Role of Reserve Bank of India in Economic Development

Apart from its Monetary policies to combat Inflation, Recession and like issues; Central Bank also has a significant role to play in the development of a country. This brief presentation highlights the roles India's Central Bank - the Reserve Bank of India has to play in the country's development.

1. Role of Reserve Bank of India in Economic Development A Macroeconomics for Business Presentation by Imad Shahid Khan Section A, 2 nd Semester, Bachelor of Business Management (2013-2016) 1

2. Preamble “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.” 2

3. What is meant by the RBI’s role in the Economic Development ? This role refers to the development of the quality of banking system in India and ensuring that credit is available to the productive sectors of the economy. 3

4. Roles of RBI in the Indian Economic Development Development of Banking System Development of Financial Institutions Development of Impoverished Regions Economic Stability Economic Growth Appropriate Interest rate structure Miscellaneous 4

5. Development of Banking System Granting license to banks. Inspect and make enquiry or determine position in respect of matters under various sections of RBI and Banking Regulation Act. Periodical review of the work of commercial banks. Giving directives to commercial banks. Control the NBFIs. Ensuring the health of financial system through on-site and off-site verifications. 5

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7. Development of Financial Institutions Reserve Bank of India’s role also includes establishing institutions designed to build the country’s financial infrastructure as well as regulate them. Export - Import Bank of India ( Exim Bank ); National Bank for Agriculture and Rural Development ( NABARD ); Small Industries Development Bank of India ( SIDBI ); National Housing Bank ( NHB ) are some of them. 7

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9. Development of Impoverished Regions The RBI has proactively promoted the initiative of establishing banking as well as many financial schemes and infrastructure in the otherwise ignored regions. Access to affordable financial services and promoting financial education and literacy and inculcating banking habits among the rural mass. 9

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11. Economic Stability Reserve Bank of India is responsible for the stability of the economy and combats issues like Inflation, Recession, Currency devaluation, through various Monetary policies. RBI achieves this using various tools like Bank rate, Rep Rate, Reverse Repo Rate, CRR, SLR, etc 11

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13. Appropriate Interest rate structure the cost of borrowing is determined by where the Reserve Bank of India sets its interest rates and ultimately consumer behaviour will determine how the overall demand in the economy is. So , both through direct channels on money supply as well as through indirect channels through the interest rate setting behaviour, the Reserve Bank of India determines what should be the interest rate that a commercial banks sets and therefore in that process determine how consumers actually behave. 13

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15. Economic Growth Traditionally, RBI’s monetary policy was focused on controlling inflation through contraction of money supply and credit. This resulted in poor growth performance. Thus , RBI have now adopted the policy of ‘Growth with Stability’. This means sufficient credit will be available for growing needs of different sectors of economy and at the same time, inflation will be controlled with in a certain limit. 15

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