Central Banking (RBI)

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Macroeconomics Presentation

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Pawan Jadhav
Manish Bhat
Sandeep Sirsekar

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Central Banking (RBI)

  1. 1. Central Banking By ITM E-MBA XIII-B Manish Bhat (Roll No-77) Pawan Jadhav (Roll No-85) Sandeep Shirsekar (Roll No-93)
  2. 2. Points covered <ul><li>Central bank- Meaning, Definitions </li></ul><ul><li>Origin, History & Structure </li></ul><ul><li>Functions </li></ul><ul><li>Monetary policies & objectives </li></ul><ul><li>Qualitative & Quantitative Policies </li></ul><ul><li>Conclusion </li></ul>
  3. 3. Central Bank <ul><li>“ A central bank is a lender of last resort” </li></ul><ul><li>-- Prof.Hawtry </li></ul><ul><li>“ It is a bank of banker” </li></ul><ul><li> -- Samuelson </li></ul><ul><li>“ Bank which has monopoly over note issue” </li></ul><ul><li>-- Vera Smith </li></ul><ul><li>“ Central bank is the government’s bank” </li></ul><ul><li>-- Sayers </li></ul>
  4. 4. Central banking <ul><li>“ An institution charged with the responsibility of managing the expansion and contraction of the volume of money in the interest of general public welfare” </li></ul><ul><li>Prof.Kent </li></ul><ul><li>“ One which constitute the apex of the monetary and banking structure of its country” </li></ul><ul><li>Prof.M.H.De Kock </li></ul>
  5. 5. RBI and its origin <ul><li>Commenced Operations on 1 st April 1935 as per The Reserve Bank of India Act, 1934 (II of 1934) and Nationalise on 1 st Jan 1949. </li></ul><ul><li>To regulate the issue of banknotes </li></ul><ul><li>To maintain reserves with a view to securing monetary stability and </li></ul><ul><li>To operate the credit and currency system of the country to its advantage. </li></ul>
  6. 6. Structure of Banking in India <ul><li>Reserve Bank </li></ul><ul><li>Commercial Bank Co-operative Bank </li></ul><ul><li>-Public Sector Bank -State Co-op bank </li></ul><ul><li>-Private Sector bank -Central Co-op Bank </li></ul><ul><li>-Regional Rural Bank -Primary Co-op Soc </li></ul>
  7. 7. Functional Chart
  8. 8. Organisational Structure
  9. 9. Functions of RBI <ul><li>Bank of Note issue </li></ul><ul><li>The Government’s Bank </li></ul><ul><li>Banker’s Bank </li></ul><ul><li>Custodian Foreign Exchange Reserves for country </li></ul><ul><li>Lender of last resort and bank of rediscounting. </li></ul><ul><li>Controller of credit </li></ul>
  10. 10. Monetary Policy <ul><li>“ Monetary policy is essentially a programme of action undertaken by central bank, to control and regulate the supply of money with the public and flow of credit with a view of achieving predetermined macroeconomic goals.” </li></ul><ul><li>-Macroeconomics-Theory & policy-D.N.Dwivedi-Tata Magraw Hill comp, </li></ul>
  11. 11. Instruments of Monetary Policy (Economic variables) <ul><li>Weapons of Monetary controls </li></ul><ul><li>Nuts & Bolts of Monetary policy </li></ul><ul><li>-- Samuelson & Nordhaus </li></ul><ul><li>Quantitative credit control (General credit control) – Control of quantity or volume of money </li></ul><ul><li>Qualitative credit control ( Selective credit control) – Quality /Purpose/Direction of credit control </li></ul>
  12. 12. Objectives of Credit Control <ul><li>To stabilise internal price level </li></ul><ul><li>To stabilise the rate of foreign exchange </li></ul><ul><li>To protect the outflow of gold </li></ul><ul><li>To control business cycles </li></ul><ul><li>To meet business needs </li></ul><ul><li>To have growth & stability </li></ul>
  13. 13. Credit Control Measures Quantitative Qualitative -Bank Rate -Marginal Requirement -Open Mkt. Operations -Rationing of Credit -Variation in C R R -Cost. Credit Regulation -S L R -Issue of Directives -P L R -Moral Suasion -Publicity -Direct Action
  14. 14. Terms <ul><li>CRR   Cash Reserve Ratio is the percentage of bank deposits (reserves and surplus) which are statutorily parked with the RBI as reserve. </li></ul><ul><li>SLR Statutory Liquidity Ratio it is the proportion of total deposits which banks are required to maintained in liquid form of cash reserve, gold and government bond in addition to CRR to prevent commercial banks from liquidating assets when CRR is raised. </li></ul>
  15. 15. Terms <ul><li>Prime Lending Rate (PLR) is that rate of interest at which a bank lends to its best customers. </li></ul><ul><li>Repo Rate   is the rate at which the RBI buys government securities from the market to infuse liquidity in the system </li></ul><ul><li>Reverse Repo rate   is the rate at which the RBI absorbs excess bank funds by selling government securities in the market. </li></ul>
  16. 16. As on date prevailing Rates of Quantitative Measures <ul><li>CRR- 8.50% </li></ul><ul><li>SLR – 25% </li></ul><ul><li>PLR – 12.75 -13.25% </li></ul><ul><li>Source- RBI website </li></ul>
  17. 17. Cash Reserve Ratio and Interest Rates (per cent per annum) Item / Week Ended 2007 2008   Jul. 13 Jul. 11 C R R (per cent) S L R (per cent) 6.50 25.00 8.50 25.00 P L R (per cent) 12.75-13.25 12.75-13.25 (1) CRR & SLR relates to Scheduled Commercial Banks (excluding Regional Rural Banks). (2) Prime Lending Rate relates to five major Banks. (3) Data cover 90-95 per cent of total transactions reported by participants. Source- RBI website
  18. 18. Prime Lending Rates as on 9 th July 2008 for different loans Personal Loan 15.00% / 17.50% Home Loan 11.00% / 11.50% 12.00% / 12.50% Short Term Edu. Loan 13.00% / Doctor Loan 14.00% / Two Wheelers Loan 11.50% / Car Loan 12.50% / 13.00% 13.50% General Credit Card 16.00% / 17.00% Source- RBI website
  19. 19. Credit Control Measures Quantitative Qualitative -Bank Rate -Marginal Requirement -Open Mkt. Operations -Rationing of Credit -Variation in C R R -Cost. Credit Regulation -S L R -Issue of Directives -P L R -Moral Suasion -Publicity -Direct Action
  20. 20. Difference Between Qualitative & Quantitative. <ul><li>Quantitative </li></ul><ul><li>Total Volume or Quantity of Money </li></ul><ul><li>It controls credit indirectly </li></ul><ul><li>Lenders are controlled not the borrowers </li></ul><ul><li>It is known as general credit control </li></ul><ul><li>Instruments used are bank rate, open mkt. oprt., CRR etc </li></ul><ul><li>Qualitative </li></ul><ul><li>Quality or use or purpose of credit </li></ul><ul><li>It controls credit directly </li></ul><ul><li>Lenders and borrowers both are influenced </li></ul><ul><li>It is known as selective credit control </li></ul><ul><li>Instruments are variations in marg req, </li></ul><ul><li>Consumer credit regl, direct action etc </li></ul>
  21. 21. Difference between Central and Commercial Bank <ul><li>Central Bank </li></ul><ul><li>It is apex institution of monetary systems </li></ul><ul><li>It is owned by government </li></ul><ul><li>It is non profit org. </li></ul><ul><li>It is banker and agent to government </li></ul><ul><li>It controls credit created by commercial banks </li></ul><ul><li>It has monopoly to note issue </li></ul><ul><li>It has no competition </li></ul><ul><li>There is only one central bank in economy </li></ul><ul><li>Commercial Bank </li></ul><ul><li>It is operating as per guideline of central bank </li></ul><ul><li>It owned by private sector or government </li></ul><ul><li>It is a profit seeking org. </li></ul><ul><li>It is banker and agent to public </li></ul><ul><li>It creates credit </li></ul><ul><li>It has no power to issue credit </li></ul><ul><li>There is a competition among themselves. </li></ul><ul><li>Commercial banks are many in number </li></ul>
  22. 22. Current Focus <ul><li>Supervision of financial institutions </li></ul><ul><li>Consolidated accounting </li></ul><ul><li>Legal issues in bank frauds </li></ul><ul><li>Divergence in assessments of non-performing assets and </li></ul><ul><li>Supervisory rating model for banks. </li></ul><ul><li>Source- RBI website </li></ul>
  23. 23. Conclusion <ul><li>Central bank plays important role in achieving economic growth of a developing country. </li></ul><ul><li>It promotes economic growth with stability. </li></ul><ul><li>It helps in attaining full employment of resources, in overcoming balance of payment disequilibrium & in stabilizing exchange rates. </li></ul>
  24. 24. Bibliography <ul><li>Website : Reserve bank of India </li></ul><ul><li>Macro-economics Theory- M.L.Jhingan , 11 th edition, Vrinda Publication pg 317-344 </li></ul><ul><li>Macroeconomics- Theory & Policy – D. N. Dwivedi , Tata McGraw-Hill comp. pg 527-542 </li></ul><ul><li>Economics – Naik & Swaminathan </li></ul>

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