI-1964,
NABARD- 1982, NHB-1988, etc. These organizations develop and promote
banking habits among the people. During economic reforms it has taken
many initiatives for encouraging and promoting banking in India.
8. Promotion of Export through Refinance

The RBI always tries to encourage the facilities for providing finance for
foreign trade especially exports from India. The Export-Import Bank of
India (EXIM Bank India) and the Export Credit Guarantee Corporation of
India (ECGC) are supported by refinancing their lending for export
purpose.

Thus RBI helps in expanding access to affordable financial services

and promoting financial education and literacy.

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RBI as the Custodian of the Country’s Foreign
Exchange Reserve

The Central Bank of the country functions as a custodian of gold and the
major currencies like U.S. Dollar, Euro, Japanese Yen, the British Pound,
etc. obtained by the government and in the international trade. This
enables the Central Bank to exchange the national currency which means
Rupees in case of India into different currencies at fixed rate of exchange,
maintain the value of national currency at the determined level with a
view to attain equilibrium in the international trading transactions (i.e.
import and export of goods and services).

The RBI acts as the custodian of the country’s foreign exchange reserves,
manages exchange control and acts as the agent of the government in
respect of India’s membership of the IMF. Exchange control was first
imposed in India in September 1939 at the outbreak of World War II and
has been continued since. Under it, control was imposed on both the
receipts and payments of foreign exchange.

The foreign exchange regulations under the law required that all foreign
exchange receipts whether on account of export earnings, investment
earnings, or capital receipts, whether on private account or on
government account, must be sold to the RBI either directly or through
authorized dealers (mostly major commercial banks). This resulted in
centralization of country’s foreign exchange reserves with the RBI and
facilitated planned utilization of these reserves, because all payments in
foreign exchange were also controlled by the authorities.

The exchange control was so operated as to restrict the demand for

foreign exchange within the limits of the available supplies of it. Foreign
exchange was rationed among competing demands for it according to the
government policy. All this became essential in the context of actual or
potential shortage of foreign exchange, which had been an important
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constraint on India’s efforts at planned economic development, most of
the time.

It helps to maintain international liquidity of the country (i.e. meeting any

foreign obligation such as payment of interest and principal amount of
foreign loans in appropriate currencies). It also manages exchange control
operations by supplying foreign currencies to importers, businessman and
students going abroad. In India, RBI has the responsibility of maintaining
the exchange value of rupee.

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 BANK OF ALL COMMERCIAL BANKS

RBI is bank of all banks in India. As a banker of banks, RBI:

 1.Enables smooth and swift clearing and settlements of inter-bank
transactions.
 2.Provides efficient means of funds transfer for all banks.
 3.Enables banks to maintain their accounts with RBI for statutory
reserve requirements and maintenance of transaction balances.
 4.Acts as lender of last resort (LORL)

Reserve Bank maintains current account of all other banks and provides
them facility to maintain cash reserves and also to carry out inter-bank
transactions. RBI provides the Real Time Gross Settlement System
(RTGS) facility to the banks for inter-bank transactions.

As bankers’ bank, the RBI holds a part of the cash reserves of banks,

lends them funds for short periods, and provides them with centralised
clearing and cheap and quick remittance facilities. In the early stages of
the development of central banking, banks used to keep some of their

cash reserves voluntarily with a leading bank which gradually took over
the role of a central bank. The obvious advantage to individual banks was
that of the facility of centralised inter-bank clearing it automatically
provided.

Reserve-holding banks could settle their daily mutual clearings by drawing

upon or crediting to their individual accounts with one bank, the central
hank. Thus, the mere entries in the books of the central bank can settle

claims against each other among banks without the actual transfer of
cash.

The pooling of cash reserves of banks with one bank as the central bank
also led to a great economy of cash reserves for the banking system as
whole, because individual banks could borrow from the central pool of
reserves with the central bank whenever they fell short of cash.

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The conditions are substantially different in India. The RBI as the
country’s central bank is authorised statutorily to require scheduled
commercial bank to deposit with it a stipulated ratio (lying between 3 per
cent and 15 per cent) of their net total liabilities. This ratio is called Cash
Reserve Ratio (CRR). These reserves of banks with the RBI are held
neither voluntarily nor are available to them for meeting interbank
clearing drains except temporarily over the reserve period, that is, the
period over which the daily average of the required cash reserves is

calculated. Till March 29, 1985, this reserve period used to be a week.
From that date the length of this period has been doubled to a fortnight.

The true rationale of the statutory reserve requirement now is that by

varying it within limits the RBI can use it as a tool of monetary and credit
control. To meet any clearing drains, banks must hold extra reserves over
and above their statutory reserves or raise cash in other ways. The pool
of bank reserves with the RBI, however, does serve as the common fund

out of which the RBI can and does make advances to banks in temporary
need of funds. Normally, banks are supposed to meet their shortfalls of
cash from sources other than the RBI and go to it only as a matter of last
resort, because the RBI as the central bank is supposed to function as
only ‘the lender of last resort’.

Under the Reserve Bank of India Act, 1934 and the Banking Regulation
Act, 1949 (as amended from time to time), the RBI enjoys extensive

powers of supervision, regulation, and control over commercial and co-

operative banks.

The Bank’s regulatory functions relating to banks cover their

establishment (i.e. licensing), branch expansion, liquidity of their assets,
management and methods of working, amalgamation, reconstruction and

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liquidation. The control by the Bank is exercised through periodic inspec-
tion of banks and follow-up action and by calling for returns and other
information from them. The objective of such supervision and control is to
ensure the development of a sound banking system in the country.

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BANKING OMBUDSMAN SCHEME
Banking Ombudsman is a quasi judicial authority functioning under India’s
Banking Ombudsman Scheme 2006, and the authority was created
pursuant to a decision made by the Government of India to enable
resolution of complaints of customers of banks relating to certain services
rendered by the banks. The Banking Ombudsman Scheme was first
introduced in India in 1995, and was revised in 2002. The current scheme
became operative from 1 January 2006, and replaced and superseded the
banking Ombudsman Scheme 2002. From 2002 until 2006, around
36,000 complaints have been dealt by the Banking Ombudsmen.

Type of complaints resolved by banking ombudsman:

 The type and scope of the complaints which may be considered by a

Banking Ombudsman is very comprehensive, and it has been
empowered to receive and consider complaints pertaining to the
following:
 1.Non-payment or inordinate delay in the payment or collection
of cheques, drafts, bills, etc.;
 2.Non-acceptance, without sufficient cause, of small denomination
notes tendered for any purpose, and for charging of commission for
this service;
 3.Non-acceptance, without sufficient cause, of coins tendered and for
charging of commission for this service;
 4.Non-payment or delay in payment of inward remittances ;
 5.Failure to issue or delay in issue, of drafts, pay orders or bankers’
cheques;
 6.Non-adherence to prescribed working hours;
 7.Failure to honour guarantee or letter of credit commitments;
 8.Failure to provide or delay in providing a banking facility (other
than loans and advances) promised in writing by a bank or its direct
selling agents;
 9.Delays, non-credit of proceeds to parties' accounts, non-payment of
deposit or non-observance of the Reserve Bank directives, if any,
applicable to rate of interest on deposits in any savings, current or
other account maintained with a bank ;
 10.Delays in receipt of export proceeds, handling of export bills,
collection of bills etc., for exporters provided the said complaints
pertain to the bank's operations in India;
 11.Refusal to open deposit accounts without any valid reason for
refusal;

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 12.Levying of charges without adequate prior notice to the customer;
 13.Non-adherence by the bank or its subsidiaries to the instructions of
Reserve Bank on ATM/debit card operations or credit card operations;
 14.Non-disbursement or delay in disbursement of pension to the extent
the grievance can be attributed to the action on the part of the bank
concerned, (but not with regard to its employees);
 15.Refusal to accept or delay in accepting payment towards taxes, as
required by Reserve Bank/Government;
 16.Refusal to issue or delay in issuing, or failure to service or delay in
servicing or redemption of Government securities;
 17.Forced closure of deposit accounts without due notice or without
sufficient reason;
 18.Closure of account without customer concern.
 19.Refusal to close or delay in closing the accounts;
 20.Non-adherence to the fair practices code as adopted by the bank;
and
 21.Financial loss incurred to customer due to wrong information given
by bank official.
 22.Any other matter relating to the violation of the directives issued by
the Reserve Bank in relation to banking or other services.
 23.complaints from Non-Resident Indians having accounts in India in
relation to their remittances from abroad, deposits and other bank-
related matters;

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CONTROLLER OF CREDIT

Credit Control is an important tool used by the Reserve Bank of India, a

major weapon of the monetary policy used to control the demand and
supply of money (liquidity) in the economy. Central Bank administers
control over the credit that commercial banks grant. Such a method is
used by RBI to bring “Economic Development with Stability”. It means
that banks will not only control inflationary trends in the economy but
also boost economic growth which would ultimately lead to increase in
real national income stability. It is required to boost the economy by
facilitating the flow of adequate volume of bank credit to different sectors.
There are two methods of Credit Control:
1) QUANTITATIVE METHODS.
2) QUALITATIVE METHODS.

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1) QUANTITATIVE METHODS
Quantitative Credit Control means the control of the total quantity of
credit.
Different tools fall under this method are as follows:

1) BANK RATE:
Bank Rate, also known as the discount rate, is the official minimum rate
at which the Central Bank of the country is ready to rediscount approved
bills of exchange or lead on approved securities.
2) Open market operations:
It refers to the buying and selling of government securities in the open
market in order to expand or contract the amount of money in the
banking system.
3) CASH RESERVE RATIO:
Under CRR, a certain percentage of the total bank deposits has to be kept
in the current account with RBI which means banks do not have access to
that much amount for any activity, whether economic or commercial.

4)STATUTORY LIQUIDITY RATIO:

Under SLR, a commercial bank is required to keep a certain percentage of
the total bank deposits in the form of cash, gold, government approved
securities before providing credit to customers.

2)QUALITATIVE METHODS:
It is used to control the flow of credit in the economy. It may have direct
impact on particular sectors of the economy.
Different tools fall under this method are as follows:

1) RATIONING OF CREDIT:
Credit rationing is the limiting by lenders of the supply of additional credit
to borrowers who demand funds, even if the latter are willing to pay
higher interest rates. It is an example of market imperfection, or market
failure, as the price mechanism fails to bring about equilibrium in the
market.
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2)MARGIN REQUIREMENTS:
The Ceiling on level of credit restricts the lending capacity of a bank to
grant advances against certain controlled securities. Margin
Requirements. A loan is sanctioned against Collateral Security. Margin
means that proportion of the value of security against which loan is not
given.
3) REGULATION OF CONSUMER CREDIT:
Regulation of consumer credit is designed to check the flow of credit for
consumer durable goods. This can be done by regulating the total volume
of credit that may be extended for purchasing specific durable goods and
regulating the number of installments through which such loan can be
spread.
4) DIRECT ACTION:
Direct action may take any of the following forms:
Central banks may charge a penal rate of interest over and above the
bank rate upon the defaulting banks;
Central bank may refuse to rediscount the bills of those banks which are
not following its directives.

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