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Headquarters
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Mumbai, Maharashtra
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Established
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1 April 1935
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Governor
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Raghuram Rajan
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Currency
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Indian rupee
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Reserves
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US$ 302.1 billion
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Bank rate
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9.5%
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Interest on reserves
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4.00%
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Website
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http://www.rbi.org.in
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The Reserve Bank of India (RBI) is India's central banking institution, which controls the monetary policy of the Indian rupee. It was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of India Act, 1934. Following India's independence in 1947, the RBI was
nationalised in the year 1949.
The RBI plays an important part in the development
strategy of the Government of India.
It is a member bank of the Asian Clearing Union. The
general superintendence and direction of the RBI is entrusted with the
21-member-strong Central Board of Directors—the Governor (currently Raghuram
Rajan), four Deputy Governors, two Finance Ministry representative, ten
government-nominated directors to represent important elements from India's
economy, and four directors to represent local boards headquartered at Mumbai,
Kolkata, Chennai and New Delhi. Each of these local boards consists of five
members who represent regional interests, as well as the interests of
co-operative and indigenous banks.
The Reserve Bank of India was founded on 1 April 1935
to respond to economic troubles after the First World War. It began according to the guidelines laid
down by Dr. Ambedkar. RBI was conceptualized as per the guidelines,
working style and outlook presented by Ambedkar in front of the Hilton Young
Commission.
Central Board of Directors
The Central Board of Directors is the main committee
of the central bank. The Government of India appoints the directors
for a four-year term. The Board consists of a governor, four deputy
governors, fifteen directors to represent the regional boards, one from the
Ministry of Finance and ten other directors from various fields.
Governors
The current Governor of RBI is Raghuram Rajan. There
are four deputy governors, Deputy Governor K C Chakrabarty, Anand Sinha , H R Khan and Urjit Patel . Deputy Governor K C
Chakrabarty's term has been extended further by 2 years. Subir Gokarn was
replaced by Urjit Patel in January 2013.
Supportive bodies
The Reserve Bank of India has ten regional
representations: North in New Delhi, South in Chennai, East in Kolkata and West
in Mumbai. The representations are formed by five members, appointed for four
years by the central government and serve—beside the advice of the Central
Board of Directors—as a forum for regional banks and to deal with delegated
tasks from the central board. The institution has 22
regional offices.
Offices and branches
The Reserve Bank of India has four zonal offices. It has 19 regional
offices at most state capitals and at a few major cities in India. Few of them
are located
in Ahmedabad, Bangalore, Bhopal, Bhubaneswar, Chandigarh, Chennai, Delhi, Guwahati, Hyderabad, Jaipur,Jammu, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, Patna, and Thiruvananthapuram.
Besides it has 09 sub-offices at Agartala, Dehradun, Gangtok, Kochi, Panaji, Raipur, Ranchi, Shillong, Shimla and Srinagar.
The bank has also two training colleges for its
officers, viz. Reserve Bank Staff College at Chennai and College of
Agricultural Banking at Pune.
There are also four Zonal Training Centres at Mumbai, Chennai, Kolkata and New Delhi.
Main functions
Bank of Issue
Under Section 22 of the Reserve Bank of India Act, the
Bank has the sole right to issue bank notes of all denominations. The
distribution of one rupee notes and coins and small coins all over the country
is undertaken by the Reserve Bank as agent of the government. The Reserve Bank
has a separate Issue Department which is entrusted with the issue of currency
notes. The assets and liabilities of the Issue Department are kept separate
from those of the Banking Department.
Monetary authority
The Reserve Bank of India is the main monetary
authority of the country and beside that the central bank acts as the bank of
the national and state governments. It formulates, implements and monitors the
monetary policy as well as it has to ensure an adequate flow of credit to
productive sectors.
Regulator and supervisor of the financial system
The institution is also the regulator and supervisor
of the financial system and prescribes broad parameters of banking operations
within which the country's banking and financial system functions. Its
objectives are to maintain public confidence in the system, protect depositors'
interest and provide cost-effective banking services to the public. The Banking Ombudsman Scheme has been formulated by
the Reserve Bank of India (RBI) for effective addressing of complaints by bank
customers. The RBI controls the monetary supply, monitors economic indicators
like the gross domestic product and has to decide the
design of the rupee banknotes as well as coins
Managerial of exchange control
The central bank manages to reach the goals of the
Foreign Exchange Management Act, 1999. Objective: to facilitate external trade
and payment and promote orderly development and maintenance of foreign exchange
market in India.
Issuer of currency
The bank issues and exchanges or destroys currency
notes and coins that are not fit for circulation. The objectives are giving the
public adequate supply of currency of good quality and to provide loans to commercial banks to maintain or improve the GDP. The basic objectives of RBI are to issue
bank notes, to maintain the currency and credit system of the country to
utilize it in its best advantage, and to maintain the reserves. RBI maintains
the economic structure of the country so that it can achieve the objective of
price stability as well as economic development, because both objectives are
diverse in themselves.
Banker of Banks
RBI also works as a central bank where commercial
banks are account holders and can deposit money.RBI maintains banking accounts
of all scheduled banks. Commercial banks create credit. It is the duty of the
RBI to control the credit through the CRR, bank rate and open market
operations. As banker's bank, the RBI facilitates the clearing of cheques
between the commercial banks and helps inter-bank transfer of funds. It can
grant financial accommodation to schedule banks. It acts as the lender of the
last resort by providing emergency advances to the banks. It supervises the
functioning of the commercial banks and take action against it if need arises.
Detection Of Fake
currency
In order to curb the fake currency menace, RBI has
launched a website to raise awareness among masses about fake notes in the
market.www.paisaboltahai.rbi.org.in provides information
about identifying fake currency.
Developmental role
The central bank has to perform a wide range of
promotional functions to support national objectives and industries. The RBI
faces a lot of inter-sectoral and local inflation-related problems. Some of
this problems are results of the dominant part of the public sector.
Related functions
The RBI is also a banker to the government and
performs merchant banking function for the central and the state governments.
It also acts as their banker. The National Housing Bank (NHB) was established in
1988 to promote private real estate acquisition. The institution
maintains banking accounts of all scheduled banks, too. RBI on 7 August 2012
said that Indian banking system is resilient enough to face the stress caused
by the drought like situation because of poor monsoon this year.
Policy rates and reserve
ratios
Policy
rates, Reserve ratios, lending, and deposit rates as of 19, March, 2013
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|
Bank
Rate
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9.50%(20/09/2013)
|
Repo
Rate
|
7.50%
|
Reverse
Repo Rate
|
6.50%
|
Cash
Reserve Ratio (CRR)
|
4%
|
Statutory
Liquidity Ratio (SLR)
|
23.0%
|
Base
Rate
|
9.70%–10.25%
|
Reserve
Bank Rate
|
4%
|
Deposit
Rate
|
8.00%–9.0%
|
Bank Rate
RBI lends to the commercial banks through its discount
window to help the banks meet depositor’s demands and reserve requirements for
long term. The Interest rate the RBI charges the banks for this purpose is
called bank rate. If the RBI wants to increase the liquidity and money supply
in the market, it will decrease the bank rate and if RBI wants to reduce the
liquidity and money supply in the system, it will increase the bank rate. As of
21 September, 2013, the bank rate was 9.5%.
Reserve requirement cash reserve ratio (CRR)
Every commercial bank has to keep certain minimum cash
reserves with RBI. Consequent upon amendment to sub-Section 42(1), the Reserve
Bank, having regard to the needs of securing the monetary stability in the
country, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks without
any floor rate or ceiling rate, [Before the enactment of this amendment, in
terms of Section 42(1) of the RBI
Act, the Reserve Bank could
prescribe CRR for scheduled banks between 5% and 20% of total of their demand
and time liabilities]. RBI uses this tool to increase or decrease the reserve
requirement depending on whether it wants to effect a decrease or an increase
in the money supply. An increase in Cash Reserve Ratio (CRR) will make it
mandatory on the part of the banks to hold a large proportion of their deposits
in the form of deposits with the RBI. This will reduce the size of their
deposits and they will lend less. This will in turn decrease the money supply.
The current rate is 4.00%.. -25 basis points cut in Cash Reserve Ratio(CRR) on
17 September 2012, It will release Rs 17,000 crore into the system/Market. The
RBI lowered the CRR by 25 basis points to 4.25% on 30 October 2012, a move it
said would inject about 175 billion rupees into the banking system in order to
pre-empt potentially tightening liquidity. The latest CRR as on 29/01/13 is 4%
Statutory Liquidity ratio (SLR)
Apart from the CRR, banks are required to maintain
liquid assets in the form of gold, cash and approved securities. Higher
liquidity ratio forces commercial banks to maintain a larger proportion of
their resources in liquid form and thus reduces their capacity to grant loans
and advances, thus it is an anti-inflationary impact. A higher liquidity ratio
diverts the bank funds from loans and advances to investment in government and
approved securities.
In well-developed economies, central banks use open
market operations—buying and selling of eligible securities by central bank in
the money market—to influence the volume of cash reserves with commercial banks
and thus influence the volume of loans and advances they can make to the
commercial and industrial sectors. In the open money market, government securities
are traded at market related rates of interest. The RBI is resorting more to
open market operations in the more recent years.
Generally RBI uses three kinds of selective credit
controls:
1. Minimum margins for
lending against specific securities.
2. Ceiling on the amounts
of credit for certain purposes.
3. Discriminatory rate of
interest charged on certain types of advances.
Direct credit controls in India are of three types:
1. Part of the interest
rate structure i.e. on small savings and provident funds, are administratively
set.
2. Banks are mandatory
required to keep 23% of their deposits in the form of government securities.
3. Banks are required to
lend to the priority sectors to the extent of 40% of their advances.
