Reserve Bank of India
The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated.
Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India
Formulates, implements and monitors the monetary policy.
Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.
Regulator and supervisor of the financial system:
Prescribes broad parameters of banking operations within which the country’s banking and financial system functions.
Objective: maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public.
Manager of Foreign Exchange
Manages 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:
Issues and exchanges or destroys currency and coins not fit for circulation.
Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.
Performs a wide range of promotional functions to support national objectives.
Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.
Banker to banks: maintains banking accounts of all scheduled banks.
1,Osborne Smith first governor of RBI 2, C D Deshmukh first Indian governor of RBI 3, Raghuram Rajan
The Governor of the cc (RBI) is the chief executive of India’s central bank and the ex-officio chairperson of its Central Board of Directors. Indian Rupee currency notes, issued by the RBI, bear the governor’s signature. Since its establishment in 1935 by the British colonial government, the RBI has been headed by 23 governors. The inaugural officeholder was the Britisher Sir Osborne Smith, while C. D. Deshmukh was the first Indian governor. The bank’s 15th governor, Manmohan Singh, would go on to become India’s 13th prime minister. The position is currently held by Raghuram Rajan, who took over from D. Subbarao on 4 September 2013.
Manmohan Singh, RBI governor for two years in the 1980s, went on to serve a five-year term as finance minister and a ten-year term as prime minister.
Acts administered by Reserve Bank of India
Reserve Bank of India Act, 1934
Public Debt Act, 1944/Government Securities Act, 2006
Government Securities Regulations, 2007
Banking Regulation Act, 1949
Foreign ExchangeManagement Act, 1999
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Chapter II)
Credit Information Companies(Regulation) Act, 2005
Payment and Settlement Systems Act, 2007
Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy. It is the sister strategy to monetary policy through which a central bank influences a nation’s money supply.
Monetary policy is the macroeconomic policy laid down by the central bank.
Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.
In India, monetary policy of the Reserve Bank of India is aimed at managing the quantity of money in order to meet the requirements of different sectors of the economy and to increase the pace of economic growth. .
Latest Important Policy Rates in Indian Banking
1. Bank Rate – 8.50 %
2. Cash Reserve Ratio (CRR) – 4 %
3. Statutory Liquidity Ratio (SLR) – 21.5 %
4. Repo Rate (RR) – 7.50 %
5. Reverse Repo Rate (RRR) – 6.50 %
6. Marginal Standing Facility (MSF) – 8.50 %
What is Bank rate?
Bank Rate is the rate at which central bank of the country (in India it is RBI) allows Finance to commercial banks. Bank Rate is a tool, which central bank uses for short-term purposes. Any upward revision in Bank Rate by central bank is an indication that banks should also increase deposit rates as well as Base Rate / Benchmark Prime Lending Rate. Thus any revision in the Bank rate indicates that it is likely that interest rates on your deposits are likely to either go up or go down
What is CRR?
Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI. If the central bank decides to increase the CRR, the available amount with the banks comes down. The RBI uses the CRR to drain out excessive money from the system.Scheduled banks are required to maintain with the RBI an average cash balance, the amount of which shall not be less than 4% of the total of the Net Demand and Time Liabilities (NDTL), on a fortnightly basis.
What is Statutory liquidity ratio (SLR)?
Statutory liquidity ratio (SLR) is the Indian government term for reserve requirement that the commercial banks in India require to maintain in the form of gold, cash or government approved securities before providing credit to the customers. Statutory Liquidity Ratio is determined and maintained by Reserve Bank of India in order to control the expansion of bank credit.
The SLR is determined by a percentage of total demand and time liabilities. Time Liabilities refer to the liabilities which the commercial banks are liable to pay to the customers after a certain period mutually agreed upon, and demand liabilities are such deposits of the customers which are payable on demand. An example of time liability is a six month fixed deposit which is not payable on demand but only after six months. An example of demand liability is a deposit maintained in saving account or current account that is payable on demand through a withdrawal form such as a cheque.
Reverse Repo rate?
Reverse Repo rate is the rate at which the RBI borrows money from commercial banks. Banks are always happy to lend money to the RBI since their money are in safe hands with a good interest.
An increase in reverse repo rate can prompt banks to park more funds with the RBI to earn higher returns on idle cash. It is also a tool which can be used by the RBI to drain excess money out of the banking system.
What is a Repo Rate?
The rate at which the RBI lends money to commercial banks is called repo rate. It is an instrument of monetary policy. Whenever banks have any shortage of funds they can borrow from the RBI.
A reduction in the repo rate helps banks get money at a cheaper rate and vice versa. The repo rate in India is similar to the discount rate in the US.
MSF rate is the rate at which banks borrow funds overnight from the Reserve Bank of India (RBI) against approved government securities. This came into effect in may 2011.
Marginal Standing Facility Rate : Under this scheme, Banks are able to borrow upto 2% of their respective Net Demand and Time Liabilities” outstanding at the end of the second preceding fortnight .