1.Write about reserves bank of India.
2.Write the functions of RBI?
BANKING SECTOR:
The Reserve Bank of India (RBI) is India’s central bank, which controls the issue and supply of the Indian rupee. RBI is the regulator of the entire Banking in India. RBI plays an important part in the Development Strategy of the Government of India.RBI regulates commercial banks and non-banking finance companies working in India. It serves as the leader of the banking system and the money market. It regulates money supply and credit in the country. The RBI carries out India’s monetary policy and exercises supervision and control over banks and non-banking finance companies in India. RBI was set up in 1935 under the Reserve Bank of India Act,1934.
The genesis of the Reserve Bank of India can be tracked back to 1926 the Hilton young Commission or the royal Commission on Indian currency and Finance made recommendations to British government of India for creation of a central bank. The chief recommendations were of two folds:
- First one is is to separate the control of currency and credit from the government;
- Second one is to augment banking facilities throughout the country.
On 1 April 1935 the RBI as a Central Bank of India was established as shareholder Bank via the Reserve Bank of India Act 1934 its share capital was rupees 5 crore.
The central bank is an independent apex monetary authority which regulates banks and provides important financial services like storing of foreign exchange reserves, control of inflation, monetary policy report. The officers of the banking department was established in Calcutta ,Bombay, Madras, Delhi and Rangoon. Double Maa aur Myanmar City Ltd from the Indian Union in 1937, but the Reserve Bank of India continued this act as the central bank for still the Japanese occupation of Burma and and continue them later up to the April 1947. After the incident of the partition of India the Reserve Bank of India served the central bank of Pakistan upto June 1948. When the State Bank of Pakistan commenced an operation. After the independence of India commerce the Government of India past Reserve Bank which was a transfer to public ownership act in 1948 and they took over the RBI full form is Reserve Bank of India from the private share holders. An interesting feature of The Reserve Bank of India was that it is very Inception, the bank was seen as playing a special role in the context of development, especially agriculture.
■ FUNCTIONS OF RBI:
The RBI performs many functions some of them are as follows:
- Issue of currency notes :
The Reserve Bank has a monopoly for printing the currency notes in the country. It has the sole right to issue currency notes of various denominations except one rupee note. Under section 22 of the RBI act, the one rupee notes and coins and small coins are issued by the central government, ministry of finance and their distribution is undertaken by the Reserve Bank of India as the Agent of the government.
The currency department in Reserve Bank of India attends to the core statutory function of note and coin issue and currency management .this involves forecasting the demand for fresh notes and coins, placing the indent with four printing presses and mints , receiving supplies against those indents and distributing them through the 18 offices of bank, a wide network of currency chests, repositories and small coin depots.
The distribution of coins is undertaken by the Reserve Bank of India as an agent of the government the coins are minted by the government and not by the RBI coins upto 50 paise Accord small coins and coins of Rupees 1 and more than one are called rupee coins.
The Reserve Bank has adopted the Minimum Reserve System for issuing the currency notes. Since 1957,
It maintains gold and foreign exchange reserves of Rs. 200 Cr. of which at least Rs. 115 cr. should be in gold and remaining in the foreign currencies. In in 1956 this system was changed the RBI is required to maintain a gold and Foreign Exchange Reserves of rupees 200 crore of which at least Rupees 15 karod should be in Gold this is called minimum reserve system this system continues till the present date.
Note printing presses:
The notes were printed by the security printing and minting Corporation of India Limited it is is a wholly on company of the Government of India. Its printing presses are located at Nashik and Dewas. Apart from this the Bharatiya Reserve Bank Note mudran Private Limited a wholly owned subsidiary of the Reserve Bank, also has setup printing presses.the SPMCIL
Also has four mints for coin production located at Mumbai ,Noida ,Kolkata and Hyderabad. - Bankers to the government:
The RBI acts as a Banker agent and adviser to the governments it has obligation to transact the banking business of the central government as well as the state government.
The second important function of the Reserve Bank is to act as the Banker, Agent and Adviser to the Government of India and states. It performs all the banking functions of the State and Central Government and it also tenders useful advice to the government on matters related to economic and monetary policy. It also manages the public debt of the government.
Under the administrative arrangements the central government is required to maintain a minimum cash balance with the Reserve Bank currently this amount is rupees 10 crore on a daily basis and hundred crore specially on Fridays.
As we all know in the above paragraphs that all the state government are required to maintain a minimum cash balance with the Reserve Bank which varies from state to state depending on the relative size of the state budget and economic activity to tide over temporary mismatches in the cash flow of receptor and payments the Reserve Bank provides which means like advances for overdraft to the state government. as Bankers to the central government the Reserve Bank of India works out overall fund position and send daily advice showing the balances in its book ,ways and means advances granted to the government and investments made from the surplus fund.the daily advices are followed are followed up with monthly statements. - Management of public debt:
On behalf of the central and state government the Reserve Bank manages public debt.
It involves issues of new Rupee loans payments of interest and repayment of these loans and other operational matters such as debt certificates and their registrations. - Bankers bank and lender of last resort:
The Reserve Bank performs the same functions for the other commercial banks as the other banks ordinarily perform for their customers. RBI lends money to all the commercial banks of the country. among other provisions the Reserve Bank stipulates minimum balance to be maintained by banks in this accounts.
Since Bank need to settle that transactions with each other occurring at the various places in all over India they had a permission to open accounts with different regional offices of The Reserve Bank.
The RBI facilitate remittance of funds from other banks surplus account at one location Tu its deficit account to the another. Such transfers are electronically rooted through a computerized system called e -kuber. As a a Banker to banks the RBI provides short term loans and advances to select when it is necessary to facilitate lending to specific sector and for specific purposes these loans are provided against promissory notes and other collateral given by the banks.
The Reserve Bank extends this facility to protect the interest of the depositors of the Bank to failure of the Bank ok which is turn may also affect other banks and institutions and can have an adverse impact on financial stability and on the economy. - Controller of credit:
The RBI undertakes the responsibility of controlling credit created by commercial banks. RBI uses two methods to control the extra flow of money in the economy. These methods are quantitative and qualitative techniques to control and regulate the credit flow in the country. When RBI observes that the economy has sufficient money supply and it may cause an inflationary situation in the country then it squeezes the money supply through its tight monetary policy. The RBI through its various quantitative and qualitative techniques regulate scrotal supply of money and Bank credit in the interest of economy. the basic needs of credit control in the economy are to encourage the overall growth of the priority sector to keep a check over the channelization of credit so that credit should not delivered for undesirable purposes and to boost the economy bye fascinating the flow of adequate volume of bank credit to many sectors.
- Exchange rate policy and custodian of foreign reserve:
The RBI exchange rate policies which focus on ensuring orderly conditions in the foreign exchange market it is closely monitors the development in the financial market at home and abroad. The market operations are undertaken either directly or through public sector banks.
For the purpose of keeping the foreign exchange rates stable, the Reserve Bank buys and sells foreign currencies and also protects the country’s foreign exchange funds. RBI sells the foreign currency in the foreign exchange market when its supply decreases in the economy .
The RBI is the custodian of the country foreign exchange reserve and is vested with the responsibility of managing their investment. The share of foreign currency assessed in the balance sheet of The Reserve Bank of India has substantially increased secondary with the increased volatility in exchange and interest rates in the Global market the basic parameters of the The Reserve Bank of India policies for foreign exchange management are safety liquidity and Returns. - Collection and publication of data:
The Reserve Bank of India is the main source of monetary data and also relating to banking data. The data are very important for framing the economic policies and banking policies. The bank collects and Publishers the data regularly true statements monthly Bulletin annual report report on Trend and progress of Banking in India. - Regulatory and supervisory functions:
The RBI has wide powers of supervision and control over commercial and cooperative banks relating to licensing establishment branch expansion, liquidity of assessed management and methods of working, amalgamation,0reconstruction and liquidation.
The the main aim of Regulation and supervision:
Firstly to maintain capital standard to overcome the risks secondly to transparency and banking operations, thirdly to sustain the health of the banking system, to guard against moral hazard, to maintain stability and soundness of Banking system, to guard against speculative activities and Markets dis stabilization, to ensure price stability, to lead economic growth, to pave way for market discipline and to ensure safety of depositor funds.
Www.vinayiasacademy.com - Clearing house functions:
The Reserve Bank performs a number of other developmental works. These works include the function of clearinghouse arranging credit for agriculture collecting and publishing the economic data, buying and selling of Government securities and trade bills, giving loans to the Government buying and selling of valuable commodities etc. Clearing house is a central office where banks exchange cheques and other financial documents it is a voluntary Association of banks under the management of the bank where the settlement accounts are maintained the clearing house is managed whenever the RBI has its office in the absence of an office of The Reserve Bank of India with the clearing house is managed by the State Bank of India and in a few case by PSBs. In India there are all over 860 bankers clearing house of which 840 are managed by the SBI and rest of 14 is managed by the RBI and the rest six by Nationalised banks. - Development and promotional functions:
The RBI helped to the Finance Corporation of India ,state financial corporation ,deposit insurance Corporation, agricultural finance and Development Corporation, unit Trust of India and many more, to setting up their industries.
These institutions were set up to mobilize saving promote saving, habits and to provide industrial and agricultural Finance. - Regulation of financial market:
Measure market segments under the regulatory ambit of the RBI are interest rate market including the government securities market and money market;
Foreign exchange markets derivatives on interest, rates, Repo, foreign exchange rate as well as credit derivatives.
The Reserve Bank of India derived statutory powers to regulate market segments from specific provision of The Reserve Bank of India Act 1934. - Priority sector lending:
Priority sector refers to the sectors of economy which mean of the timely and adequate credit in the absence of this special dispensation.Priority Sector Lending is an important role given by the to the banks for providing a specified portion of the bank lending to few specific sectors like agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections.. This is essentially meant for an all round development of the economy as opposed to focusing only on the financial sector. According to the priority sector norms set by the RBI the scheduled commercial bank have to give 40 percent their loans to the idefined priority sectors in accordance with the RBI regulations. The RBI has modified priority sector lending norms after the recommendations of the internal working group in 2015. Categories under priority sector are agriculture 18% within it is target of 8% is prescribed of small and marginal farmers. Micro small and medium enterprises 7.5% export credit incremental upto to 2% of domestic banks and foreign banks with 20 branches and above. Education loans to individuals for educational purposes including vocational courses upto 10 lakh, social infrastructure bank loans up to a limit of 5 crore per borrower for building social infrastructure for activities namely schools Health Care facilities drinking water facilities and sanitation facilities, bank loans up to a limit of 15 crore Tu oo Bava including for public utilities .Street lighting system ,and remote village electrification and other self help groups and joint liability group etc.
