RESERVE BANK OF INDIA

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 nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

Preamble
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 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. for a period of four

Appointed/nominated

years

Constitution:

Official Directors

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

Non-Official Directors

Functions

: General superintendence and direction of the Bank's affairs

Local Boards
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

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.

Subsidiaries
Fully owned: National Housing Bank(NHB), Deposit Insurance and Credit Guarantee Corporation of India(DICGC), Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL) Majority stake: National Bank for Agriculture and Rural Development (NABARD) The Reserve Bank of India has recently divested its stake in State Bank of India to the Government of India

Functions of RBI
As

a currency authority Banker to the government Advisor to the government Bankers bank Lender of last resort Supervision of banks Controller of money supply

 Monetary

data & publications Foreign exchange control

Monetary policy
Monetary

policy refers to the use of official instruments under control of central bank to regulate availability, cost & use of money & credit with the aim of achieving optimum levels of output & employment, price stability, balance of payments equilibrium or any other goals set by the state

Credit control measures

1. 2.

Quantitative credit control Qualitative credit control

Quantitative measures

BANK RATE:

Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Lowering of Bank rate Expansion of Credit Increase in Bank Rate Contraction of Credit

CASH RESERVE RATIO: Minimum percentage of deposits, that commercial banks are required to maintain with central bank. More CRR Lesser power to create credit

STATUTORY LIQUIDITY RATIO: Banks are required to maintain liquid assets in certain percentage of their total demand.

OPEN MARKET OPERATIONS: Refer to purchase & sale by central bank of a variety of assets: gold, government securities etc. RBI purchases securities expansion in money supply RBI sells securities contraction in money supply

Qualitative measures
Directions Rationing Margin

requirements Moral suasion

Monetary policy 2011-2012

*Short term lending rate (repo) hiked by 50 bps to 7.25%. *Repo rate to be only effective policy rate to better signal monetary policy stance from now on. *Reverse repo to be fixed 100 bps lower than the repo rate. *Short-term borrowing rate (reverse repo) up by 50 bps to 6.25%.

*Cash reserve ratio (CRR) and bank rate left unchanged at 6 pc each. * Interest rates on savings bank deposits hiked to 4% from 3.5%. *Economic growth projected lower at 8% for FY'12. *WPI inflation projection lowered to 6%.

*Objective is to contain inflation by curbing demand-side pressures * Banks to get a new overnight borrowing window under Marginal Standing Facility at 8.25%. *Likelihood of oil prices moderating significantly is low.

 Recommendations

of Malegam committee considered: bank loans to all MFIs, including NBFCs working as MFIs on or after April 1, 2011, will be eligible for classification as priority sector. Financial Inclusion Plan for Banks

Mid-Quarter Monetary Policy Review: September 2011

Monetary

Measures

increase

the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 8.0 per cent to 8.25 per cent with immediate effect.

 Consequent

to the above increase in the repo rate, the reverse repo rate under the LAF will stand automatically adjusted to 7.25 per cent and the marginal standing facility (MSF) rate to 9.25 per cent with immediate effect.