Reserve bank of india functions roles.ppt

Reserve bank of india functions roles

1. Reserve Bank of IndiaReserve Bank of India

2. INTRODUCTIONINTRODUCTION

Regulatory framework of the country.Regulatory framework of the country.

Degrees of Imperfections cannot be deniedDegrees of Imperfections cannot be denied

Financial system deals in other people’s Financial system deals in other people’s
moneymoney

Trust ,confidence and faith in it is crucially Trust ,confidence and faith in it is crucially
important for its smooth functioningimportant for its smooth functioning

3. Contd……..Contd……..

Centre of the Indian Financial and Monetary Centre of the Indian Financial and Monetary
SystemSystem

Apex Institution – Guiding, Monitoring and Apex Institution – Guiding, Monitoring and
Controlling.Controlling.

Started functioning from 1Started functioning from 1
stst
April 1935 , on the April 1935 , on the
terms of Reserve Bank of India Act,1934terms of Reserve Bank of India Act,1934

Was a Private Shareholders Institution till Jan Was a Private Shareholders Institution till Jan
1949 after which it became a state-owned 1949 after which it became a state-owned
institution under the RBI Act.institution under the RBI Act.

4. Functions of RBIFunctions of RBI

To maintain To maintain Monetary StabilityMonetary Stability

To maintain To maintain Financial StabilityFinancial Stability

To maintain To maintain stable payment stable payment systemsystem

To promote To promote the development of financial the development of financial
infrastructure infrastructure of markets and systemsof markets and systems

credit allocationcredit allocation

To regulate the overall To regulate the overall volume of moneyvolume of money

5. Roles of RBIRoles of RBI

Note Issuing AuthorityNote Issuing Authority

Governments BankerGovernments Banker

Bankers’ BankBankers’ Bank

Supervising AuthoritySupervising Authority

Exchange Exchange
control authoritycontrol authority

6. Note issuing authorityNote issuing authority

Since its inception, RBI has the sole right or Since its inception, RBI has the sole right or
authority or monopoly of issuing currency notes authority or monopoly of issuing currency notes
other than one rupee notes and coins, and coins other than one rupee notes and coins, and coins
of smaller denominations.of smaller denominations.

Although one rupee notes and coins, and coins of Although one rupee notes and coins, and coins of
smaller denominations are issued by Government smaller denominations are issued by Government
of India, they are put into circulation by RBIof India, they are put into circulation by RBI

All affairs of the bank relating to note issue are All affairs of the bank relating to note issue are
conducted by its Issue Departmentconducted by its Issue Department

7. Contd…Contd…

8. Banker to The GovernmentBanker to The Government

Maintaining AccountsMaintaining Accounts

Receiving the Revenue of the Receiving the Revenue of the
governmentsgovernments

Making Payments of the Making Payments of the
governmentsgovernments

Providing Remittance Providing Remittance
FacilitiesFacilities

Issuing Treasury BillsIssuing Treasury Bills

Providing Ways & Means Providing Ways & Means
FinanceFinance

Advisor to the GovernmentAdvisor to the Government

Representing the GovernmentRepresenting the Government

9. Bankers’ BankBankers’ Bank

The bank controls the The bank controls the
volume of reserves of volume of reserves of
commercial banks and commercial banks and
thereby determines the thereby determines the
deposits/credit creating deposits/credit creating
ability of the banks.ability of the banks.

The banks hold a part of The banks hold a part of
their reserves with the RBItheir reserves with the RBI

In times of need, the banks In times of need, the banks
borrow funds from RBIborrow funds from RBI

It is, therefore, called It is, therefore, called the the
bank of last resort bank of last resort or or the the
lender of the last resort.lender of the last resort.

10. Contd…Contd…

Clearing House & Remittance FacilitiesClearing House & Remittance Facilities

Real Time Gross Settlement: Introduced in Real Time Gross Settlement: Introduced in
2004, it is the beginning of a clearing system at 2004, it is the beginning of a clearing system at
the national levelthe national level

On the wholeOn the whole, the RBI is the ultimate source of , the RBI is the ultimate source of
money and credit in Indiamoney and credit in India

11. Supervising Authority

Supervise and control commercial and co-Supervise and control commercial and co-
operative banks.operative banks.

To issue the licenses for the establishments of To issue the licenses for the establishments of
new banksnew banks

To issue licenses for setting up of bank branchesTo issue licenses for setting up of bank branches

To prescribe minimum requirements regarding To prescribe minimum requirements regarding
paid-up capital and reserves, maintenance of paid-up capital and reserves, maintenance of
cash and other liquid assets.cash and other liquid assets.

12. Contd…Contd…

To inspect the working of banks in India as well To inspect the working of banks in India as well
as abroad in respect of their Organizational set- upas abroad in respect of their Organizational set- up

To conduct the investigations , from time to time , To conduct the investigations , from time to time ,
regarding irregularities, frauds, complaints, etc…regarding irregularities, frauds, complaints, etc…

To control methods of operations of banksTo control methods of operations of banks

To control appointment, re-appointment, To control appointment, re-appointment,
termination of appointment of the chairman and termination of appointment of the chairman and
CEOs of Private sector banksCEOs of Private sector banks

13. Exchange Control Authority

It manages the exchange rate between the rupee and It manages the exchange rate between the rupee and
other currenciesother currencies

To negotiate with the monetary authorities and financial To negotiate with the monetary authorities and financial
institutions like IMF, World Bank and Asian institutions like IMF, World Bank and Asian
Development Bank.Development Bank.

The RBI is the custodian of the country’s foreign The RBI is the custodian of the country’s foreign
exchange reserves, and it is vested with the responsibility exchange reserves, and it is vested with the responsibility
of managing the investment and utilization of the reserves of managing the investment and utilization of the reserves
in the most advantageous manner.in the most advantageous manner.


14. Techniques used by RBI

OMO - Open market operations.OMO - Open market operations.

Bank Rate - The rate at which RBI rediscounts the Bank Rate - The rate at which RBI rediscounts the
bills.bills.

Cash Reserve Ratio Cash Reserve Ratio – The CRR refers to the cash – The CRR refers to the cash
which banks have to maintain with the RBI as a which banks have to maintain with the RBI as a
percentage of their demand liabilities.percentage of their demand liabilities.

Statutory Liquidity Ratio Statutory Liquidity Ratio – The SLR is the ratio of – The SLR is the ratio of
cash in hand exclusive of cash balances maintained cash in hand exclusive of cash balances maintained
by banks for CRR.by banks for CRR.


15. Recent policy ratesRecent policy rates

Bank Rate: 6%Bank Rate: 6%

Repo Rate: 6%Repo Rate: 6%

Reverse Repo Rate:Reverse Repo Rate:

CRR: 6%CRR: 6%

SLR: 25%SLR: 25%

Base Rate: 7.5%-8%Base Rate: 7.5%-8%

Saving Bank Rate: 3.5%Saving Bank Rate: 3.5%

Deposit Rate: 6%-7.5%Deposit Rate: 6%-7.5%

16. Current scenario and reformsCurrent scenario and reforms

Policy Rates hiked, CRR left untouched:Policy Rates hiked, CRR left untouched:

The Reserve Bank of India raised the Repo The Reserve Bank of India raised the Repo
rate by 25 bps to 6.00%rate by 25 bps to 6.00%

Reverse Repo rates by 50bps to 5.00%. An Reverse Repo rates by 50bps to 5.00%. An
uneven rate hike just like last time to narrow uneven rate hike just like last time to narrow
the policy corridor.the policy corridor.

CRR was left untouched at 6.00%.CRR was left untouched at 6.00%.

17. Key highlightsKey highlights

The domestic recovery is consolidating and The domestic recovery is consolidating and
economy converging to its trend growth. economy converging to its trend growth.
Agriculture is clearly boosted by good Agriculture is clearly boosted by good
monsoon. monsoon.

Inflation continues to remain a prime Inflation continues to remain a prime
concern. Inflation has peaked but the concern. Inflation has peaked but the
headline number is significantly above the headline number is significantly above the
trend of 5.0-5.5%. Food inflation is still trend of 5.0-5.5%. Food inflation is still
contributing to the pressure.contributing to the pressure.

18. Contd…Contd…

Fiscal deficit is well within targets. Higher Fiscal deficit is well within targets. Higher
realization of 3G auction and buoyant tax realization of 3G auction and buoyant tax
revenues eliminate the risk of fiscal deficit revenues eliminate the risk of fiscal deficit
overshooting target.overshooting target.

The repo rate is likely to remain the The repo rate is likely to remain the
‘effective policy rate’ as liquidity conditions ‘effective policy rate’ as liquidity conditions
are likely to remain at current levels.are likely to remain at current levels.

19. Expected outcomesExpected outcomes

Contain inflation and anchor inflationary Contain inflation and anchor inflationary
expectations without disrupting growth.expectations without disrupting growth.

Reduce the volatility in overnight call money Reduce the volatility in overnight call money
rates, thereby strengthening the monetary rates, thereby strengthening the monetary
transmission mechanism.transmission mechanism.

Continue the process of normalisation of the Continue the process of normalisation of the
monetary policy instruments.monetary policy instruments.

20. Trend in Key Policy RatesTrend in Key Policy Rates

21. GDP and Inflation Growth GDP and Inflation Growth
ForecastForecast
Macro Indicators Actual at present Projection for FY11
GDP 7.4% (FY10), 8.8% (1Q
FY11)
8.5%
Inflation (end Mar) 8.5% (August) 6.0%
Money Supply (M3) 15.1% 17.0%
Aggregate Deposit 14.4% 18.0%
Non-Food Credit Growth19.8% 20.0%

22. Liquidity in the system remains Liquidity in the system remains
tighttight
Banks borrowing avg Rs 17,000 cr daily this week

23. Money Supply growth anemicMoney Supply growth anemic
Money Supply is at 15.1% vs RBI’s target of 17%

24. Thank youThank you
By: Japan pandya