1.What are the credit control by RBI.
2.Write the RBI monetary policy.
3.write historical background of commercial banks in India.
4.what are the classification of commercial banks.
5.what are the functions of commercial banks.
CREDIT CONTROL BY RBI:
Credit control is an important tool used by Reserve Bank of India, a major weapon of the monetary policy used to control the demand and supply of money in the economy.
RBI has power to control the volume of credit created by banks . The Reserve Bank of India pumps in money during busy season and withdraws money during slack seasons.Central Bank administers control over the credit that the 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.
Quantitative credit control:
The monetary policy of The Reserve Bank of India is not merely one of credit restriction, but it has also the duty to see the legitimate credit requirements are met and at the same time credit is not used for an productive and speculative purpose.
Quantitative credit control tools:
In India most of the legal framework of Reserve Bank of India control over the credit structure has been provided under the The Reserve Bank of India Act 1934 and the Banking Regulation Act 1949 quantitative credit control are used to maintain proper quantity of credit money supply in market .
some of the important general credit control methods are as follows:
Bank rate policy:
Bank rate is the rate at which the central bank lands their money to commercial banks for their liquidity requirements.
The rate of the bank is also called as discount rate in in some other words bank rate is the rate at which the central bank rediscounts eligible papers like approved securities bills of exchange commercial papers and many more held by commercial banks.
Cash reserve ratio:
The cash reserve ratio is an effective instrument to control the credit. Under the Reserve Bank of India Act 1934 every commercial bank has to keep certain minimum cash reserve with RBI. As high cash reserve ratio reduces the cash for lending and low cash reserve ratio increases the cash for lending.
Statutory liquidity ratio:
Under the statutory liquidity ratio the government has imposed and obligation on the banks to maintain a certain ratio to its total deposit with the Reserve Bank of India in the form of liquid assets like cash, gold and many other securities.
Open market operations.
Open market operations is refers to the buying and selling of government securities in the open market in order to expand or contact the amount of money in the banking system .bank rate policy is superior to this technique. They purchases inject money into the banking system while sale of security they do the opposite.
Therefore this policy aims at preventing unrestricted increase and liquidity.
Repo and reverse repo rates:
In determining interest rate trends the report and reserve Repo rates are becoming important day by day repo means sale and repurchase the agreement. Repo is a a swap dealing involving the immediate sale of securities and simultaneous purchase of those securities at a future date ,at a predetermined price. repo rate helps commercial banks to acquire funds from the Reserve Bank of India by selling securities and also agreeing to repurchase at a later date.
A reverse repo is same as the mirror image of a repo. In reserve repo of securities are acquired with the simultaneous commitment to resell. Where as a transaction is a repo or a reverse repo is determined only in terms of who initiated the first leg of the transaction.
qualitative credit control:
Under the selective aur qualitative credit control credit control is used provide to select borrowers for selected purposes depending on the use to which the control try to regulate the quality of credit the direction towards the credit flows.
The selective controls are as follows:
Ceiling on credit:
The ceiling on a level of credit restricts the lending capacity of a bank to grant advances against certain control securities.
Margin requirement:
A Loan is sanctioned again the Collateral security.
Margin means that proportional of the value of security against which the loan is not given .margin against the particular security is reduced or increased in order to encourage or to discourage the flow of credit to a particular sector. it varies from 20 to 80%. from agriculture commodities it is as high as 75% .higher will be the margin and lesser will be the loan sanctioned.
Discriminatory interest rate:
Through discriminatory interest rate the Reserve Bank of India makes credit flow to the certain priority or weaker sector by charging concessional rate of interest. Reserve Bank of India issues supplemental instruction regarding the granting of additional credit against the sensitive commodities issues of guarantees, and making advances and many more.
Directives:
The Reserve Bank of India issues directives to bank regarding the advances. directives are regarding the purpose for which loan may be given or may not be given.
Direct action:
It is to sever and is rarely followed. that it may involve refusal by the Reserve Bank of India to rediscount bills for cancellation of the licence, if the bank has failed to comply with the directives of Reserve Bank of India.
Moral suasion:
Under the moral suasion, The Reserve Bank of India issues periodical letters to the bank to exercise control over credit in general or advances against particular commodities. periodic discussion are held with authorities of commercial banks in this respect.
RBI’S MONETARY POLICY:
The monetary policy is a policy formulated by the central bank, i.e., RBI (Reserve Bank of India) and relates to the monetary matters of the country. The policy involves measures taken to regulate the supply of money, availability, and cost of credit in the economy.
The main objective of monetary policy in India is growth with stability monetary management regulations availability cost and use of money and credit it also brings institutional changes in the financial sector of the economy.
The policy also oversees distribution of credit among users as well as the borrowing and lending rates of interest. In a developing country like India, the monetary policy is significant in the promotion of economic growth.
The main objective of monetary policy are growth with stability regulation supervision and development of financial stability promoting priority sector generation of employment external stability encouraging Savings and Investments redistribution of income and wealth and regulation of NBFIs.
Report of the urjith are Patel committee to revise and strength the monetary policy framework.
The policy framework headed by urjit R.patel , is the Deputy Governor of The Reserve Bank of India. He was appointed to recommended what needs to be done to revise and strengthen the current monetary policy Framework with a view to inter-alia making in transparent and predictable.
The recommendations of the committee are as follows:
• Inflation should be the nominal anchor for the monetary policy framework.
• the Reserve Bank of India should adopt the new CPI as the measure of the nominal anchor for policy communication.
In a view of vulnerability of the Indian economy the supply external shocks and the relatively large weight of Food in the CPI.
• consistent with the fiscal responsibility and budget management rules 2013 the central government needs to ensure that its fiscal deficit as a ratio to GDP is brought down to 3% by 2016 to 17.
• monetary policy decision making should be vested in a monetary policy committee.
• the Governor of The Reserve Bank of India will be the chairman of the MPC.
• the MPC will be accountable for failure to establish and achieve the nominal anchor.
• to support the operating framework some new instrument be added to the tool kit of monetary policy firstly remunerated standing deposit facility may be introduced secondly,term repos of longer Tenor may also be conducted. thirdly ,dependence on market stabilisation scheme and cash management bills may be phased out, consistent with government debt and cash management being taken over by the government debt management office.
• provision of liquidity by the Reserve Bank of India at the overnight repo rate will however be restricted to a specified ratio of bank wise net demand and time liabilities that is consistent with the objective of price stability.
• OMOs have to be detached from physical operation and instead linked solely to liquidity management.
• OMOs should not be used for managing yields on government securities.
• SLR should be reduced to a level in consonance with the requirements of liquidity coverage ratio prescribed under the base 3 framework.
MONETARY POLICY FRAMEWORK AGREEMENT:
Monetary Policy Framework Agreement is an agreement reached between Government and the central bank in India – The Reserve Bank of India – on the maximum tolerable inflation rate that reserve bank of India should target to achieve price stability.
Accepting to the urjit R.patel committee recommendation the Government of India and the Reserve Bank of India signed a monetary policy Framework agreement on February 20 2015. While keeping in mind the objective growth. as per the agreement, Reserve Bank of India would set the policy interest rate and would aim to bring inflation below 6% by January 2016 and within 4% with the band of 2% for 2016 to 2017 and all subsequent years.
Though the central bank already had a monetary framework and was implementing the monetary policy, the newly designed statutory framework would mean that the RBI would have to give an explanation in the form of a report to the Central Government, if it failed to reach the specified inflation targets. In the report it shall give reasons for failure, remedial actions as well as estimated time within which the inflation target shall be achieved. Further, RBI is mandated to publish a Monetary Policy Report every six months, explaining the sources of inflation and the forecasts of inflation for the coming period of six to eighteen months.
■ COMMERCIAL BANKS IN INDIA :
☆ historical background
The East India company established the Bay of Bengal in 1809 Bank of Bombay in 1840 E and Bank of Madras in 1843 the next Bank was bank of Hindustan which was established in 1870 Allahabad Bank which was established in 1865 was for the first time completely runs by Indian. In 1894 Punjab National Bank Limited was set up with headquarters at Lahore. between 1906 and 1913 Bank of India CBI Bank of Baroda Canara Bank Indian Bank and Bank of Mysore was set up in 1921 all Presidency banks were amalgamated to form the Imperial Bank of India which was done by European shareholders.
■ NATIONALIZATION OF BANKS IN INDIA:
Currently, the Indian banking system is divided into commercial banks, cooperative banks, regional banks, etc. In commercial banks, there are two types of banks, public banks, and private banks. The important event in the history of Indian banks is the nationalization of banks. This made the way for India to become the leading economies of the world. In this article, we will give you a brief on the nationalization of banks in India. Nationalisation of bank in India was done in two phases the first phase of nationalisation started in 1955 when the erstwhile Imperial Bank of India become the SBI with an act of Parliament during 1959 7 subsidiaries Nationalised and associated with the SBI on Y1 the second phase of nationalisation started in 1969 with the nationalization of 14 major commercial banks with deposit of over 50
crore 6 more commercial banks with demand and time liabilities greater than 200 crore were nationalized on 15 April 1980 and become PSB.
The Nationalised banks in India work compelled to focus on ruler and Agriculture sectors as a part of their social responsibilities their sources were utilised to empower farmers and Agriculture labour is in in in order to free them from the clutches of money lenders.
■ CLASSIFICATION OF COMMERCIAL BANKS:
Commercial bank refers to both scheduled and non scheduled banks these are the banks which are being regulated under the Regulation Act, 1949.
Scheduled commercial banks are grouped under following categories:
- Nationalised bank
- SBI and its Associates
- Regional rural banks
- Foreign banks like ABN amro Bank Abu Dhabi commercial bank American Express banking corporation Citibank and Standard Chartered Bank.
- Other scheduled commercial bank like IDBI and Bharatiya Mahila Bank, ING Vysya Bank ,Lakshmi Vilas Bank, Dhanlaxmi Bank, City Union Bank and catholics Syrian Bank.
Non-scheduled commercial bank:
SBI and its Associates and the Nationalised banks are also known as PSB . Whereas other known as private sector bank.
■ FOREIGN BANKS:
A foreign bank branch is a type of foreign bank that is obligated to follow the regulations of both the home and host countries. Because the foreign bank branch has loan limits based on the total bank capital, they can provide more loans than subsidiary banks.
Foreign banks like Citibank,HSBC , Standard Chartered Bank,etc. Are the branches of those Bank which are incorporated in foreign countries.
Terms of product and customer may be different due to their Limited branch network.
They bring a new technology and facilitate in the introduction as well as assimilation of international products into the domestic market.
They help the local banking Industries keep pace with development in the financial centres abroad.
They also help to provide Corporation access to foreign capital market. The government has introduced several measures for widening the scope for foreign banks to enter and operate in India.
■ NON SCHEDULED BANKS:
These are the banks of which the total capital is less than rupees 5 lacs these are not included in the second schedule of The Reserve Bank Reserve Bank has low specific control upon these banks they have to send details of their business to the Reserve Bank every month.
FUNCTIONS OF COMMERCIAL BANKS :
Commercial banks accept deposits from people, businesses, and other entities in the form of:
The commercial bank accepts small deposits, from households or persons, in order to encourage savings in the economy.
The bank accepts deposits for a fixed time and carries a higher rate of interest as compared to savings deposits.
These accounts do not offer any interest. Further, most current accounts offer overdrafts up to a pre-specified limit. The bank, therefore, undertakes the obligation of paying all cheques against deposits subject to the availability of sufficient funds in the account.
Traditional functions Alpha commercial bank relate the acceptance of deposit from the public and provision of credit to different sectors of the economy.
the various functions of commercial banks are as follows:
- Accepting or attracting deposit
• saving deposit
• demand deposit
• fixed deposit - Advancing of loans
• cash credit
• provision of overdraft facility
• discounting bills of exchange - Creating of money or credit:
Credit creation refers to the unique power of the banks to multiply loans and advances with a little cash in hand the banks can create additional purchasing power to considerable degree. - Other functions
• transfer of funds
• agency functions
•general utility services
■ CO-OPERATIVE BANKS:
YouTube banks are an important constituent of the Indian financial system they are the primary finance share of Agricultural activities some small scale industries and self employed workers.
